Slashing store footprint did little to improve Sears' operating ratio

Dive Brief:

In the years leading up to Sears' bankruptcy filing Monday, the retailer recorded operating ratios (OR) over 100% every year since 2011, indicating operating expenses were far exceeding funds coming in from net sales.
Since 2012, Sears has been slashing its domestic footprint, closing dozens of its brick-and-mortar retail locations each year. The retailer had more than 2,200 stores open in the U.S. 2011, compared to just 570 last year.
The retailer has seen a steady decline in revenue in the last decade.

Sears has not recorded an OR below 100% since 2010 — Edwin Lopez / Supply Chain Dive, data from Sears Annual Reports

Dive Insight:

The years 2011 and 2012 appear to be a turning point for Sears — and not in a positive direction.

It was during these years that Sears saw its OR surpass 100%, with operating costs exceeding the net value of sales.

Sears adapted by closing under-performing store locations, and as a result, it recorded a decrease in its expenses to operate the business. The retailer made a drastic footprint reduction between 2011 and 2012, cutting the number of domestic stores from 2,205 to 852.

Sears cut its domestic footprint by more than 70% in a decade — Edwin Lopez / Supply Chain Dive, data from Sears Annual Reports

But fewer stores and lower operating expenses came with another side effect — revenue falling at an even sharper rate, leading to higher ORs.

Signs like these point to a long road of financial trouble, and many in the retail industry had expected a bankruptcy filing from Sears.

"If there is a surprise it might be that it took this long," Philip Emma, a retail analyst with Debtwire, told Retail Dive Monday in an email.

In one of the most recent signs of financial distress, Sears missed payments to its vendors, according to a Reuters report. CreditRiskMonitor, which assess financial risk, found Sears payables to suppliers had fallen by almost 27% year over year.

Those in Sears' supply chain have long been aware of the financial risk posed by the retailer. Appliance manufacturer Electrolux released a statement Monday in response to Sears' bankruptcy filing, saying it "has been actively planning for various Sears' contingencies while also growing the business with other customers." Sears and Whirlpool ended a century-long relationship last year.