Inside retail supply chains

Sam’s Club announced Thursday plans to open two new distribution centers outside of St. Louis and Minneapolis early next year. 

The upcoming St. Louis facility will serve as a distribution and fulfillment center while the facility serving the Minneapolis area will be a multi-purpose center. 

Sam’s Club now has three distribution centers planned to open in early 2024, including one in Oklahoma City, Oklahoma.

The two newly announced distribution centers build on the Walmart-owned retailer’s multi-year growth plan aimed at improving end-to-end capabilities.

The St. Louis distribution center, scheduled to open in January, spans 370,000 square feet and is located at 5710 Inner Park Drive in Edwardsville, Illinois. The facility will create over 100 jobs and hiring for hourly associates will begin this month. 

Sam’s Club’s Minneapolis-area center, located at 7400 Hentges Way in Shakopee, Minnesota, is slated to open in March. The facility is 365,000 square feet and will employ more than 80 associates with hiring already underway.

“We’re designing our supply chain network to strengthen our omni-channel experience and increase efficiencies and delivery speed to wherever our members decide to shop with us and receive their products,” Joseph Godsey, Sam’s Club’s senior vice president of supply chain, said in a statement. 

In August, Sam’s Club announced plans to open a 300,000-square-foot multi-purpose distribution center in Oklahoma City in early 2024.

In January, Sam’s Club announced plans to modernize its supply chain through new distribution and fulfillment centers in addition to opening more than 30 new club locations over the next few years. 

However, despite its plans to open five distribution centers in 2023 starting with a facility in Georgia slated to open in Q3, Sam’s Club has not formally announced whether the center is operational or if other distribution centers have opened this year. 

A Sam’s Club spokesperson did not respond to a request for comment about the status of its distribution centers by press time. 

In addition to opening new facilities, Sam’s Club said in January that it aims to retrofit numerous existing distribution centers over the next several years to bolster its physical and digital capabilities as well as launch facilities with “state-of-the-art automation and robotics.”

Big Lots has hired a new executive role to lead its team of closeout buyers and focus on “procuring outstanding products at exceptional values through unique closeout opportunities,” the company said in a press release last week.

In the newly created position of SVP of extreme value sourcing is Seth Marks, a former executive of the retailer who served as Big Lots’ vice president of merchandising from 2004 to 2007. 

Since then, Marks has held sourcing and merchandising roles at subsidiaries of finance and liquidation specialist Hilco Global, and most recently served as chief merchandising officer at Channel Control Merchants.

At Big Lots, Marks “will lead an accelerated strategic deal sourcing initiative focused on procuring outstanding products at exceptional values through unique closeout opportunities, while providing higher recoveries to sellers in need of timely inventory monetization,” the company said. 

Marks started in the role on Dec. 4 and reports directly to Big Lots President and CEO Bruce Thorn.

The hire and new role comes as Big Lots looks to expand what Thorn described in the release as the retailer’s “assortment of extreme bargains.”

“Seth brings almost 30 years' of experience in off-price and closeout sourcing and was with Big Lots at a time when the company was the clear market leader in broadline closeout retail,” Thorn said. “He returns to Big Lots with a wealth of strategic sourcing experience, deep industry relationships, and a merchandising background in extreme bargains.”

Big Lots sources much of its merchandise from closeouts related to production overruns, packaging changes, discontinued products, order cancellations, liquidations, returns and other disruptions in the supply chains of manufacturers as well as from other sourcing options, the company said in its latest 10-K.

Recently the retailer has increased its purchases of what it calls “high quality closeout merchandise” by purchasing directly from manufacturers and other vendors, typically at prices lower than those paid by traditional discount retailers. In 2022, Big Lots bought about 28% of its merchandise at cost directly from overseas vendors. The majority of its products are imported from China.

Sales of closeout items and other bargain products made up more than half of Big Lots’ sales in Q3. “We achieve this by procuring products from over inventoried and distress retailers and vendors, and through new factory direct sourcing partners domestically and overseas,” Thorn told analysts on the company’s Nov. 30 earnings call.

The chief went on to say, “Our next phase is to offer more extreme bargains, whereas a typical bargain would be at a price that's significantly below most retailer’s prices, an extreme bargain would be priced significantly below price leading retailers.”

This is where Marks’ role comes in. In the release, Marks said that Big Lots’ “broad product assortment and coast-to-coast retail footprint will allow us to provide customized best-in-class inventory recovery solutions to our selling partners and true one-of-a-kind deals for customers that no other retailer can provide.”

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By Celonis

The conversation about enhancing visibility to mitigate the volatility in retail supply chains has intensified. In fact, in a recent article, I explained why supply chain visibility is vital to retail resilience in the face of ongoing disruption.

