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Department stores are becoming endangered

USA TODAY logo USA TODAY 8/01/2017 Charisse Jones

Sears Holding announced it will be closing 108 Kmart and 42 Sears stores.© Elise Amendola, AP Sears Holding announced it will be closing 108 Kmart and 42 Sears stores. Sears is  closing  150 stores and selling its vaunted Craftsman tool brand, but those steps may not be enough to stop the unraveling of the American icon.

With Sears' announcement Thursday coming only a day after rival Macy's saying it would close 68 locations, the department store concept itself is looking like an endangered species. In a retail landscape now dominated by online sellers like Amazon and big-box chains like Walmart and Home Depot, Sears finds itself in a search for a reason to exist.  

"The brand has lost relevance,  it’s lost customers and it’s lost its real reason for existence on the American retail scene,'' says Neil Saunders, CEO of Conlumino, a retail consulting firm. Following "the trajectory they're on, there are no real signs of them turning it around to profitability.''

Sears has more than 1,300 stores remaining in its portfolio, so its demise could be prolonged. But if the retailer is unable to stem its financial bleeding and is forced into bankruptcy or perhaps a final assets sale, its loss would be akin to that of dominating American companies like airline Pan Am or five-and dime F.W. Woolworth.

"I honestly don’t see a spot for Sears long-term," says Van Conway, CEO of Van Conway & Partners, who has advised retail companies and other businesses on reorganization and insolvency. "My mom shopped at Sears. That was the only place she could go. Now you have 50 choices, and Sears is outdated.’’

Founded in 1886, Sears launched its first large, general catalog a decade later and for generations was the go-to source for products ranging from watches to washing machines. Though it lost its place as the nation's biggest retailer to Walmart in the 1990s, Sears enjoyed a renaissance during that decade under the helm of then-CEO Arthur Martinez, who pushed a greater focus on apparel sales and other initiatives.

The company faltered in the 2000s, selling its more than $30 billion credit portfolio to Citibank in  2003 and merging the Sears brand with Kmart, another struggling big box chain.

CEO Edward Lampert, a hedge fund manager who shepherded the Sears tie-up with Kmart, initiated his own turnaround strategy, loaning the company cash, spinning off parts of the business and putting Sears' Kenmore, Diehard and Craftsman brands up for sale.

Sears' travails are part of a broader struggle that has engulfed many traditional retailers trying to compete in an environment in which consumers can buy virtually any item by browsing online and without setting foot in a store.

"One thing people used to use department stores for was wide choice and selection,'' Saunders says. "There's no wider choice than on the Internet, so a lot of the reasons for going to those department stores just doesn't exist the way it once did.''

In addition to Sears, many retailers, including Kohl's and JCPenney, have failed to innovate in ways that will continue to woo shoppers. “We're seeing now in retail a lot of legacy players that are dead, dying or in danger of dying because of their inability to do that,'' says Mark Cohen, director of retail studies at Columbia Business School,  who is the former CEO of Sears Canada.

The flurry of steps taken in recent days by Sears is a stark illustration of the moves it is making to try to survive. In addition to the store closures, Sears announced Wednesday that it had obtained a $500 million loan commitment backed by mortgages on 46 properties belonging to its subsidiaries. That adds to its long-term debt, which had ballooned from $2.2 billion at the end of January 2016 to $3.7 billion at the end of October. 

"From what I can see, these are very intelligent financial maneuvers to raise money,’’ says Conway. “But the whole issue is, is the core business of the retailer viable?"

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