Monday, February 27, 2012
Sears, it seems, is taking its cues from the Fed. That can’t be a good sign.
After revealing its most recent results–a loss of more than $3 billion last year–Sears has announced its own form of quantitative easing. The company will sell more than a thousand stores to increase its money supply by several hundred million dollars. Sears will then have more than a billion dollars in cash and twice that amount available on its credit facility. Unfortunately, that won’t be enough to fix what ails the iconic retailer.
Sears has had a longstanding problem with an internal lack of alignment, having run through five CFOs and four CEOs in the past seven years. The company has thrown in the towel on its brand and its bonds have been downgraded to near junk status. One credit ratings firm says that despite all of its cash, Sears might have inadequate liquidity within a year and could face reorganization.
Sears’ problems have been well-documented on this blog. Same store sales have fallen for most of the last decade. All along company Chairman Ed Lampert has been, according to The Wall Street Journal, “confident he could succeed by applying the lessons of investing to retailing.” In an analysis of Lampert’s latest decision the Journal provided this perspective: “Unfortunately, such moves can be repeated only a limited number of times and probably make it harder to turn around the business.” That sounds eerily like a critique of the Fed’s narrowing options.
Believing the answers lie in moving money around rather than creating value is misguided, whether on a broad economic or individual corporate level. In a recent letter to shareholders, Lampert said Sears “has a profit problem, not a liquidity nor an asset problem.” That’s true, but note the lack of mention of the company’s real issue–the inability to identify a relevant value proposition. Cash is king, but monetary policy is not the main event, in business or in the broader economy. The most vital thing is finding a way to unleash a company’s–or an economy’s–animal spirits.