Businesses must have a transparent view of their supply chain operations to proactively identify exceptions and stay agile in a constantly evolving environment. Technologies like process mining are key, offering insights into the operational flow and pinpointing opportunities for improvement.

However, achieving visibility and gaining insights is merely the beginning. To not only realize immediate value but also create true resilience, action is essential. Taking this step forward requires a blend of the latest technological tools and the strategic input of human expertise, converting insights into actionable solutions for sustainable success.

The role of advanced technology integration

When businesses gain full visibility over their supply chain processes, they can use the resulting insights (at Celonis we call this Process Intelligence) to power cutting-edge new technologies.

The buzz around AI in supply chain management is well-founded. Companies like Walgreens are deploying AI for meticulous inventory planning, while Unilever taps into its capabilities to uncover alternative sourcing strategies, and Target uses it to refine demand forecasting. According to our 2023 Process Optimization Report, a resounding 91% of supply chain leaders acknowledge the current integration of AI in their operations, although 71% voice concerns that further advancements might be stymied by existing process inefficiencies. 

Yet, AI is far from the only technology being used in supply chain transformation. Blockchain technology is revolutionizing traceability, providing secure, instantaneous access to data concerning documentation, transactions, and the movement of goods. This enhances efficiency, enables automation, and promotes sustainability. Autonomous logistics is also emerging as a game-changer, with drones, driverless trucks, and autonomous delivery robots cutting costs and hastening delivery times. Meanwhile, the Internet of Things (IoT) is creating an ever-more complex network of intelligent devices and sensors, streamlining operations across the supply chain.

Integrating these advanced technologies with a process mining solution enhances decision-making, improves transparency, and facilitates predictive analytics for preempting potential disruptions, ultimately crafting a more resilient and efficient supply chain. 

The human aspect of change management

Advanced technologies are transforming the game, yet the vital human dimension to their integration frequently goes unnoticed. For many supply chain teams, new tools just feel like additional noise, unless there’s someone on hand to help them understand how they can be used and what can be achieved.

Technology partners aren’t just there to physically integrate technologies, they should play a central role in enabling change management. Supply chain teams need support throughout the entire transformation journey as they turn insight into action. They need strong dependable partnerships that go beyond the disjointed pre- and post-sales support offered by many software companies.

When transformation projects stall, the reasons are often more human than technical. Perhaps two departmental heads can’t align on a common approach to leveraging a platform, and need an intermediary to determine a consistent strategy. Maybe a miscommunication between groups needs someone with objective oversight to resolve the immediate issue, and put frameworks in place to prevent a recurrence. Or maybe a team that’s just too busy to push beyond the initial scope of a project needs a partner to work alongside them on co-innovation. 

That last example is an important one. A technology partner’s job isn’t done when a tool is implemented, or when an isolated problem is solved. A partner should inspire innovation, suggest new use cases, and help prioritize them. They should bring learnings from other projects, and continually identify new ways to improve supply chain performance, ideally through a Center of Excellence model. 

Supply chain teams don’t just need technology solutions. They need trusted partners that empower them to make best use of those solutions.

Ongoing innovation prepares you for future challenges

Businesses need strong resilient supply chains, not just to navigate the current climate but to prepare for future challenges and opportunities. These will include meeting increasingly ambitious ESG targets, shifting from a mass to micro approach as markets transition to demand-driven models, and overcoming endless – as yet unforeseeable – disruptions.  

Visibility is the first step in building a resilient supply chain, but it doesn’t deliver on its own. A blend of innovative technologies and dedicated human support is vital to turn insight to action, drive adaptability and ongoing innovation, and enable a strategy that anticipates rather than reacts to supply chain changes and trends.

Wolverine World Wide has appointed Bishu Jayaram as its chief supply chain officer, a newly created role for the footwear company.

In this position, Jayaram will be responsible for global sourcing, distribution, logistics and integrated planning, per a Thursday release. Wolverine said this will be a critical role for the company’s “ongoing transformation into a consumer-obsessed growth company.”

The hire comes as Wolverine undergoes corporate changes. It fired its former CEO Brendan Hoffman in August, and it announced a global workforce restructure in November.

Jayaram was most recently Wolverine’s senior vice president of global sourcing, where he led sourcing activities for all product categories across Wolverine’s brand portfolio, which includes Sperry and Hush Puppies in its lifestyle division, Merrell and Saucony in its active division, and Wolverine and Cat in its work group.

Prior to Wolverine, Jayaram worked at VF Corp., where he led sourcing for all footwear, equipment and packs in Asia and led the global material supply for all apparel, footwear and equipment, per the release. He also had stints at Avery Denison, Adidas and Gap Inc.

Jayaram will report to Chris Hufnagel, Wolverine’s president and CEO.

