Sears goes bankrupt: ASX retailers to follow?

The United States’ previously dominant department store business Sears has filed for bankruptcy. It was once the largest retailer in the US.

It seems hard to believe that it has gone bankrupt considering it had over 3,000 stores once upon a time. Just a few years ago it had nearly 250,000 employees in the US but it ended with only 90,000. Large does not equal success.

Whilst the US$5 billion debt was the cause of the bankruptcy, it was poor business management and online shopping that led it to its demise.

If retailers don’t have the products that customers want, presented nicely in a store at a decent price then people will go elsewhere.

The demise of US shopping malls has been happening for a long time. ‘Ghost’ malls are everywhere. Out-of-town locations that were far too big with little to grab interest have closed. Why go to a large store when you have the whole internet that can deliver to you? For free! (If you have Amazon Prime.)

Australian retail is several years behind the US. Amazon (and other online retailers, like eBay) have been operating for many years there. The ‘weak’ are perishing in the US, but the businesses that can adapt can still survive. Or even flourish. Even Walmart has shown what can be done with better service.

Australian retailers need to take note. Myer Holdings Ltd (ASX: MYR) could be going down a very similar path to Sears if it doesn’t sort out its issues. South African-owned David Jones can’t be complacent either.

Foolish takeaway

Many of Australia’s retailers have been investing in their online offerings and also making sure that their prices are competitive. However, Harvey Norman Holdings Limited (ASX: HVN) and JB Hi-Fi Limited (ASX: JBH) will need to make sure they continually update themselves so they are like the US’ Best Buy and not Dick Smith Electronics.

This exciting ASX share could be a key winner in the age of e-commerce. It’s already significantly disrupting the market.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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