Sears, An American Staple
Sears, Roebuck, and Co., one of America’s retail staples since 1893, may be in financial trouble according to recent news articles. Once touted as a place a consumer could save with a motto like “Shop at Sears and Save,” Sears was bought out by the Kmart corporation in 2005 in a merger.
Sears Merger in Financial Trouble
The idea behind the merger was for Kmart to be able to compete with Wal-Mart Stores Inc. and Macy’s. According to an article recently posted in The Columbus Dispatch, the new merger has had “18 consecutive quarters of declining sales…While Sears Holdings Corp. shares soared in the first few months after the merger, they’ve fallen 55 percent in 2011 alone…On Tuesday, Sears reported that same-store sales fell 5.2 percent in the eight weeks that ended Sunday (December 25, 2011)…Sears employed 312,000 people as of January, down from 355,000 in June 2006, according to data compiled by Bloomberg.”
According to the news reports, Sears, under the guidance of Kmart executives, has tried one strategy after another in trying to compete, but so far, the current economy has shot down everything the company has tried. The round of the latest closings is affecting about 5000 employees’ jobs.
Poor Economy Blamed for Sears Downturn
The store that started “The Good Life at a Great Price” campaign in 1999 is reeling under an economy that currently doesn’t care about a good life or a great price. Strangely enough, Sears bad news comes at a time that bankruptcy filings, a sign of poor economic times, are currently declining. Bankruptcies are down overall about 8% from fiscal year 2010 through fiscal year 2011. According to an American Bankruptcy Institute executive, “The drop in consumer filings throughout the year reflects the continued deleveraging of the US consumer after years of expanding consumer debt.”
Meaning to Average Consumer
So, what does all this mean to the average wage earner in the United States? One things is for certain, until American business staples like Sears stabilize, more job losses are going to occur than the economy can replace. With job losses and a negative replacement of jobs with equal value, bankruptcies are going to once again soar.
No one knows for certain how deep the underlying factors, like consumer debt, really are in the United States. The tightening of available money for credit, or deleveraging as some call it, is businesses’ normal response to such economic recessions we have been currently experiencing.
One problem may be that the response by our government and business has been too little and too late. Interest rates have been superficially low, and with the United States debt growing to the point we can no longer pay even the interest on the debt instruments, the United States will soon have a hard time borrowing money at anything but higher interest rates. These higher rates will be passed down to the average consumer and drive the economy.
Unfortunately, business staples like Sears, facing added costs through higher interest rates, may also be facing more store closings and employee layoffs if things do not quickly change. With additional employee layoffs and store closings across America, bankruptcies will, just as unfortunately, begin to rise also. So, where does the spiral stop? Your guess is as good as mine.
- Sears stores in California to close – Los Angeles Times (latimes.com)
- Is Sears Headed for Bankruptcy? (dailyfinance.com)
- Is Bankruptcy Going to be the Future of 2012? (betterbankruptcy.com)
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