THE end of Sears, Roebuck & Co. predicted by Warren Buffett 14 years ago. I personally find it ironic that the iconic retailer that started mail order catalog was displaced by modern-day Amazon using the same delivery by mail that Sears once pioneered.
Buffett was once asked about hedge fund manager Edward Lampert and his attempt to turn around Sears. In his reply, the famed investor said that putting Kmart and Sears together was a tough hand. Turning around a retailer that has been slipping for a long time was very difficult. He was referring to the acquisition of Sears by K-Mart. Personally, I scratched my head when I heard the news about Sears, Roebuck & Co, being acquired by Kmart. It just wouldn’t work. It didn’t.
Buffett also compared it to his experience investing in retail in the 1970s. He learned that the shifting winds in consumer preferences made it impossible for retailers to catch up to more forward-thinking stores after falling behind.
He said that retailing is like shooting at a moving target. In the past, people didn’t like to go excessive distances from the streetcars to buy things. People would flock to those retailers that were nearby. He narrated that he bought the Hochschild Kohn department store in Baltimore in 1966. We learned quickly that it wasn’t going to be a winner in a very short period of time. We had an antiquated distribution system. We did everything else right. We put in escalators. We gave people more credit. We had a great guy running it, and we still couldn’t win. So we sold it around 1970. That store isn’t there anymore. It isn’t good enough that there were smart people running it.
Buffett said other competitors such as Costco and Walmart could provide better deals while operating on smaller margins, making it hard for Sears and Kmart to compete. Costco is working on a 10% gross margin. In comparison, department stores work with 35% gross margins. It’s tough to compete against the best deal for customers. Department stores will keep their old customers that have a habit of shopping there, but they won’t pick up new ones.
This is what has happened. The focus on downsizing Sears and Kmart store footprints under Lampert didn’t translate into sustainable sales or profits. Instead, the stores hemorrhaged customers to other retail competitors, and lost.
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Victor Santos Sy graduated Cum Laude from UE with a BBA and from Indiana State University with an MBA. Vic worked with SyCip, Gorres, Velayo (SGV – Andersen Consulting) and Ernst & Young before establishing Sy Accountancy Corporation in Pasadena, California.
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He has 50 years of experience in defending taxpayers audited by the IRS, FTB, EDD, BOE and other governmental agencies. He is publishing a book on his expertise – “HOW TO AVOID OR SURVIVE IRS AUDITS.” Our readers may inquire about the book or email tax questions at [email protected].
