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Sears, once the monolith of American retail, says that there is “substantial doubt” that it will be able to keep its doors open.

Company shares, which hit an all-time low last month, tumbled more than 12 percent Wednesday.

Sears has been a member of the retail dead pool for years, but until this week the company had not openly acknowledged its tenuous existence, said Ken Perkins, who heads the research firm Retail Metrics LLC.

Sears has long maintained that by balancing the sale of key assets while at the same time enticing customers with loyalty programs, it would eventually turn the corner.

Yet industry analysts have placed the staggering sums of money that Sears is losing beside the limited number of assets it has left to sell, and concluded that the storied retailer may have reached the point of no return.

The company has lost $10.4 billion since 2011, the last year that it made a profit. Excluding charges that can be listed as one-time events, the loss is $4.57 billion, Perkins says, but how the losses are stacked no longer seem to matter.

“They’re past the tipping point,” Perkins said. “This is a symbolic acknowledgement of the end of Sears of what we know it to be.”

For Sears to survive, Perkins believes it would need to do so as a company running maybe 200 stores. It now operates 1,430, a figure that has been vastly reduced in recent years.

Analysts see not much of a future

As for Kmart, which Sears also owns, Perkins does not see much of a future.  

Millions of dollars have been funneled through the hedge fund of Chairman and CEO Edward Lampert to keep Sears afloat but with sales fading, it is burning through cash. Lampert combined Sears and Kmart in 2005, about two years after he helped bring Kmart out of bankruptcy

According to a regulatory filing late Tuesday, Sears Holdings Corp. lost more than $2 billion last year. Adjusted for one-time charges, its loss was $887 million.

Sears has been selling assets, most recently its Craftsman tool brand. But it says its pension agreements may prevent the spin-off of more businesses, potentially leading to a shortfall in funding.

“Our historical operating results indicate substantial doubt exists related to the company’s ability to continue as a going concern,” Sears said in a filing with the Securities and Exchange Commission.

Sears, which employs 140,000 people, announced a major restructuring plan in February with hopes of cutting costs by $1 billion through the sale of more stores, jobs cuts and brand asset sales.  And it’s reconfiguring its debts to give itself more breathing room.

But it has to get more people through the doors or shopping online for what it’s selling.

Sales at Sears and Kmart locations that have been open at least a year, a key indicator of a retailer’s health, dropped 10.3 percent in the final quarter of 2016.

The company plans to use a big portion of the $900 million it got for Craftsman to shore up its pension plan. It will put $250 million in cash and some income from annual payments toward the plan as part of a deal with the Pension Benefit Guarantee Corp., a federal agency that protects private pension plans.

The company said in its regulatory filing, however, that its agreement with the agency might stand in the way of more asset sales that would buy it more time.

Lampert has long pledged to return Sears to greatness, leveraging best-known brands like Kenmore and DieHard, as well as its vast holdings of land.

Failing to reach new kind of consumer

Those aspirations have been scrambled by a new consumer that has ripped up the decades-old playbook that the industry has relied upon for years.

There are also new and dynamic players that have also revolutionized the market, namely Amazon.com.  

Department stores have been among the hardest hit by those seismic changers as Americans spend money on their homes or on dinners out, rather than on clothing. When they do buy clothes, they’re not spending much, hitting up places like T.J. Maxx for fat discounts.

Sears has upped its presence online, but is having a hard time disguising its age. Its stores are in need of a major redo.

Longtime rivals like Wal-Mart and Target are spending heavily to revitalize stores and they’re intensely focused on a new consumer that goes online before stepping into a store.  Meanwhile, J.C. Penney has been hitting Sears hard by bringing back major appliances to its stores. Penney, Macy’s and others have been shuttering locations as well. But real estate research firm Green Street Advisors says about 800 stores, or 20 percent of all U.S. mall anchor space, would need to close to match the inflation-adjusted sales productivity of 2006.

Sears in January said it would close 108 additional Kmart and 42 more Sears locations.

In its most recent quarter, Sears, based in Hoffman Estates, Illinois, just northwest of Chicago, lost $607 million. Revenue declined to $6.05 billion from $7.3 billion during the same period the year before.

It was the sixth consecutive quarter of losses.

