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The iconic, former king of American retail has suffered yet another embarrassment as it struggles to reshape itself and survive. It was announced yesterday that Sears (NASDAQ:SHLD) would be dropped from the S&P 500 as of Tuesday, September 4th.
Some Good Things Never Last
In the 1960’s Sears was the place America shopped. Sears had everything you could possibly need, from Craftsman tools to Christmas trees and from baby clothes to bicycles. Even if you wanted your kitchen remodeled, Sears was the place to go. In 1965 Sears was sitting near the top of the S&P as the fifth largest company on the index with a market cap of $10.5 billion, even ahead of General Electric. In fact, Sears was a “charter member” of the S&P Index.
Sears was founded in 1886 and published it first catalog, which was the basis for the company’s growth and fame, ten years later. It introduced the Kenmore appliance brand in 1913, the Craftsman tool brand in 1927, Allstate Insurance in 1931, acquired Dean Witter and Coldwell Banker in 1981, and the Discover Card in 1985. It was clear by the mid 1980’s that Sears, however, was in trouble, having lost a clear corporate identity and significant market share.
One of the many issues that plagued Sears from the 1960’s through the 1980’s were the infamous accusations against them for “bait and switch” tactics, especially within their major appliance department. It’s left a stigma that still exists today.
Sears’s struggle to gain and retain customers and to operate profitably without having to manage by cost-cutting has continued unabated. On September 4th, only one of the original five major retailers listed on the S&P, J.C. Penney, will remain.
Expulsion from the S&P means that mutual funds and ETF’s that track the S&P are required to sell their Sears shares. The news drove Sears’ shares down $4.55 or 7.9% to $52.90. The reason for the expulsion was cited as Sear’s public float having been below 50% for an extended period of time, although its market cap is well about the minimum S&P standard.
Stepping Up
Where there is a void, something has to fill it. In this case, the new kid on the S&P block will be LyondellBasell Industries (NYSE:LYB), a chemical company base in the Netherlands. LyondellBasell shares increase 3.8%, or $1.78, to $48.67.
The Irony
It seems like there is always a “yes, but . . .” in every situation. A Sears spokesperson cited, “While we’re disappointed in Standard & Poor’s decision, we would point out that the action is rules-based and solely a function of the public float of our shares, and not the valuation or performance of the company.” It was probably necessary to say something like that because Sears’s performance has been the six best of the S&P 500 this year, having jumped 81%. On the other hand, it had lost so much in the previous two years that there hasn’t been much of anywhere to go but up.
It’s still going to be a long haul for Sears. It’s a long way back to being the place where all of America shops.