“Bishu has a proven track record of successfully navigating complex supply chain landscapes and implementing innovative strategies and has led the Company’s sourcing organization during a period of unprecedented supply chain volatility,” Hufnagel said in the release. “His appointment aligns well with our commitment to enhancing operational efficiency, building great brands across the globe, and transforming us into a consumer-obsessed growth company.”

Along with Jayaram’s promotion, the company announced Jim Zweirs, who had been with the company for 25 years, was transitioning away from Wolverine in early 2024. Zweirs was most recently the executive vice president of Wolverine’s Global Operations Group. He has held various roles including president of the outdoor and lifestyle group, president of the international group and general counsel. He also led the company’s mergers and acquisitions function, per the release.

Wolverine’s restructuring plan, announced in November, could deliver $215 million in annual savings, according to the company. It’s meant to stabilize the business by divesting the company’s noncore assets, reducing inventory, paying debt and right-sizing its cost structure. 

The company has been “exploring strategic alternatives” for the Sperry brand since May. More recently, it sold its Hush Puppies trademarks, patents, copyrights and domains in China to sublicensee Beijing Jiaman Dress Co., Ltd. for approximately $58.8 million and sold its U.S. leathers business to New Balance for about $6 million.

In February, Wolverine offloaded the Keds brand to Designer Brands.

An Amazon program in which items ship without any added packaging will be available in 2024 for all third-party sellers using the company's fulfillment services, officials announced at Amazon's annual seller conference earlier this month.

Through the Ships in Product Packaging program, Amazon can help sellers redesign products' packaging so they can be delivered to customers in their own branded container only. The company is working with select sellers on the pilot version of this program, known as Ship in Own Container, this year.

"We heard from our selling partners that joined the pilot this year that this is a really exciting opportunity and will help them remain profitable and sustainable, and we're looking forward to continuing that next year," said Rachel Montenegro, senior program manager of sustainable packaging, in a session at Amazon Accelerate.

The lack of additional packaging provides several perks for sellers, according to Amazon. These include cost savings — products certified for the program can be eligible for lower Fulfillment by Amazon fees — and environmental benefits.

"By using more compact packaging, sellers can potentially reduce transportation costs and carbon emissions by using less packaging material and taking up less space on trucks, which means fewer trips," Amazon said Sept. 14.

Montenegro brought up Philips' OneBlade razor as a successful example of a product shipped without added packaging, after Philips redesigned the packaging to use only curbside recyclable materials.

"It resulted in 30% less packaging components and a reduction in packaging volume by 80%," Montenegro said. "So now, by being redesigned, it's easier to open, there's less material to dispose of and it's a better experience."

In 2022, Amazon shipped 11% of items globally without any added packaging by the company. Customers are notified at checkout if an item is slated to ship this way, but they also have the option to add packaging at no extra cost, Montenegro said.

Products certified for the program in 2023 and shipped into North America or the European Union are eligible for Fulfillment by Amazon discounts. The discount rate is based on the product's size and weight.

"The average seller discount per unit for oversize-tier products was $2.06 per unit shipped to customers, and for standard size [it] was 31 cents per unit," Montenegro said. "We've paid out over $2 million in seller discounts this year alone."

Exclusions include items containing lithium batteries and products with "problematic elements" like hang tabs or shrink wrap, according to Montenegro.

Despite its namesake, inventory excess isn’t really a problem at Overstock.com. That’s for the simple reason that the online home goods retailer doesn’t hold much of its own product. 

The company pioneered the dropship model back in the early days of internet shopping and today has a network of 2,600 partners that sell through the website. 

In one sense, that has made the company’s model relatively immune to the operational headache of inventory pileups other retailers have contended with. But for Overstock, it’s everyone else’s excess that has been the problem. 

The company’s revenue fell by 30% in 2022, and it lost some of the market share it had gained in the period since the pandemic began, which initially brought a surge in both online and home goods shopping. 

As peers struggled with falling demand and inventory buildups, they have discounted heavily to goods flowing and sales from cratering. And with prices falling, Overstock lost some of its competitive advantage last year. 

“It's created more people playing in our space that really can't afford to play there,” Overstock CEO Jonathan Johnson said in an interview. 

Expensive, slow-moving stock

Overstock might not own most of the inventory it sells through its website, but inventory gluts at its suppliers have a major impact on the retailer’s business. And the movement and pricing of that inventory is not always a simple matter of supply-and-demand economics. Banks and other financial players play a role in the sector’s inventory and sales dynamics. 

Overstock suppliers still have excess inventory bought when stock was expensive to acquire because of supply chain dynamics, Johnson explained. Now inventory is cheaper to bring in, at the same time as consumer demand is falling. But asset-based lenders that use inventory to back loans, and thus tie loan amounts to inventory value, can prevent suppliers from discounting that inventory deeply enough to move it. 

