November 17, 2006
Same Talk, Similar Results for Sears Holdings
Okay, it may not be exactly what you’ve heard before, but it is pretty darn close.
In a press release to announce its third quarter financial results, Sears Holdings quoted CEO and president Aylwin Lewis as saying: “We continue to manage our costs effectively as we make the changes necessary to become a customer-driven organization. We are excited to enter the holiday sales period with the products we believe our customers want and an approach that focuses our entire organization in support of our stores in delivering superior customer service across all of our businesses and formats.”
Mr. Lewis’ observation came on the heels of another profitable quarter for a company that once again achieved that feat even as total revenues declined 2.5 percent compared to the same quarter last year. Comparable store sales at both Sears (-4.8 percent) and Kmart (-0.7 percent) were down.
Sears Holdings indicated it was able to achieve profitability for a number of reasons. These included the company reducing expenses across all its businesses, investing its surplus cash to generate $101 million in income, and resolving tax matters related to Kmart that resulted in a net income gain of $6 million. The company also cited higher gross margins on goods sold.
Discussion Questions: Forget criticizing Edward Lampert or pointing out where Sears Holdings has gone wrong in the past. What would a company with as
much cash as Sears Holdings have to do if it were serious about transforming its existing business into a retailing powerhouse?
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Geez — Sears — it’s a mess —
I AGREE wholeheartedly with the posts of David Livingston and also Bill Robinson and couldn’t say any more, any better.
Michael Howatt is also right — what they are doing, they can’t do for long!
Does Mr. Lampert want to run a retail concern?? Is this a wait and wait, for the real estate benefit? For Sears’ sake, I hope NOT. There are some really FANTASTIC and fabled brands here and there is potential, but that has to be utilised. Time will tell.
Basically, just do everything the opposite compared to the way they are operating now. Instead of intentionally designing operations for lower store sales, reverse the action and increase store sales.
Instead of cutting advertising, labor and customer service, perhaps increase those variables.
Instead of leaving the stores bare of inventory, spend a little money and restock the stores.
Instead of leaving the stores in their 1980s retro condition, upgrade the stores with a little cap ex spending.
Finally, instead of being concerned about making a profit over the next quarter to dance for Wall Street, perhaps do some dancing for the consumers and employees.
The question with Sears Holdings is “What do they want to be when they grow up?” Is the only goal to use the retail operation as a cash generator for financing other endeavors? If the answer to this question is “yes,” then the only investment to be made in the retail business is whatever is necessary to keep the cash coming. Simple as that.
For Sears Holdings to transfer its existing business into a retailing powerhouse, I would suggest they follow David’s sound advice above. Otherwise they might attempt another raid — this time on Whole Foods, Trader Joe’s, Kroger, Safeway, SuperValu, Target or even Wal-Mart, ooops, maybe not Wal-Mart.
As for this morning’s “wisdom” — TGIF.
DO SOMETHING! I don’t see anything happening differently to change for the better.
Try some imaginative and creative marketing. Event and/or cause marketing couldn’t hurt and how about sports marketing (motorsports even?). These I just mentioned have by far the highest brand loyalty factors and isn’t that what you need to drive people back into the stores? Of course, once you get them in, you have to keep them. But Sears Holdings has great buying power, so it would seem that pricing shouldn’t be a problem.
I didn’t think Kmart would survive and I’m not sure Sears is that far behind. DO SOMETHING!
Sears made $101 million using total return swaps (derivatives) with an interest cost of $3 million. If that performance can be replicated, it sounds much more lucrative than most retailers.
In 2003 Sears sold its charge card business to Citicorp for $32 billion. Edward Lampert bought Sears in 2004. Target makes substantial profits from its charge cards, and Sears made most of its profit for years from its charge cards. Borrowing money at the prime rate and then lending it out at 24% results in a nice profit if the lender is careful about the borrowers’ credit scores.
So why not rejoin the lending business?
