Sears problems will have an impact on the US logistics market

The down side of the growth of e-commerce is the shrinkage of conventional retailing. The rumoured imminent collapse of Sears, the former US retail giant, is an example of this.

Once the largest retailer in the world, Sears-Roebuck was believed to employ one-seventh of the American private sector workforce in the 1950’s. Now it has fallen on hard times. Sears Holdings issued a rather downbeat 10-K last week and this has shaken confidence in the company.

There are already reports of suppliers limiting the flow of products in Sears driven by concerns about the level of financial distress at the company and its consequent ability to pay suppliers. The retailer has seen its revenue halve over the past ten years and it has been loss making for five years. This has finally begun to take its toll on the company’s credit lines.  

Part of the problem is that such ‘department stores’ have been outcompeted by the movement of big-box grocery chains, such as Walmart into hardware. The rise of e-commerce has simply increased the pressure.

One of the biggest problems that department stores face is the relative costs of inventory. Sears is particularly strong in selling ‘white goods’, but this segment has been very vulnerable to the superior economics of centralised inventory that e-retailing can offer. In terms of stock availability and price, distributed inventory across a large number of retail locations will always be at a disadvantage. Sears has attempted to attack this problem by creating its own e-retailing operation, however, as so many other conventional retailers have found-out, this just leaves the company with under-utilised property assets from the conventional operation.

So far there are no reports of logistics providers declining Sears business. However, if the retailer either folds or shrinks substantially it will have an impact on both the US road freight and warehousing market. It is a major customer of a string of large road freight companies and global logistics suppliers.

It is not so much the volume of goods moved that will change, as the American consumer will still need to buy fridges or furniture. Rather, it is the geography of the logistics operations and the sort of resources that it requires, that will be different.

Source: Transport Intelligence, March 28, 2017

Author: Thomas Cullen

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