“Sometimes the banks are managing those receivables,” Johnson said. “And banks don't necessarily think like retailers who need cash freed up so they can make more cash. They think, ‘We need the full return on our loans.’” 

The upshot of all that is suppliers in the sector are still working through old inventory more slowly than they and retailers would prefer. 

To Overstock’s advantage, in Johnson’s view, is the company’s strong cash position, which helps it pay on a quicker payment cycle — 15 to 30 days — than suppliers might find elsewhere in the industry. That helps those suppliers turn their inventory into cash and keep their financial backers happy. 

Johnson told analysts in February that the company anticipates the current industry inventory glut to continue at least through the first half of 2023. 

Winning over new suppliers the old fashioned way

As Overstock eyes future growth and tries to win over new suppliers and brands to sell on its website, the company has done something it doesn’t normally do: buy inventory.  

Specifically, the retailer is trying to grow its presence in what it calls giftable home products such as housewares and small appliances. Items, Johnson says, that one finds on shelves of struggling retailer Bed Bath & Beyond, which has been scrambling to avoid bankruptcy in recent months. 

That company’s problems have become famous. Bed Bath & Beyond’s CEO said in January that its inventory cratered in Q4 as suppliers — concerned about the retailer’s financial viability — tightened up terms and pulled back on shipping to the company.

Analysis from DataWeave in January found that Bed Bath & Beyond’s inventory availability plummeted in 2022 beginning in July and worsening through the year, while levels among its peers remained stable. 

As often happens, one retailer’s loss is others’ gain. “We saw an opportunity to go to those suppliers that either weren't getting paid or canceling their contracts [with Bed Bath & Beyond],” Johnson said. 

And so Overstock has been trying to win over new brands, or convince others to increase their depth of product and sales with the retailer. Some wanted assurance that their products would sell on Overstock, so the company took the rare step of purchasing inventory from some brands.

“Some of them we said, ‘Look, we know you may have questions about our model — we’re going to prove it to you; we’re going to buy some [inventory],’” Johnson said. 

Had those brands plugged into Overstock’s dropship system, Johnson argued, they could have sold more, and more quickly, after the retailer cleared through the (admittedly conservative) inventory purchases it made. 

“Frankly, they left money on the table,” Johnson said. “We bought some, and sold out of it.”

A federal judge on Wednesday signed off on a plan that would give many customers of the bankrupt furniture company Mitchell Gold Co. the option to receive products that have been tied up in supply chain limbo for months.

The agreement applies specifically to those products being stored by Ryder Last Mile as it awaited payment from Mitchell Gold, which shut down abruptly and filed for bankruptcy in September, with its case converting to a Chapter 7 liquidation in October.

According to Ryder, it has been storing more than 2,000 items bound for Mitchell Gold’s end customers. Many customers waiting to receive their purchases already paid Mitchell Gold for the products as well as for delivery earlier this year — but Mitchell Gold never paid that money to Ryder.

‘A difficult situation’

Customers facing the prospect of additional charges to receive their long-delayed orders spoke at a bankruptcy hearing on Wednesday. “I've already paid for the delivery charge,” one Mitchell Gold customer said. “They're charging me twice for delivery when I paid the delivery charge already.”

Others noted concerns about paying storage fees that accrued while Ryder was holding Mitchell Gold products in its warehouses. “I get that it's a difficult situation,” another customer said. “But we didn't ask for the delivery to be delayed by months.”

Ryder had said previously it was charging Mitchell Gold $4,140 a day in storage fees for undelivered products, fees that could have fallen to customers who wanted their products delivered.

Ryder, however, now plans to waive storage fees for Mitchell Gold customers who pay to have their purchases delivered, according to John Carroll, an attorney in Cozen O'Connor’s bankruptcy and restructuring practice who is representing Ryder.

“Ryder heard the concerns of Mitchell Gold customers regarding possible storage fees and … in an effort to ease the burden on these customers and help expedite the delivery process, Ryder has decided to forego charging any storage fees to Mitchell Gold customers,” Carroll told sister publication Supply Chain Dive Thursday in an email. “Ryder is only charging for delivery fees (not storage).”

As for the delivery fees, Ryder and its attorneys have explained in filings and at hearings that the logistics provider never received payment from Mitchell Gold to deliver products to end customers, even though the furniture company collected delivery fees from those customers.

In between receiving payment from customers for delivery and when it would normally have paid Ryder for those services, Mitchell Gold’s banker, PNC, took cash directly from Mitchell Gold’s accounts for loan repayment.

In a September affidavit, Mitchell Gold’s chief restructuring officer accused PNC of taking aggressive actions that dramatically reduced the company’s liquidity. The ultimate result was that “customer deposits made in good faith were swept by PNC, and the ability to fund vendors and other ongoing needs were choked off,” the affidavit stated.

