What Sears Shutting Down Really Means

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Sears, one of the oldest chain stores in the United States declared bankruptcy in October 2018. The company has been around since before there were malls or even department stores. About to be liquidated completely this year, it was saved at the last minute by investors, but will now shrink to a fraction of its size, and is almost inevitably slated to hit the dustbin sooner rather than later.

It’s not the only store in trouble.

When was the last time you visited the Gap? Or actually bought something from Best Buy? Do you buy more from Amazon then either one of these stores? By some estimates Macy’s real estate is worth almost five times as much as the rest of its assets combined (including inventory, human capital, intellectual property etc). This is an astounding statistic. It implies that the majority of Macy’s value doesn’t derive from its core business. In fact, Macy’s might as well enter into the landlord business. Look down the increasingly sparse aisles in your neighborhood mall and you’ll see things aren’t much better at JCPenney’s - that company’s stock just hit junk status.

For those millennials like myself who grew up in the 80’s and 90’s, this means the familiar brands of our childhood have been decimated in one fell swoop. But look more carefully and an interesting pattern begins to emerge: stores that cater to the lower-income segment of the market (like dollar stores) as well as stores that cater to the higher end of the market (like Bloomingdales and Neiman Marcus) are doing great.

There’s a number of economic explanations for this phenomena - chief of among them is the stubborn refusal of incomes to rise over the past three decades, even as costs increase. In other words, the rich are getting richer and thus patronizing higher-end retail. Meanwhile, the majority of the middle class is finding it difficult to afford middle-tier retail. This is fantastic for stores that cater to those who are increasingly poorer.

From  Citylab

From Citylab

Sears has stores across the country, in wealthy neighborhoods and poor ones. Because of its geographic distribution Sears’ demise is more than a notable business event. It’s an indicator of the diminishing purchasing power of Americans. And this is a problem for everyone, even wealthy entrepreneurs and business executives. Because if the middle class loses its purchasing power … who’s going to buy all the goods they used to buy? And how will companies employ people when they aren’t producing goods for people to buy? A wealthy person or a low-income individual can buy only so many shoes etc., - certainly not as many as dozens of middle class families could.