Both Sears and Kmart are emphasizing their apparel, and given the margins, that’s a good plan. Furthermore, except for the inventory buildup needed for Christmas, extra capital shouldn’t be needed.
How about innovation? Step one is finding some market segment that is poorly served by current retailers. Hint: baby boomers are aging, retiring, wealthy and looking some excitement in their lives. Second, solve some problem this group has in their lives. Hint: most of the baby boomers really need to renovate and reconfigure their homes now that the kids have left and they are pursuing new hobbies and socializing more.
Once you get into this business, do it forcefully. You inherit great brands. But you need to connect with your customers to bring the brands to life.
In your service offerings to baby boomer home owners, take on responsibility. Go for the big package. You don’t want to install dishwashers. You want to update the kitchen.
Focus on your customers, not your merchandise departments. Assign your salesperson to the customer, not the merchandise department. These customers want you to cross sell. It makes it so much easier for the customer. Make house calls. Connect to the customer in as many ways as you can.
Listen to your customers. For one, make sure your price labels, point of sale signs, manuals and customer service documents are printed in large enough font for aging eyes. Talk to them. They’ll tell you more how to serve them better. Get the customers talking among themselves. You’ll find a loyal community that will enjoy the experience of shopping with you.
If Sears Holdings’ goal is to profitably operate its way towards irrelevance as a modern retail competitor then it should continue to follow the path it has forged.
In this ever-changing competitive retail landscape, it is difficult to imagine how a chain could count on its future when it won’t invest in that future today. Holding spending on needed CapEx impacts today’s and tomorrow’s operations, limits your relevance as a future competitor and turns customers away.
It is possible that Sears Holdings is looking to maintain the status quo while they negotiate a buyer for their strong retail locations. It is no secret that Tesco is gaining ground in its quest to expand internationally and while Sears Holdings doesn’t provide its strongest retail format (grocery) it does provide some pretty inviting locations.
Pretty far fetched? Probably, yet so are the current operating practices of this company…truth is always stranger than fiction.
It’s nice that Sears H. hides behind profits that are basically being achieved by employee layoffs and other non-retail related endeavors. They won’t last long with cost cutting measures as a means for creating profit. Solution: gut all the Kmart stores and revamp them in a new style that is consumer centric, with focus on good products, reasonable prices and “fun” informative areas that will create a shopping experience. It’s a Wal-Mart be damned strategy that has worked for Target.
Sears Holdings is plagued with two unsolvable problems as its legacy: 1) It does not have the talented people to succeed in its competitive markets and is unlikely to be able to attract enough of them. 2) It has two chains that are chronically flawed–Sears is neither fish nor fowl–and loses to Macy’s et al on the upside and Penney, Kohl’s, and Target/Wal-Mart on the downside.
Sears operating costs as a percent of sales preclude it from being properly profitable without charging higher than competitive prices for parity merchandise. Kmart has been chronically deficient in operations and merchandising and there are few signs that this problem has been fixed. It’s stores are old, layouts widely variable and merchandising poor. Worse, both are plagued by systems that are below the industry norm.
The only question is how long the cash from manipulating real estate and investments will hold out. Its sales in both chains of stores are declining. It is slightly better than it was, because some of the credit risk is less–but that too is a temporary benefit.
Nothing that has been done since the merger bodes well for this company to equal or even come close to industry leaders Target and Wal-Mart on the discount side, or a rejuvenated Penney, Macy’s and Kohl’s on the department store side. Worst of all, Lowe’s, Home Depot and Best Buy are eating into Sears profitable hardware, appliance and electronics businesses. With those trending down, the last positive as a retailer goes away.
2008 or 2009 will signal the need for some kind of massive “surgery” with the remainder being a much smaller chain of stores. Perhaps the money from further liquidation of real estate and fund attracting the talent to make such a downsized chain a viable no. 3; Maybe, maybe not.
