Sears Holdings’ announcement late last month that it plans to shutter as many as 120 underperforming stores that operate under both the Sears and Kmart banners marks the beginning of a decisive chapter in the history of what were once two of America’s great retailers.

Sears Holdings’ announcement late last month that it plans to shutter as many as 120 underperforming stores that operate under both the Sears and Kmart banners marks the beginning of a decisive chapter in the history of what were once two of America’s great retailers.

The retrenchment comes on the heels of a disastrous holiday selling season for the company, one that can be seen as a culmination of the problems that have long plagued it. For the eight weeks ended December 25, same-store sales at Kmart declined 4.4%, while Sears’ performance by that measure in this country was off 6%.

Declining volume is nothing new for Sears Holdings. Since the company was formed by hedge fund manager Edward Lampert in March 2005, sales have fallen from $54.26 billion during the 12 months ended January 1, 2006, to $43.33 billion last fiscal year. Although subject to wide swings, the bottom line has remained in positive territory.

No major merchant, if it wants to retain that status, can sit back and watch its sales base erode. Consumers, in essence, vote on retailers with their dollars, and during the past several years fewer and fewer of them have responded favorably to what Sears and Kmart have to offer. Chronic underinvestment in improving the shopping experience has clearly caught up with the company.

The decision to close a substantial number of stores, some 5% of the company’s full-line outlets, seems to indicate that Lampert and his management team finally realize that a retail enterprise needs to generate sales gains in order to retain its viability over the long term. Due to Sears’ anemic sales of late and margin pressures, adjusted EBITDA for the fourth quarter will be less than half the $933 million a year ago, according to the company. The poor performance will lead to as much as $2.4 billion in onetime charges during the period.

One hopeful sign is Sears’ stated intention going forward. "These actions will better enable us to focus our investments on serving our customers and members through integrated retail — at the store, online and in the home," chief executive officer Lou D’Ambrosio said about the store closures and related moves.

If the company starts to consistently deliver on that promise, it might yet revive the Sears and Kmart franchises. If it fails to do so, decreasing sales and more store closures are likely.