Those who paid Mitchell Gold delivery fees can file a claim through the bankruptcy process, but whether they could get repaid is an open question.

In approving the protocols for delivery from Mitchell Gold and Ryder Wednesday — after previously asking that the plan factor in consumer rights under state laws — Judge Laurie Selber Silverstein noted that the delivery process was voluntary for customers.

“We're in an unfortunate situation here,” Silverstein said. “Clearly, customers will have the right to say ‘no thank you’ if the fees are too high.”

The products Ryder is holding that go unclaimed will most likely be treated as inventory collateral subject to liens of the secured lenders, giving those lenders primary control over any liquidation process, which would also be subject to state and other laws, according to Carroll.

Ryder isn’t the only logistics provider currently in possession of Mitchell Gold products. An attorney for another company, Need It Now Delivers, said at Wednesday’s hearing it doesn’t yet have complete enough customer information to develop delivery protocols but was working to get a full list.

A second life for the brand

Meanwhile, Georgia-based home goods company Surya announced this week it has acquired the 34-year-old Mitchell Gold + Bob Williams brand previously owned by the bankrupt company.

“We are dedicated to restoring MG+BW to its former glory and beyond, and we look forward to redefining the standards of excellence in the home furnishings industry," Surya President Satya Tiwari said in a press release.

Surya plans to restart manufacturing and assembly operations at the Mitchell Gold + Bob Williams facilities in Taylorsville, North Carolina, and expects to start shipping products under the brand name in Q1 of 2024.

As Party City looks to improve its efficiency across inventory management, merchandising and vendor compliance operations, EVP and COO of Supply Chain Peter Smith says he’s particularly interested in how the retailer can better leverage in-house data.

It’s part of what pushed the retailer to partner with supply chain platform TradeBeyond in September, the executive told sister publication Supply Chain Dive in an interview.

“Strategically our goal was to consolidate as much data into one system of record and have that data available across the enterprise,” Smith said. “The breadth of functionality that TradeBeyond offers is a huge contributor to the end-to-end, real-time, digital supply chain visibility goal of Party City.”

The use of the tech solution comes after Party City spent years battling continual supply chain challenges and rising costs, leading the retailer to file for bankruptcy in January as it fell behind on supplier payments and racked up debt. Since then, the U.S. Bankruptcy Court for the Southern District of Texas approved the retailer’s restructuring plan.

A year ago, Party City had very little recorded data on what was happening in its supply chain, whether it be purchase order issuance or receipts at domestic distribution centers, Smith said. Now, the retailer has a digital, real-time, end-to-end view of every purchase order and movement in its global supply chain.

For example, purchase orders were previously issued and emailed to vendors with a PDF attachment. Now, using an application programming interface, also known as API, integration with TradeBeyond, Party City’s vendors can receive and acknowledge purchase orders by accepting or rejecting them within 48 hours before an automated reminder is sent through the platform, Smith explained. This change helps facilitate faster, real-time inventory decisions at Party City, he added.

TradeBeyond also aims to help improve Party City’s vendor compliance across different criteria, such as environmental, social and governance and corporate social responsibility, Smith said. In this case, the previously manual process of collecting compliance documents via email will be replaced by a system in which documents can be directly uploaded to TradeBeyond for review and acceptance.

“This level of visibility and integration into all of our systems brings an unprecedented degree of clarity and flexibility to the supply chain team,” the COO said. “The enhanced visibility and agility translate into reduced costs and improved service levels for Party City’s fleet of retail and wholesale customers.”

The first phase of implementation with TradeBeyond went live in early September, with plans to roll out additional capabilities in the upcoming months, according to an Oct. 25 emailed press release from Party City.

Smith noted that the next phase of the project is slated to roll out at the end of February, which will enable the retailer to amend certain purchase order data points directly in TradeBeyond. Currently, the retailer has six TradeBeyond modules at various stages of development, including vendor compliance management, order issuance, product development, costing, shipping and quality assurance, he said.

Online retailer Zulily has ceased operations as of Friday. In a note on its now-defunct website, the company said it has entered an assignment for the benefit of creditors, or an ABC. Under that process, which is a bankruptcy alternative, Zulily’s assets will be liquidated over the next 12 to 18 months.

Douglas Wilson Companies will execute the wind-down and liquidation through a special purpose entity, Zulily ABC. The California-based firm will distribute proceeds from the sale of its assets among the company’s creditors.

According to a statement, recently processed Zulily orders are en route to customers. Orders that don’t arrive by Jan. 22 may have been canceled and refunded, and customers are then pointed to a claims agent to submit a proof of claim.

