Sears Committed to Restoring Brand Loyalty

Venerable retailer Sears has endured its fair share of vicissitudes in the past few years, but remains committed to restoring profitability and brand loyalty.

Focus on its Shop Your Way loyalty program has been the company’s guiding light.

Sears CFO Jason Hollar talked about the company’s current situation during last month’s third-quarter earnings call.

“While many observers have acknowledged the rich asset base of Sears Holdings, we understand the concerns related to our operating performance,” Hollar said. “We have fallen short on our own timetable for achieving the profitability that we believe the company is capable of generating. The team remains fully committed to restoring profitability to our company and creating meaningful value.”

Hollar said the Shop Your Way membership program engages tens of millions of members every year.

“These members shop more frequently, they earn more points, and we provide them with other opportunities to help them manage their lives,” Hollar said. “Since inception, we have invested over $2 billion in our Shop Your Way membership program in terms of points redeemed by members, which has created substantial value and opportunities for our active members.”

Third-quarter net loss was $748 million compared to a net loss of $454 million for the same period the previous year. Revenue sank about $721 million, to $5.0 billion, compared to revenue of $5.8 billion for the same period the previous year.

Hollar cited the following measures Sears took to help restore profitability and increase customer engagement:
A partnership with Citi Retail Services, Inc. to bring together the Sears MasterCard and Shop Your Way® offer. This launched Nov. 1, 2016. More than five million current Sears MasterCard holders whose cards are linked to the Shop Your Way® program earn more Shop Your Way® points at many of their favorite places and, in early 2017, the Sears MasterCard will evolve into a newly branded Shop Your Way® card;

A strategic relationship with Uber Technologies, Inc. that allows its drivers and riders to earn Shop Your Way® points on trips made with Uber, leveraging the scale of Shop Your Way®, its tens of millions of members, and the footprint of Sears Auto Centers to provide unique benefits for drivers and riders; and
Improvements in the company’s Home Services business and expansion of its capabilities, including home warranty offerings.

Hollar cited the company’s commitment to restoring profitability, including the following:

Reducing unprofitable stores, reducing space in stores still in operation, reducing or eliminating specific categories where the performance and return on investment is poor, and improving gross profit performance and SG&A relative to sales.

“One of the primary actions we have taken over the past several years to reduce our operating losses is closing unprofitable stores,” Hollar noted. “This is a necessary, but painful action, as the way consumers shop has changed. Many of the stores that we have closed had lease options that we declined to exercise, which highlights the flexibility we have in our long-term leases. At the same time, we raise cash from the sale of inventory in our stores, net of severance and other costs, as we wind down their operations. We have incurred significant restructuring costs from closing stores, but we believe closing these unprofitable stores was the right thing to do to improve performance.”

In the past quarter, Sears reduced the size of its pharmacy business which operates in many, but not all, Kmart stores.

“We will seek a broader pharmacy solution for our members through our Shop Your Way platform,” Hollar added. “This is an example of how Shop Your Way serves as a platform that enables us to transform the company from a traditional retailer to an asset light-member centric one that focuses on making our members’ lives easier every day. The retail environment has continued to be challenging for many traditional retail companies, but we will not use that as an excuse. We need to perform better and we are taking actions, large and small, to achieve better performance.”

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