Sears, Tax Breaks, and Job Loss: Like We Said

January 5, 2012
By Good Jobs First

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For the latest evidence that unaccountable tax breaks fail to promote investment for job creation, shop at Sears—while you still can.

Gov. Pat Quinn's signature had barely dried on the Illinois legislature's lavish new tax-break deal to retain Sears Holding Corp.'s headquarters when the company announced store closures and layoffs. The deal, valued at up to $275 million in property and income tax breaks, was signed into law on December 16. Yet on December 27, the company announced that it would close between 100 and 120 Kmart and Sears stores.

Cynically, we note that the initial list of 80 closures does not include any Illinois stores, nor have any headquarters layoffs been announced… yet. But with Sears still losing market share, and reporting another decline in same-store sales (down 5.2% late 2011 over late 2010), how safe can Illinois jobs be?

We hate to say we told Illinois so. But as we forecast in our

blog of last August

: when a company is ailing and it asks for a tax break, the wisdom of the plant-closings movement tells us: tax avoidance can be one form of disinvestment, another early warning sign of job loss.

Put another way: if a company doesn't see a future in the community or the state, why should it keep investing in the schools or roads or universities?

Indeed, inadequate reinvestment in Sears has been a major theme since hedge fund manager Eddie Lampert took control of the company. As the

New York Time

s' Floyd Norris pointed out in a

December 29 column,

between February 2005 and October 2011, Sears Holdings spent only $3.2 billion on capital expenditures (i.e., physical improvements) while taking $6.6 billion in depreciation charges (i.e., physical wearing-out).

A consumer behavior consultant with America’s Research Group told the

Los Angeles Times

: “They are not fixing their problems. The Sears apparel strategy is still not what the Sears customer wants. They have not spent the money to refurbish their stores to make the modern and contemporary for the under-35 shopper.”

Instead of reinvesting, Sears Holdings is reportedly soon to allow some its prize jewels, such as Kenmore appliances and Craftsman tools, to be sold by other chains such as Costco and Ace Hardware. Won’t that just further reduce traffic into Sears and Kmarts?

In lowering Sears Holdings' credit rating, Fitch warned of “a heightened risk of restructuring over the next 24 months.”

Meanwhile, Illinois taxpayers, after giving Sears a retention package worth about $178 million in 1989 when it threatened to run away, have pledged up to $275 million more after a second runaway threat.

Fool me once, shame on you…