“They’ve been delusional about their ability to turn around the business,” said Perkins.
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Farmers in the U.S. agricultural heartland who helped elect Donald Trump are now pushing his administration to avoid a trade dispute with Mexico, fearing retaliatory tariffs that could hit over $3 billion in U.S. exports.

The value of exports at risk is based on a Reuters analysis of a tariff list that Mexico used in a trucking dispute six years ago and that  Mexican officials have said could serve as a model if Trump sets new barriers to Mexican goods.

Pork producers contacted Trump’s transition team soon after the November 8 election to stress that tariff-free access to Mexico has made it their top export market by volume, said John Weber, president of the National Pork Producers Council.

The council has sent the administration multiple letters, including one signed in January by 133 agricultural organizations, and is arranging for several hog farmers to fly to Washington next month to talk to officials.

‘Pounding them’ on trade

“We just keep pounding them on how critical trade is to us,” said Weber, who fears Mexico could revive the list of mostly agricultural products it successfully used to push Washington into letting Mexican truckers on U.S. highways in 2011.

Pork products topped that list and, if revived, the tariffs would apply to over $800 million worth of annual pork exports, according to data compiled by IHS Markit’s Global Trade Atlas.

“We’ll be the first to take the hit,” Weber said.

The lobbying effort by U.S. businesses that rely on the Mexican market shows how Mexico can press its case in Washington despite having an economy 1/17 the size of America’s and relying on the U.S. market for nearly 80 percent if its exports.

In Iowa, where pigs outnumber people 7 to 1, hog and grain farmer Jamie Schmidt voted for Trump in part on his promise to cut regulatory burdens for businesses.

Now he and others who farm the flat, rich land around Garner, Iowa, worry about trade. Schmidt gets about half of his income from hogs, earning $4 to 5 for each of the 425 pigs he sells per week, usually to a Tyson Foods packing plant in nearby Perry, Iowa.

Tariffs from Mexico could depress U.S. wholesale prices and wipe out his profits, Schmidt said. “It would be devastating.”

Targeting states

In December, after fears of a trade dispute fueled a deep peso slump, Mexico started mapping out U.S. states that are most reliant on its market, replicating the strategy it used in the trucking dispute, said two senior Mexican officials.

Mexican officials also prepared briefs, seen by Reuters, on Mexico’s own risks in a dispute, including losing much of its cost advantage in building cars, such as the Ford Fusion made in Hermosillo, Mexico.

Reuters could not verify a complete list of products and states Mexico considered targeting this time around.

But the country’s foreign minister said last month that tariffs could target Iowa, which raises a third of U.S. hogs and exports about a quarter of its pork production, $100 million of which went to Mexico last year.

The minister also said tariffs could aim at Wisconsin, the center of U.S. cheese production, and has singled out Texas for its “notable” trade surplus with Mexico. All three states voted for Trump in the 2016 election, with the president taking Iowa and Wisconsin by slim margins.

Trump has accused Mexico of destroying U.S. jobs and has vowed to leave the 1994 North American Free Trade Agreement with Canada and Mexico if he cannot renegotiate better terms with Mexico. The United States went from running a small trade surplus with Mexico in the early 1990s to a $63 billion deficit in 2016.

Besides pork, cheese was also a top target in the trucking dispute in which Mexico retaliated with tariffs against rules that banned its trucks from U.S. roads.

$3B-plus in U.S. exports

Some $200 million in current annual exports of cheese would be targeted if the tariff list were revived, according to the IHS database, which the U.S. government uses to measure the impact of trade disputes. The full tariff list would apply to $3.25 billion in current U.S. exports.

John Holevoet, the director of government affairs at Wisconsin’s Dairy Business Association, said he has attended multiple meetings with Wisconsin federal lawmakers this year where risks of Mexican trade were discussed.

Weber of the pork producers group said he believed the Trump administration understands the vulnerability of U.S. farm exports. Republican Representative Steve King, who represents Iowa’s agriculture-focused 4th Congressional District, also pointed out that Iowa’s role as the first state in the presidential nominating process helps keep farm interests in Washington’s view.

But King told Reuters he was worried the White House was still not taking trade risks seriously enough.

A possible 20 percent tax on Mexican imports, which White House spokesman Sean Spicer has said could also pay for Trump’s proposed border wall, would cause a trade war, he said.

King said he had been in contact with the White House on the matter but had yet to secure a one-on-one meeting with the president. “I’m making sure that here in Washington they know what this means.”
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