Monday, February 23, 2015

An Interesting Article About Sears

I was just cruising the net before going to bed and came across this article.

24/7 Wall Street - Sears Can’t Afford Worker Pay Raise.

The author claims that Walmart can afford to increase to $9.00 this year and $10.00 next year; but that Sears and Walmart (owned by the same company) cannot. Currently Sears pays it's employees $8.45 on average per hour. I have to say I actually read an article that claimed Walmart was bad for increasing it's employees pay because it would force other companies to follow suit.

I want you to think about that and then see the bigger picture. Sears is losing money right now, that is a fact. Should they be allowed to cease meeting fire codes as they could save money? Should they be able to cease to pay sales tax? Should they be allowed to cease paying their electric bills? What costs should they be able to skip during hard times and why not them all or pay them all less as needed to break even? If I have a year where I don't make enough to pay my mortgage, should I be allowed to not pay it? What if I cannot afford the gas to go to work, should I be able to go in and pay the station less than they have posted?

If you follow the logic presented in the article to it's logical conclusion then if things get bad enough Sears shouldn't have to pay it's employees at all. In N Out Burgers pays it's employees more than Sears. There was a time when Sears was the king of retail and it paid it's employees enough to get "sales professionals", people who could tell you about suits and about every tool they carried. People who knew the Sears products. When I was young Sears was the place that middle class people went to, to buy things that were a little more expensive than cheap places and a little better (I expected them to be better than JC Penny - which was not a bad store). That was the Sears niche.

Sears isn't losing money because of employee costs, it is losing money because it has lost it's way. It has lost it's niche and purpose. It has lost it's customers. Before malls, Sears would sit as a stand alone store that could cover all your needs except food. As malls came in Sears became one of the anchors to a good mall (one that attracted customers who would walk through the rest of the mall and linger or buy stuff from other stores). Eventually, the smaller specialty stores in malls (and rather quickly figure out) that they could provide better quality products at the same or lesser cost as their overheads were less.

Sears response to loss of revenue was to not give wage increases and reduce their costs for producing in-house products. That was their fatal mistake as it is what caused them to lose their niche and their best employees. Why should I work in a mall for minimum wage at Sears when I can walk 50 feet and get hired by a small store for the same or more?

This article is not really about the minimum wage or Sears, it is about how business in the United States doesn't get it and doesn't care about it's service to the public. It is about how businesses stopped looking at their product and service and began looking for shortcuts to increase profitability alone. In business there is a saying, "the cost of doing business". That saying relates to every business endeavor. You have to find your niche (be it Walmart or Nordstrom's) and meet it an acceptable price. What differentiates is quality, price and service.

During the 70s, America stopped making good cars. They also failed to make cars that got decent mileage. When the gas shortage hit, they lost market share and rather than fix their problems they pushed for people to "Buy American". Capitalism and common sense say you should buy the best product for the best price, that is human nature.

We could compete again in manufacturing, Germany does and they provide many more benefits for employees than the United States. The thing Germany did differently was they re-invested in themselves and upgraded their factories. We didn't, we sold off our factories and all the equipment. We destroyed our industrial infrastructure rather than improve it. This was all to get short term stock gains and resulted in the destruction of our industrial base.

I like this line from the article, "A series of worker raises by Sears would not cost nearly as much as Walmart’s $1 billion price tag. But, Sears cannot afford any worker pay raises at all. Its bottom line and balance sheet won’t support it." I should point out that Sears is currently run by a hedge fund manager who is trying to find someone to buy it's real estate. Knowing that, do you believe the guy running Sears actually cares about the brand or how much he can make on his investment as the company goes away?

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