Dive Brief:

• Sears Holdings Corp, which runs retailers Sears and Kmart, expressed diminished hopes in its ability to continue operating, according to its annual report filing with the Securities and Exchange Commission published Tuesday. The company's stock plunged more than 20% in early trading Tuesday on the news.

• “Our historical operating results indicate substantial doubt exists related to the Company's ability to continue as a going concern,” according to its 10K filing. “If we continue to experience operating losses, and we are not able to generate additional liquidity through the mechanisms described above or through some combination of other actions, while not expected, we may not be able to access additional funds under our amended Domestic Credit Agreement and we might need to secure additional sources of funds, which may or may not be available to us.”

• In recent years, to raise cash, Sears Holdings has leveraged much of its formidable property holdings into a real estate investment trust, sold off brands like Lands’ End in 2013 and this year its iconic Craftsman tool unit to Stanley Black & Decker for $900 million. It has also taken a series loans from CEO Eddie Lampert's hedge fund, most recently another $200 million line of credit. 

Dive Insight:

Although it’s managed to rein in costs somewhat, by closing stores and laying off employees in brick-and-mortar operations as well as staffers at its Chicagoland headquarters, Sears remains in free fall. 

But it's not giving up completely. The company reiterated in Tuesday's report its moves to improve its customer experience, including a new Sears MasterCard with enhanced Shop Your Way loyalty rewards, an expanded partnership with Uber to boost rider rewards, mobile capabilities to enhance its Home Services operations and new services in its Auto Center business.

Those moves, however, are the equivalent of “taking an Advil to cure a heart attack,” GlobalData Retail managing director Neil Saunders told Retail Dive in an email earlier this month, adding that the results in its recent fourth quarter earnings report can only be described as dire. 

“Not only are sales down, but the pace of decline has accelerated sharply,” Saunders noted. “At total level, some of this is the result of store closures across the year — something we believe is sensible and prudent in light of changing patterns of demand. However, much of the dip is also attributable to a slump in the number of shoppers visiting Sears and Kmart, and a continued deterioration in conversion rates among those that do.”

Both Sears (once a fixture of the American retail landscape and, in its golden era, a disrupter akin to Amazon) and sibling Kmart (once an iconic retailer in its own right) simply aren’t selling what consumers are buying. “On the contrary: [Sears'] product mix, its store environments, its customer service, and its general approach to retailing are actively deterring consumers from visiting,” Saunders said. “Kmart is in much the same position. In ordinary times this would be more than sufficient to cause major problems; in today’s pressured and competitive retail environment we believe that these things will ultimately prove fatal.”

Sears Holdings did manage to shrink its adjusted loss amid belt-tightening and inventory management during the fourth quarter of 2016, earlier this month reporting net losses of $137 million ($1.28 loss per diluted share) compared to $181 million ($1.70 loss per diluted share) in the prior year. Merchandise inventories as of Jan. 28 fell to $4 billion, compared to $5.2 billion as of Jan. 30, 2016, while merchandise payables dropped to $1 billion this year from $1.6 billion last year.

Still, Q4 2016 revenue fell to $6.05 billion from $7.3 billion in the year-ago period, and same-store sales plunged 10.3%. Sears same-store sales dropped 12.3% due to depressed sales of appliances, clothing, consumer electronics and tools, and Kmart same-store sales fell 8%, due to depressed sales of consumer electronics, toys, clothing and grocery and household goods. Full-year 2016 revenues were $22.1 billion compared to $25.1 billion in the prior year, due mostly to a decline of $1.3 billion from having fewer Kmart and Sears stores; full-year same-store sales declined 7.4%, with Sears down 9.3% and Kmart falling 5.3%.

The death knell has been rung for Sears several times in recent years, but its real estate in particular has helped it hold on despite the ever-rising odds against it, largely on its rich assets. Debtwire retail analyst Philip Emma told Retail Dive late last year that while that could continue to keep it afloat for quite a while, it hasn't meant that it can regain its footing. 

“I mean, sure, there’s always a chance, but why assume the status quo will change until it does change. Absolutely they’re an asset rich company … but inevitably, any retailer has to make money as a retailer,” Emma said. He compared the situation to that of grocery chain A&P years ago, where “over the course of two decades of deterioration, you have resources, and eventually you run out of that.”