The results from Sears Canada’s 2013 Management Discussion and Analysis review show little promise in any turn around for the once leading department store chain.
When compared to the 2012 third quarter, 2013’s third quarter total revenue experienced a 6.4 per cent decrease. The third quarter brings with it many more disheartening figures. Sears Canada is suffering a net loss of $48.8 million, a decrease of 122.8 per cent since the 2012 third quarter.
With the company suffering consecutively grave net losses, they have begun selling assets in an attempt to balance the books. According to its’ 2013 Management Discussion and Analysis review, Sears Canada received proceeds of $191 million in return for selling their leases at Yorkdale Shopping Centre in Toronto and Square One Shopping Centre in Mississauga. These stores are expected to close this April.
Yet despite the gains in inventory and assets through selling lucrative property, total assets in the 2013 third quarter have decreased by 0.03 per cent.
Kenneth Wong, a Commerce Professor at Queen’s University is not surprised that selling leases has failed to further benefit the troubled company.
“Part of the problem is when you achieve a certain size as a company, the costs aren’t dramatically reduced when you close a store,” he says. “Instead you have a constant set of fixed costs but declining revenues.”
Recent store closures aren’t the only way Sears Canada is trying to cut costs. The company has made headlines over the past month for employee layoffs. They announced Wednesday that they were cutting 624 employees from their workforce. This is in addition to the already 1,600-employee layoff announced two weeks ago and the nearly 800 more employees laid off in its head offices in November.
With rivals such as Walmart, Costco and Winners gaining market share, the company has been finding it hard to compete. Their sales have fallen for the last seven fiscal years.
“It’s pretty dismal,” Wong says. He explained that areas where Sears Canada had once been a leader have seen huge declines in the past decade.
“Sears used to be a leader in major appliances with brand names such as Kenmore and Craftsman. But their product quality has slowly declined over the years.”
The numbers confirm Wong’s beliefs. Revenue relating to Major Appliances decreased by $10.8 million dollars in 2013’s third quarter.
Before leaving Sears Canada in 2005, Barry Toner worked for the company for over 33 years. In those years, Toner saw the company decline dramatically. He started at store level and worked his way up in the company to a head buying position.
He says that working from the bottom up made him understand the importance of customer service and customer loyalty.
He says that when Sears was strong it was largely due to ideas of customer loyalty, aggressive product marketing, and great inventory. But over the years, Sears began outsourcing to third parties instead of doing their own customer service and delivery.
He says that this resulted in a lack of pride or ownership.
“They took their eyes off and started floundering,” Toner says. “Their strengths became their weaknesses.”
He says that Sears is an example of a company that is struggling with a dwindling customer base.
“When you lose the confidence of the customer base, and you’re not willing to turn it around, you’re heading for trouble.”
Toner also says that the company morale has gone down significantly since its strong days. “No one wants to work there anymore.”
Wong says that this attitude translates to their customer service and creates a vicious circle. “Staff morale is down and consequently staff service isn’t good.”
The recent financial position of the company combined with selling off their assets and employee layoffs paint a grim picture for the future of Sears Canada.
“There’s a lack of confidence both within and outside of the company,” says Toner.
“They’re running a sinking ship.”
MD&A (Text)
Total Revenue and Net Losses (in millions)