The closure of Sears locations across the Miami Valley, while sad for some nostalgic about the chain, will benefit both consumers and other area businesses in the long run, experts said.
Long-time Dayton-area staples haven’t been immune to the struggles major retailers across the country have experienced as consumer shopping habits change, leading to bankruptcy filings from Dayton-based Elder-Beerman, Toys “R” Us and now Sears.
But the bankruptcy gives a wide array of retailers, including those that are also struggling like JCPenney, a chance to absorb the sales of closing Sears stores. It also shows that consumers can force retailers to change to their preferences and offers relief for mall owners and suppliers who have had shaky relationships with underperforming Sears Holdings.
The closure of 46 stores announced this summer and an additional 142 under bankruptcy reorganization may immediately cause concern among mall owners with major vacant spaces and suppliers who will lose a portion of business. But in the long run, it’s likely beneficial that the once top retailer in the nation is on the decline.
While Sears’ downfall has been a slow progression, the Dayton area has seen a rapid loss of retail space with Toys “R” Us closing stores in June, Elder-Beerman shuttering stores in August and Sears announcing closures at the area’s two largest indoor shopping malls in the last two months.
For consumers, it’s a warning sign to other retailers to “adjust to that new reality or face the fate of Sears,” said Ball State professor and economist Steve Horwitz.
“It’s great for consumers because it shows that we are still the boss,” Horwitz said. “One of the most important features of a market economy is that firms that can’t please consumers will go out of business and let those who can create value snap up those resources and do so.”
What went wrong?
Sears Holdings hasn’t seen a profitable year since 2010, selling off major brands like Craftsman for capital and closing hundreds of Kmart and Sears stores that were “unprofitable” in attempt to move into the black.
But through the closures and sales of major brands like Craftsman, the company lost its identity, Horwitz said.
“They just couldn’t figure out who they were, and consumers didn’t know who they were,” Horwitz said. “Sears could never find a distinct way to appeal to younger consumers who don’t go to the mall, for example.”
As specialty retailers became more popular, Sears didn’t have a specialty of its own, he said. And it couldn’t match the diversity of low-cost retailers, which sell a wide variety of items, including groceries.
Chains like Walmart have succeeded in part by wringing inefficiencies out of their operations and passing savings on to customers, and Sears failed to keep pace as competition developed new technology, said University of Dayton marketing professor Riley Dugan.
“It’s actually surprising they’ve lasted this long,” Dugan said.
The company also didn’t capitalize on the need for online sales as consumer shopping habits shifted, Horwitz said.
Although Sears has a history stretching back more than a century, even historic brands eventually come to an end, he said.
“Probably 20 years from now we’re going to be talking about another iconic store that will close,” Dugan said.
Some retailers have profited off the demise of others. Target, for instance, bolstered its toy offerings to become the destination for parents after Toys “R” Us closed.
“I guess the silver lining is that a lot of the sales are going to transfer,” Cincinnati-based Onsite Retail Group principal Scott Saddlemire said.
Retailers at the ends of mall wings where vacant Sears stores sit during major holiday sales may suffer from decreased foot traffic. And liquidation near the holidays may inconvenience some retailers as Sears pulls in more customers than it normally would, including some that may have shopped elsewhere; however, the effects won’t be that widespread, Horwitz said.
“(Sears) will likely be low on inventory and people will be skittish about buying from a firm going out of business that might not be able to provide returns/warranties/service,” he said. “Sears’ problem wasn’t that its prices were too high, so sales aren’t going to pull in that many buyers.”
Others are looking to capitalize. Home Depot is expected to gain about $500 million in sales in 2018 that would normally belong to Sears, according to Greg Melich, retail analyst at MoffetNathanson. If Sears fully liquidates, that number could double or triple, he said.
Lowe’s is expected gain $330 million, and Best Buy will grab $175 million from Sears losses in 2018, Melich said.
Other non-appliance stores, including the other major anchors at local malls like JCPenney and Macy’s, may also see some boosts, but that’s a little harder to quantify because it’s unclear how significant Sears sales were in those other categories.
“If it was doing such good business, we wouldn’t be where we are,” Horwitz said. “That said, perhaps some clothing retailers will pick up some business as well.”
Real estate and malls
Mall owners across the country are also looking to pick up extra traffic with Sears out of the picture and new options filling the spaces.
“When there is a store closing, it provides us with an opportunity to bring new and interesting products and services to the centers,” said Kristie Miller, regional manager of Washington Prime Group, which owns both the Dayton Mall and Mall at Fairfield Commons where Sears stores will close in November and December, respectively.
“We continue to focus on delivering the best experience for our guests, and both centers offer an abundant mix of retail, dining and lifestyle uses.”
Washington Prime Group was proactive about Sears’ decline, negotiating an early termination of the Sears lease at the Mall at Fairfield Commons to take control of the space for redevelopment. The day Sears announced it was closing, the mall announced it would bring in an entertainment concept called Round1 Entertainment and The Room Place furniture store.
“Tenants which have failed to evolve in order to satisfy an increasingly savvy consumer do not belong in our assets,” said Lou Conforti, Washington Prime’s CEO, in an Oct. 12 statement as Sears was teetering on bankruptcy.
Though research group CBRE estimates it takes 18 to 36 months to fill a vacant department store, real estate owners are optimistic that over time more popular new tenants will increase the value and help lease other vacant stores in the immediate surroundings, another benefit to consumers looking for more options.
Hit hard when Toys “R” Us left the market, suppliers aren’t as worried now as they were then.
Many of Sears’ suppliers have become nervous over the last several years about the company not paying bills and have tightened their payment terms to protect themselves, Rosenthal & Rosenthal executive vice president Michael Cipriani told the Associated Press.
In Sears’ Monday court filing, the company said about 200 suppliers have stopped or refused to ship merchandise to the company in the previous two weeks.
Up next for Sears: Chapter 11 restructuring and an attempt to find a path to profit.
“It’s not clear what their options are,” Horwitz said. “They’ve tried several things over recent years … that just didn’t seem to work for them.”
He said the most viable option would be to shrink to a specialty retailer, selling only appliances, but if he were a “betting man” he said he sees full liquidation in the company’s future.
For now, the 188 stores set to close are liquidating. There are just more than 500 stores left, including in Piqua and Springfield.
“Our stores, online and mobile platforms, and related businesses are open and we continue to offer our customers and members the brands and products they want,” said Robert A. Riecker, Sears chief financial officer.
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