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That Catalog is Kaput

August 30, 2012

When does a juggernaut cease to be?  When the market changes around it so much that even success doesn’t mean much.  Example?  Sears, who is getting kicked out of the S&P 500.

The S&P said Wednesday that Sears’ public float has been well below the 50 percent threshold for inclusion on the index for a long time and is no longer considered representative of the index. A float refers to shares that are public and available for investors to trade. ESL Investments, run by billionaire investor Eddie Lampert, owns a majority of Sears’ outstanding shares.

I understand that this isn’t a factor of business success as a whole.  Since a large owner has the majority of shares, the S&P rules have to kick in.  In fact, Sears has been pretty good so far this year, especially in comparison to the rest of the moribund market.

The retailer has embarked on an aggressive cost-cutting plan, reduced inventory, sold off some assets and spun off others to bolster its results as it faces falling sales and tough competition. It reported a loss in its most recent quarter as revenue fell 7 percent.

Still, it’s one of the best performers on the S&P this year. Through the end of trading Wednesday, shares have risen more than 80 percent, a fact that Sears readily points out.

I’d point out that the chart really shows a huge dip in December and a rise back to mediocrity from last year.  Still, when you think of going out to buy pretty much anything… clothes, tools, electronics… you don’t immediately think of Sears anymore.  Heck, when I was newly on my own, a trip to Sears was THE WAY to get whatever I needed for fixing my car.  It was easily the place you went for the vacuum or the washer.  These days, a variety of stores have found ways to deliver on cheaper, quality products while smaller items have gone the way of the Internet.

While nothing in the pure retial sector is doing all that well, it’s always disappointing to see a giant falter.  So often we think of the big companies in the world, and we can’t see how they can fall behind.  Sure, a Yahoo can grow and fall, but not a company with over a hundred years of experience like Sears.  This is a lesson to business that it constantly needs to evolve, and thrive.  As the economy shifts, retrenching to an existing model instead of branching out can be a dangerous proposition.

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