Tough Times for Sears Amid Challenging Retail Environment As It Focuses on Loyalty Program

Although Sears officials have touted its Shop Your Way loyalty program as the key lever in the venerable company’s return to significant brand loyalty, something has gotten in the way of their strategy: A highly challenging retail environment.

Given its mantra of being an “an asset-light, member-centric integrated retailer,” with the loyalty program as its focal strategic point, the fiscal second quarter was not kind to Sears as it logged a net loss of $395 million while same-store sales at Kmart and Sears fell 3.3% and 7.0%, respectively.

Sears received an offer (which it accepted) from ESL Investments to provide $300 million of additional debt financing secured by a junior lien against its inventory, receivables, and other working capital.

Sears Holdings Corporation Chairman and CEO Edward S. Lampert talked about the reasons for the disappointing quarter.

“We continue to face a challenging competitive environment and, while we continue to focus on our overall profitability, including managing expenses, we reported a net loss for the second quarter,” said Lampert. “We are encouraged by the year-over-year improvement in our adjusted EBITDA and feel we are making progress in our transformation as we remain focused on our best stores, our best members, and our best categories to drive our business and enhance the member experience.”

Brad Marg, Chief Operating Officer at Clutch, offered Loyalty360 his views on the Sears situation.

“From my perspective, Sears needs to focus on understanding all of their customers, the best ones in addition to those with less frequent or smaller purchases,” Marg explained. “Their loyalty program is well established, but it doesn’t appear that they are leveraging its capabilities and utilization to its full capabilities. If they start to, they can then better understand inventory needs, refine their marketing efforts, more efficiently design their store, and optimize their customer acquisition strategy. Today’s marketing for the Shop Your Way program seems to focus only on the constant reminder that you have $7.35 to apply to a purchase. It does not feel personalized or specific to me based on past purchases, my demographics, my geographic location, or preferences. If they can make an effort to obtain more information about their customers with inputs from in-store, online and social channels, I think their ability to understand customer needs, preferences, and expectations will increase. That will result in higher targeted campaign results, as well as a much richer shopping experience both in their retail outlets and online.”

Rob Schriesheim, Sears Holdings’ Chief Financial Officer, said the company will explore alternatives for its Kenmore, Craftsman and DieHard and Sears Home Services businesses by evaluating potential partnerships.

Second-quarter revenue sank $548 million, to $5.7 billion for the quarter ended July 30, 2016, compared to revenues of$6.2 billion for the quarter ended Aug. 1, 2015.

This month Sears officials discussed a new unique customer experience as they plan to launch “Showcase at Sears,” which is a shop-in-shop experience that gives members and customers an exclusive opportunity to shop more than 10 of Europe and Latin America’s hottest international apparel brands.

“We are creating an experience for our members unlike anything in the U.S. retail industry – a fashion-forward, shop-in-shop apparel collection featuring established and popular international fashion brands,” said David Pastrana, President of Apparel, Sears Holdings. “Showcase at Sears gives our members access to fresh international trends, styles, and fashions at an affordable price – and only found at Sears.”

“Showcase at Sears” will initially launch in five New York-area stores this fall and feature men’s and women’s apparel, women’s shoes, intimates and handbags, and children’s apparel. Sears is building a 10,000- to 15,000-square-foot boutique within the existing apparel footprint of each store that will be staffed by dedicated associates. Apparel styles will range from fast fashion and fitness to contemporary sportswear and professional looks, with prices ranging from $10 to $175.

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