After only seven months under new ownership, Seattle-based online retailer Zulily is winding down its business.

“This decision was not easy nor was it entered into lightly,” Ryan Baker, vice president of Douglas Wilson Companies, said in an online statement. “However, given the challenging business environment in which Zulily operated, and the corresponding financial instability, Zulily decided to take immediate and swift action.”

Friday’s acknowledgment that Zulily is out of business was the first public confirmation regarding the company’s status. It was previously unclear if the company intended to go out of business or had already done so. Friday’s announcement came about a week after the website abruptly went offline. Visitors were redirected to a blank page with a message stating: “We are down for maintenance.” The message followed a brief time when "final sale" and "all items must go" language appeared on Zulily's homepage.

Zulily parent company Regent and Baker did not disclose any further details about the retailer’s financial situation. Neither party immediately responded to a request for comment. 

“We have assembled an experienced team to assist in the management of claims and proactively address questions and concerns from Zulily’s customers and creditors,” Baker said in a separate statement. “We recognize the strain processes such as these place on parties of interest and are committed to responsiveness and reliability as we fulfill our fiduciary responsibilities as assignee.”

Earlier this month, as a result of mandatory notices provided to state employment officials, news emerged that Zulily planned to lay off more than 800 people in Washington, Nevada and Ohio. Then, just days after news of the mass layoffs broke, Zulily filed suit against Amazon, alleging the retail giant engaged in price fixing and coerced third-party sellers and wholesale suppliers to artificially inflate their prices on Zulily. The company further claimed in its suit that Amazon “abused its monopoly power” and took actions that denied Zulily the ability to compete in online retail. Amazon denies any wrongdoing.

In May, Regent acquired Zulily for an undisclosed sum from Qurate Retail, the parent company of QVC and HSN. Before the Regent acquisition, Zulily had soft financial performance, especially in the final year it was part of Qurate’s brand portfolio. Zulily’s revenue fell 17% in the first quarter to $192 million from $232 million a year ago and the business also reported a $43 million first-quarter operating loss.

Zulily’s Facebook page was still live on Tuesday morning but it had no statement regarding the company’s shutdown. Underneath its last post from Dec. 15 — a promotion for shoes — nearly 500 people had commented about their experience with Zulily during its final days.

One person, who identified themselves as a single mom and a teacher, said they ordered from Zulily about a week ago and didn’t have the leeway to make gift-buying mistakes this holiday season. “Christmas is already a stressful time for many,” they said. “Things like this make it even more stressful. Praying for miracles for a lot of us.”

Sears and Kmart once dominated the retail landscape.

When the companies merged in 2005, they had nearly 3,500 stores. For context, that’s more stores than Target, Macy’s and Lowe’s currently operate. But years of business missteps have reduced the once mighty retailers to small shells of their former glory.

On the cusp of another new year, the companies continue to slide further into irrelevance. As of early December, Transformco, the parent of both brands, now operates fewer than 20 U.S. stores: 13 Sears locations and two Kmarts. The company also has Kmart locations in Guam and the Virgin Islands.

With such a small footprint, it came as a surprise to many that Sears quietly opened a store at Burbank Town Center in Los Angeles County in mid-October. The mall-based location had closed last December, according to media reports.

Sears also reopened a store in November in Union Gap, Washington, at the Valley Mall. The location had closed late last year, according to local media reports. The Valley Mall store is listed as open on the Sears website and the location also has a Facebook page.

“It makes little sense for Sears to open stores,” Erik Gordon, a professor with the Ross School of Business at the University of Michigan, told Retail Dive in an email. “A Sears store creates no excitement, won't be a destination store, and will have to be staffed by people who will mostly stand around talking to each other and who now are costly.”

Reaction to the California location reopening was mixed. The store’s return didn’t generate much excitement beyond nostalgia, according to a KTLA report, which also noted that only two of the three levels of the nearly 130,000-square-foot building were open to shoppers.

Transformco did not respond to Retail Dive’s request for comment on the decision to reopen the California store, nor did it respond to a request to confirm how many stores it currently operates.

Retail industry analysts have been predicting the end of Sears and Kmart for years. But somehow they’ve been able to — or chosen to — hang on. So why is Sears opening stores again?

A focus on lease rights

Nick Egelanian, founder and president of consulting firm Siteworks, said there’s likely only one reason Sears reopened the Burbank store or would move to reopen any store in the future — its valuable real estate.

“There is zero chance that Sears or Kmart is, or will be, opening any stores for any reason other than to protect lease rights that are, or would be, in jeopardy without the actions they are taking,” Egelanian said.

