SANTA ANA, Calif. – Susan Romero remembers how she welled with pride when her family bought its first washer and dryer in 1968. At Sears, of course.
“My whole kitchen, my whole house was furnished by Sears,” said Romero, 74, who has shopped at the retailer for 50 years. “I go to other stores, but I always come back here. It’s always full of what I need.”
Once an essential part of life for American consumers like Romero, the 123-year-old icon for a graying generation is sinking.
“It’s so sad,” Romero said, looking across the deserted aisles at a Burbank, Calif., store.
The year’s end inspires holiday-shopping nostalgia for its loyal customers, but it brings mostly gloom for once-mighty Sears, including an adjusted loss of $333 million for the third quarter that landed as Black Friday sales were being tallied.
The Illinois-based retailer announced this year that it would shutter 76 stores across the country. It’s also considering selling off its most popular and enduring brands: Kenmore, Craftsman and DieHard.
Sears isn’t alone; most of the chain’s traditional mall-anchor peers are struggling, too, their customers wooed to discounters, young-skewing specialty merchants and online titan Amazon.
Across the mall, however, 114-year-old competitor J.C. Penney has logged a surprising, against-the-wind comeback.
Casting aside the trendy designs and one-price-fits-all strategy of former CEO Ron Johnson, JCP appears to have reconnected with its midlevel market after years in decline. Once at death’s door, JCP is scrapping head-to-head with Sears for the admittedly shrinking midlevel, brick-and-mortar market with doorbusters and a strong connection between its websites and its mall stores.
It has even gambled by returning major appliances to the sales floor.
The company rushed to open up 500 new appliance showrooms by October, which it said helped raise sales 2 percent that month.
“We literally touched and rearranged one half of our stores to accomplish this reset,” CEO Marvin Ellison told investors in November. “We felt it was important to enter this appliance business in a meaningful way going into key holiday selling periods.”
The sales bump came on the heels of a three-year period that saw the chain close more than 80 stores.
Regardless of how they fare, some analysts see the fates of the two consumer stalwarts as tied, two legacy companies choosing divergent paths to an uncertain future.
“Sears and J.C. Penney have similar issues,” said Ira Kalb, professor at USC Marshall School of Business. “The world of retailing has changed, and to date, neither has done a very good job of adjusting.”
Mired in debt
Sears’ first custom-built store in Glendale, California, still has hints of brighter days.
A wide-rimmed stairwell leads up to showrooms built in 1935. The tall, old-fashioned, display-friendly windows that once wooed passers-by to peek inside have been covered up, and the aisles at the store were a ghost town during a recent weekday.
“It’s empty now,” said Michael Morgan, a 65-year-old local historian who fondly recalls gathering there during Christmas in the 1950s, particularly the toy train that once ran along its roof.
Sears has been on a long free fall, closing hundreds of stores, firing thousands of employees and losing billions of dollars over the past decade.
Most analysts predict the company’s demise and pin much of the blame on hedge-fund CEO Eddie Lampert, who as chairman of Kmart Holding Co. struck an $11 billion deal to create the Sears Holding Co. in 2004.
“The cultural identity of Sears was destroyed with the merger of Kmart,” said Nick Vyas, head of USC’s Center for Global Supply Chain Management and a former executive at Sears before Lampert took over. “It was an identity that the company had for 90-plus years.
“So, when it kicked in, it costs Sears customers,” he said. “But you weren’t talking about one time customers, you were talking about generations.”
When billionaire investor Lampert took over the company, he thought he could turn around its sagging performance. He put hedge-fund managers in charge of the retail business and took a hands-on approach. He focused on slashing costs and moved away from Sears’ emphasis on customer service.
But he failed. Sears has lost more than 90 percent of its value since 2007 and is mired in debt. To keep it above water, Lampert sold off its valuable real estate.
Fitch Ratings, one of the big three credit rating agencies, estimates Sears raised $4.7 billion from real estate transactions, but it still expects the company to burn through as much as $1.8 billion this year to keep operating.
“Sears used to be a cultural event,” said Leon Nicholas, an analyst at Kantar Retail. “It was a place for the family to get together.”
