Sears ups cost-cutting efforts as sales continue to fall (SHLD)

BI Intelligence
Sears Global Revenue

BI Intelligence


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Sears announced another lackluster quarter of performance, with revenue falling to $6.1 billion Q4 2016, a decline of 16% year-over-year (YoY). Revenue for the full year was similarly dismal, declining 12% to $22.1 billion. 

Sears attributed the decline in revenue to store closures and falling in-store sales:

  • Store closures contributed $596 million to the revenue decline for Q4.
  • Comparable store sales plunged 10% YoY in Q4, accounting for $555 million of the revenue decline.

The company is prioritizing cost cutting over any strategy to boost sales. It recently implemented a string of cost-cutting measures, including a restructuring plan to save $1 billion, which will entail closing 150 stores by the end of Q1 2017. In addition, the company recently sold its Craftsman tools brand. Of its strategic initiatives announced for 2017, only one focused on improving sales — its plan to employ data analytics to optimize inventory in its stores. This initiative is aimed at making sure stocked inventory matches best-selling or in-demand products.

Sears’ feeble digital efforts likely mean the company will continue to decline. While other retailers are investing heavily in digital and omnichannel strategies to keep up with Amazon, Sears has been reluctant to reposition itself. The company’s most digital, and contemporary, effort has been its partnership with Uber, through which loyalty members can earn $2 worth of points every time they take a trip with the ride-hailing service.

The retailer also integrated its loyalty program into Activehours — an app that pays people for the hours they’ve worked before their paycheck is released. When app users cash out, they earn loyalty points from Sears. This could drive up in-store sales as customers redeem their points, but it is unlikely the company will be able to stage a comeback with its loyalty program alone. Sears should follow competitors like JC Penney and Macy’s, which have benefited from their omnichannel and digital services.

E-commerce has been on the rise in the last several years, thanks in large part to titans in the industry such as Amazon and Alibaba. E-commerce will truly become the future of retail, as nearly all of the growth in the retail sector now takes place in the digital space.

BI Intelligence, Business Insider's premium research service, forecasts that U.S. consumers will spend $385 billion online in 2016. Moreover, BI Intelligence predicts that number will grow to $632 billion in 2020.

This is hardly surprising considering e-commerce's healthy growth. Though the U.S. retail average growth rate in the first half of 2016 was just 2% for total retail, it was 16% for e-commerce.

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But all of this shopping online creates its own set of challenges, both for consumers and the companies that are trying to get their products onto shoppers' screens and into their shopping carts. In short, you need a plan.

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