In 2015, the now-defunct Sears Holdings Corp. sold 235 Sears and Kmart stores to Seritage Growth Properties, a real estate investment trust. Sears also sold its 50% joint interests in joint ventures with Simon Property Group, General Growth Properties and The Macerich Company, which together at that time held an additional 31 Sears Holdings properties. Macerich this past June announced that it acquired the remaining 50% interest from Seritage in five former Sears stores in Connecticut, California, Oregon, Arizona and New Jersey.

“An examination of the store itself reveals scant merchandising and old tired finishes,” Egelanian said. “This indicates that the store is being operated for some tactical reason relating to the real estate. It would be pure speculation on my part to try to guess what the exact reason is, but it almost certainly is to protect value and validity of its leasehold or other property rights.” 

Perhaps unsurprisingly, year-over-year visits to all Sears and Kmart stores fell by double digits nearly every month from January through September, according to data from foot traffic analytics firm Placer.ai. But that data, however, should be considered in context, since the company continues to close far more stores than it opens, R.J. Hottovy, Placer.ai’s head of analytical research, told Retail Dive.

“Is this something where they’re trying to test for changes to the store format, changes to the merchandise assortment? It’s still a little bit unclear, to be honest, what they’re doing with the reopening,” Hottovy said of the Burbank store reopening.

Gordon was unequivocal about what — and who — drove the downfall of Sears.

“Eddie Lampert led the demise of Sears,” Gordon said. “He believed his skills as a hedge fund manager qualified him to be a merchant prince but he was more of a merchant jester. He engineered and re-engineered the company's finances, more to his advantage than for the benefit of the company, according to some critics, despite putting a lot of his fortune on the line.”  

Retail real estate leasing terms are often intertwined in traditional malls. If an anchor or major tenant closes within the shopping center, it can have a domino effect on other retailers. Some retailers may have clauses that allow them to change the terms of their lease if an anchor closes. 

“One other reason that could explain the opening is that it has opened as a concession to the owner of the shopping center to help prevent other store closings as part of a multi-property real estate negotiation,” Egelanian said.

Additionally, retailers that choose to reopen a recently closed store still see a possible path to success in physical locations, according to Sam Vise, CEO and co-founder of software company Optimum Retailing, which helps retailers improve their in-store experience.

“Look at Toys R Us, for example. They’re expanding into a range of new retail locations that lean more into the travel industry, which aligns well with consumers’ increased interest in experiences and travel over traditional retail spending,” Vise said. “Coming out of the pandemic, more and more consumers realized just how much they missed shopping in physical stores, and that has translated well for many brands who now have the tailwinds to expand their brick-and-mortar presence.”

Brand recognition diminished

In February 2018, Sears Holdings reported operating 1,002 full-line and specialty retail Kmart and Sears-branded stores. But nearly six years later, the company’s store count is at about a dozen locations.

With such a small retail footprint, it’s unlikely that Transformco can sustain itself financially or operationally, Sudip Mazumder, senior vice president and retail industry lead at Publicis Sapient, told Retail Dive.

Additionally, with a small footprint, it’s important for stores to carefully curate their product mix, Vise said.

“You have to make your stores very localized and specific to the customers most likely to shop there; for example, a small store in a downtown urban area might focus on selling essentials and grab-and-go products that customers traveling on foot and public transportation are likely to need,” Vise said. “Smaller stores also mean a smaller product selection, so every item sold needs to have a higher margin. Conversely, a large store in a suburban area knows their customers are likely driving in cars to visit that store with the intention of buying groceries and bulkier items."

Under Lampert, Sears sold many of its iconic brands, like Craftsman, Kenmore and DieHard. Lands End spun off from Sears Holdings in 2014. Echoing comments from local residents on social media, Mazumder noted that empty shelves and a lack of name brands send the wrong message if customers decide to visit the newly reopened store. 

While some other retailers and brands have been acquired and relaunched over the years — like Overstock’s acquisition of some of Bed Bath & Beyond’s assets, including its intellectual property — that’s unlikely to happen with Sears of Kmart, Mazumder said.

“I think both Sears and Kmart do still hold some brand power,” Vise said. “Sears is known for a long history of selling appliances, kitchen gadgets, and tools, so it wouldn’t be totally unexpected if, for example, a hardware retailer were interested in acquiring the Sears name to capitalize on that strong brand recognition that still exists to expand their offerings and reach new customers.”

But reopening stores to serve the interests of investors over customers could backfire, Mazumder added.

While the reopening of the Burbank store did generate some foot traffic and attention “as people reminisce about earlier times and fond memories, it will be an uphill battle for them to generate enough revenue with such gaping holes in their assortment to survive,” Mazumder said. “With each passing day, their brand recognition and value diminish as such a failed attempt at resurrection only leaves a bad taste in consumers' minds.”