Brian Hanover, a Sears spokesman, repeated what has become Lampert’s mantra: Sears Holdings “is committed to returning the company to profitability” and has a number of initiatives to increase revenues.
The brightest spot has been its Craftsman tools line, and the chain remains a leader in appliance sales, although J.C. Penney is attempting to chip into that market.
In May, Sears announced it would seek buyers for its Kenmore appliance and Craftsman tool brand, two of its most enduring products.
“It’s a dire future for Sears on the horizon,” Vyas said. “I am actually shocked they have survived this long.”
Back to its roots
J.C. Penney is expecting to turn a profit next year for the first time since 2010, in part because of Ellison, a former Home Depot executive.
Ellison, 56, took the helm in 2015 and focused the Texas-based company on presentation at the store, supply-chain efficiency and appeals to its frugal base.
The move was largely a reversal of the strategy forged by former CEO Johnson, who brought in upscale designers and distanced the company from its deep-discount culture.
Under Johnson, JCP eschewed its heavily marketed sales and loyalty perks for JCP credit-card customers. The change cost the company billions of dollars and nearly sunk it.
On a recent weekday, a new era was clear. Piped-in salsa music filled the young men’s section at a Glendale shopping mall store, Christmas-themed icicles hung from the ceiling and a group of teenagers rummaged through discounted Levi’s jeans.
Upstairs, a modest appliance section attracted shoppers.
Ellison said in November, “We are well-positioned to drive further growth and profitability, win market share and increase our top line while remaining fiscally disciplined.”
He has put a focus on the store’s home section and expanded the Sephora makeup department.
Lugging several J.C. Penney bags filled with shoes and jackets for her teenage son, Rose Flores, a 57-year-old, said her family has been coming to the store for generations.
“They have a whole floor of clothes,” she beamed, adding that she got a 25 percent discount through her credit card.
“J.C. Penney is going to get back to its roots,” Rajiv Lal, a Harvard professor and co-author of Retail Revolution: Will Your Brick and Mortar Store Survive? “But I don’t know that they are as compelling as they used to be.”
Unlike Sears, J.C. Penney is heavily focused on apparel. The company recently dusted off an old marketing model, offering deals for consumers to get their “Penney’s worth.” During the holiday shopping season, the company again has offered deep discounts, including offering early-morning Black Friday coupons worth up to $100 and a program matching lower prices at competitors’ stores. The move toward thrifty consumers shopping for the family has helped lift its profile.
J.C. Penney’s “stores within the store” – salons, the home section, jewelry and the Sephora makeup brand, most added to stores a decade ago – have all driven sales, not the chain’s long-standing clothing lines.
Revenue, however, still pales compared with prerecession levels. And, after its early-year sales surge, the company recently reported weaker than expected third-quarter earnings.
“We believe CEO Marvin Ellison has JCP on the right path,” analysts at New York-based Cowen and Co. concluded in their latest report. “However, it is still early in the long-term turnaround.” The consumer shift away from department stores and the company’s debt had them skeptical about JCP’s future, as they do others.
Feeling the squeeze
Even if the legacy companies enjoy a short-term holiday boost, Lal is skeptical the strategy will work for either store in the long run.
“There is too much similarity in department stores,” Lal said. “They have lost their luster in the concept of today’s retail market.”
The old-school department-store model is under assault by specialty retailers such as fashion-forward H&M and Zara. At the same time, it is also being squeezed on the low and high end from such retailers as Nordstrom and Target.
More department stores could close in the coming years. An April report by real-estate research firm Green Street Advisors found that per-square-foot sales dropped 24 percent at mall department stores. To become profitable, the firm estimates that Sears would have to shed 300 stores and J.C. Penney 320.
And in more than 400 mall settings, Sears and JCP are direct competitors for a declining number of shoppers.
“In some ways, this is a generational thing,” said Leon Nicholas, an analyst at Kantar Retail. “(Department stores) failed to respond to all the specialties.”
And, as younger shoppers snag deals on their phones and frequent edgier specialty shops, many older shoppers would love to see the spark rekindled for their longtime retail favorites.
Especially this time of year.
“There is still a twinkle in my heart when I pass the building, because it’s Sears,” said historian Morgan. “And I always wish they would put the train back on top.”
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