Broadline retailer lays out plan to return to profitable growth
In a move to reverse declining sales, Sears Holdings Corp. said on Wednesday it’s testing the redesign of four stores at its namesake chain as part of a series of moves the company is making to return to profitable growth.
The company, often faulted for skimping on store investments, is putting items such as work boots and apparel next to its tools section and moving cash registers off aisles to free up room and allow its cashiers to better engage with shoppers, said Ron Boire, the company’s chief merchandising officer, at the Sears annual shareholder meeting in its home office in Hoffman Estates, Ill. Boire was hired earlier this year from gadgets chain Brookstone.
In an interview, Sears Chief Executive Lou D’Ambrosio said the response to the test designs so far has been favorable, though he declined to specify the company’s rollout plans.
U.S. comparable sales at the company have declined in each of the past five years while its 95%-owned Sears Canada’s sales have declined more than the company average in recent quarters.
Speaking to a room of about 250 Sears shareholders, employees and others, Chairman Eddie Lampert, whose ESL Investments owns 62% of Sears, D’Ambrosio, and other executives laid out what they described as a strategy to transform Sears. In the meeting room, the company also set up several displays featuring its products such as new Joe Boxer apparel, Craftsman tight-turn lawn mowers and Kenmore refrigerators.
“Our aspirations have been to fix the operations and transform the company,” Lampert said. “It takes many years to become an overnight success.”
The company said it’ll continue to control expenses, including lowering inventory by $800 million in the first quarter from a year earlier. Sears has also announced store sales and the spinning off of its Hometown and Outlet businesses to generate additional capital.
Other ways to monetize its assets include exploring whether to have its top brands such as Kenmore, Craftsman and DieHard, carried at other retailers without hurting traffic to Sears or have the labels licensed in new geographies. Select Costco Wholesale Corp. and Ace hardware stores currently carry Craftsman tools. D’Ambrosio said the company is looking at licensing and other opportunities for its various brands that can help expand them into new geographies.
Focus on loyalty program, online sales
A central part of the company’s strategy and transformation involves its Shop Your Way Reward loyalty membership program that it started in 2009 that aims to boost online and store visits. D’Ambrosio said the program has about doubled the membership to tens of millions in the past year. The company has seen those shoppers visiting its stores more often, spending more per transaction and using the reward points to cross shop from Sears to Kmart or from tools category to apparel.
Sears has also launched a mobile app to allow loyalty members to engage via social media and then use reward points to buy products. Last year, it gave employees at about 450 of its Sears and Kmart stores iPads or iTouches that can also process transactions.
Online sales are an area where Sears has outperformed. Mobile Commerce Daily last year voted the company mobile retailer of the year.
“It’s moving the needle,” D’Ambrosio said in the interview.
The company now has 30 million products available online for sale in part through third-party merchants, compared to about 1 million in its stores.
“This was the most reasonable and convincing strategy” I’ve heard from Sears in my 13 to 14 years coming to the shareholder meeting, said analyst Bill Dreher at Newedge in an interview. “It’s yet to be seen if it’s going to work.”
Lampert and D’Ambrosio said they are continuing to look at various Sears assets, but they didn’t elaborate on whether Sears plans to spin off or sell its assets such as Sears Canada and its Lands’ End apparel businesses. They also declined to comment on whether Sears plans to sell more of its real-estate assets or shut more stores.
As of Jan. 28, the company had a total of 4,010 Kmart, Sears U.S. and Sears Canada stores, including 821 company-owned locations. Almost 1,900 of the stores were leased, with the remainder independently owned and operated, Sears said in a regulatory filing.
“There's too much space in big-box retailing,” said Lampert. “We are looking at some creative use to get the best productivity. As long as our real estate is best deployed in operating a Sears or Kmart, we will do that. We’ve been very particular and strategic about our real estate.”
Sears shares closed marginally higher at $62.07 on Wednesday. They surged 15% on Tuesday after the company projected it would swing to a first-quarter profit from an year-earlier loss.
Sears “has a lot of great ideas,” said Morningstar analyst Paul Swinand after the meeting. “But can they get the retail execution part better and move the needle fast enough?”
Andria Cheng is a MarketWatch reporter based in New York.