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Sears Holdings: The End Game

No other firm of such a size in the US corporate history has, for such a long time and to such an extent, underinvested in its core operations. Back in 2007, Sears (NASDAQ:SHLD) was already in the spotlight for its capital expenditure policy.

"Take the $1 billion in capital investment that Lampert refers to in his letter. Sure, this sounds like a lot of money, but it pales in comparison to what other retailers spend on store upkeep and expansion. Over the past 12 months, Sears spent 1.2 percent of its overall sales on capital expenditures. That compares with 7.1 percent for Target, 4.4 percent for Wal-Mart, and 2.2 percent for Costco, according to Credit Intel, a credit research firm." Fortune, December 2007.

Since 2007, there have been further cuts in capital expenditure. Capex reached an all-time low level in 2014 amounting to less than 0.87% of total revenues. This figure is even more embarrassing if the low productivity of the stores is taken into account. The company spends approximately $1.90 and $0.60 per square foot on Sears and Kmart stores respectively according to Evercore research. This compares with $9.70 per square foot spent by Wal-Mart (NYSE:WMT) and $5.75 by Macy's (NYSE:M). In total, capex has lagged depreciation expense by more than $4B since 2006. Read more