Despite tight budgets and wariness about the economy, U.S. consumers have come through for retailers in 2023, and that has continued into the all-important fourth quarter. Even with some holiday promotions moving into October, Black Friday and Cyber Monday helped push November retail sales up nearly 6% compared to last year.

But much of that will inevitably be undone. With retail sales come returns, and that’s always been especially true at the holidays. Last year, the National Retail Federation pegged retail’s return rate at 16.5%, or about $816 billion worth of merchandise, while at the holidays it was projected at close to 18% or nearly $171 billion.

That may be even worse this year. In September, returns logistics platform goTRG found that half of retailers were finding returns to be a “severe problem,” especially during the holiday season — way up from the 2% who thought so the year before. This year, returns platform Optoro, using NRF and its own data, expects $173 billion in goods to be returned between Thanksgiving and the end of January. Just a day or two after Cyber Monday, nearly a quarter of shoppers had already returned or planned to return at least one of those purchases, according to data management firm Syndigo.

“Returns peak is upon us,” Optoro CEO Amena Ali said by video conference call. “And we're seeing a very robust return season this year. That's partially because e-commerce as a category continues to go up.”

Returns mean not just lost sales, but also headaches, losses and costs, starting with the fact that returned merchandise often can’t be resold at full price, if it can be resold at all. Last year, nearly 44% of retailers surveyed by the NRF said they would hire more staff to handle returns during the holidays. The expenses tied to dealing with the logistics of returns often surpasses an item’s worth, to the point where 59% of retailers have customers just keep some items; about 27% have decided that applies to anything priced $20 or less, according to goTRG.

What retailers are doing about returns

The rise of online shopping and easy return policies have both pushed up return rates, according to goTRG. Nearly half of shoppers make a return every few months, and 22% do so each month, Optoro found.

This holiday season, consumers are leaning into online shopping. In November, e-commerce sales soared 10.6% year over year, according to the U.S. Commerce Department’s monthly retail sales report. On Black Friday, consumers spent a record $9.8 billion online, up 7.5% year over year, according to data from Adobe Analytics. 

While there’s not much to be done about that, many retailers are taking another look at their return policies. About a third of retailers offer a seven-day return window, 27% offer 14 days, 28% offer 30 days and 7% offer up to 90 days, according to goTRG’s survey. More than 40% plan to shorten their windows for the holidays. 

In the last 12 months, nearly half of retailers have gone so far as to implement return fees for the first time, joining the likes of Amazon and Zara, per goTRG’s survey. H&M, Zara and others have targeted online orders; at H&M only members of its free loyalty program can avoid online return fees. 

Others have toughened return policies in other ways, as at Bath & Body Works. At select U.S. stores, customers are now limited to $250 in non-receipted returns or exchanges within a 90-day period, and must show a government-issued ID to track returns and exchanges. In the last 12 months, about a quarter of retailers started only allowing an exchange for store credit, per goTRG.

The risks of getting tough

Retailers and brands should think hard before instituting preventative or punitive policies around returns, however, experts say.

“We think a lot about — are returns good or bad?” Optoro’s Ali said, noting that, while fraud and abuse must be addressed, a well-oiled returns system can aid inventory management and foster excellent customer experiences.

Cracking down on returns, especially with fees, has discouraged some shoppers who had once routinely ordered many items knowing they would make a return, according to research from review platform Trustpilot. A little over a third of consumers said they are a “serial returner,” with another 30% saying they used to be. Of those who have stopped, 47% said it was due to return fees.

Optoro found that 35% of apparel and accessories consumers “bracket” their online purchases, ordering more than one size or color with the intention of returning at least a portion.

Some consumers are frustrated with changes like new fees or shorter return windows, especially with budgets so tight this year, according to Vincent Petrillo, Trustpilot’s vice president of commercial for North America. More than 60% of shoppers quit frequenting a retailer that charges return shipping, with about 64% choosing to shop at retailers with the best return policy, according to Optoro. Some 44% say they care about free return shipping most of all, per that research.

Even if such policies are deemed necessary, retailers should at least be up front about them, Petrillo said in a statement.

“With seventy-seven percent of Americans stating that a retailer’s returns policy has an influence on how trustworthy they perceive that retailer to be, it’s more important than ever for retailers to put transparency at the forefront of their returns strategy, especially during such a high-stress buying season,” Petrillo said.

Allowing customers to return online orders in stores can be a problem if its creates long lines or stresses staff, according to Shopify. But consumers like the convenience and the option drives traffic to stores, which has led nearly half of retailers to find a way to encourage buy online, return in store, according to goTRG.

Perhaps most important, 65% of shoppers make the most returns where they shop the most and, often, spend the most, according to Optoro.

“Your most frequent returners are actually your best customers,” Ali said. “I think it's important to remember that it's seven times more expensive to acquire a new customer than to keep a customer.”