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Geez — Sears — it’s a mess —
I AGREE wholeheartedly with the posts of David Livingston and also Bill Robinson and couldn’t say any more, any better.
Michael Howatt is also right — what they are doing, they can’t do for long!
Does Mr. Lampert want to run a retail concern?? Is this a wait and wait, for the real estate benefit? For Sears’ sake, I hope NOT. There are some really FANTASTIC and fabled brands here and there is potential, but that has to be utilised. Time will tell.
Basically, just do everything the opposite compared to the way they are operating now. Instead of intentionally designing operations for lower store sales, reverse the action and increase store sales.
Instead of cutting advertising, labor and customer service, perhaps increase those variables.
Instead of leaving the stores bare of inventory, spend a little money and restock the stores.
Instead of leaving the stores in their 1980s retro condition, upgrade the stores with a little cap ex spending.
Finally, instead of being concerned about making a profit over the next quarter to dance for Wall Street, perhaps do some dancing for the consumers and employees.
The question with Sears Holdings is “What do they want to be when they grow up?” Is the only goal to use the retail operation as a cash generator for financing other endeavors? If the answer to this question is “yes,” then the only investment to be made in the retail business is whatever is necessary to keep the cash coming. Simple as that.
For Sears Holdings to transfer its existing business into a retailing powerhouse, I would suggest they follow David’s sound advice above. Otherwise they might attempt another raid — this time on Whole Foods, Trader Joe’s, Kroger, Safeway, SuperValu, Target or even Wal-Mart, ooops, maybe not Wal-Mart.
As for this morning’s “wisdom” — TGIF.
DO SOMETHING! I don’t see anything happening differently to change for the better.
Try some imaginative and creative marketing. Event and/or cause marketing couldn’t hurt and how about sports marketing (motorsports even?). These I just mentioned have by far the highest brand loyalty factors and isn’t that what you need to drive people back into the stores? Of course, once you get them in, you have to keep them. But Sears Holdings has great buying power, so it would seem that pricing shouldn’t be a problem.
I didn’t think Kmart would survive and I’m not sure Sears is that far behind. DO SOMETHING!
Sears made $101 million using total return swaps (derivatives) with an interest cost of $3 million. If that performance can be replicated, it sounds much more lucrative than most retailers.
In 2003 Sears sold its charge card business to Citicorp for $32 billion. Edward Lampert bought Sears in 2004. Target makes substantial profits from its charge cards, and Sears made most of its profit for years from its charge cards. Borrowing money at the prime rate and then lending it out at 24% results in a nice profit if the lender is careful about the borrowers’ credit scores.
So why not rejoin the lending business?
Both Sears and Kmart are emphasizing their apparel, and given the margins, that’s a good plan. Furthermore, except for the inventory buildup needed for Christmas, extra capital shouldn’t be needed.
How about innovation? Step one is finding some market segment that is poorly served by current retailers. Hint: baby boomers are aging, retiring, wealthy and looking some excitement in their lives. Second, solve some problem this group has in their lives. Hint: most of the baby boomers really need to renovate and reconfigure their homes now that the kids have left and they are pursuing new hobbies and socializing more.
Once you get into this business, do it forcefully. You inherit great brands. But you need to connect with your customers to bring the brands to life.
In your service offerings to baby boomer home owners, take on responsibility. Go for the big package. You don’t want to install dishwashers. You want to update the kitchen.
Focus on your customers, not your merchandise departments. Assign your salesperson to the customer, not the merchandise department. These customers want you to cross sell. It makes it so much easier for the customer. Make house calls. Connect to the customer in as many ways as you can.
Listen to your customers. For one, make sure your price labels, point of sale signs, manuals and customer service documents are printed in large enough font for aging eyes. Talk to them. They’ll tell you more how to serve them better. Get the customers talking among themselves. You’ll find a loyal community that will enjoy the experience of shopping with you.
If Sears Holdings’ goal is to profitably operate its way towards irrelevance as a modern retail competitor then it should continue to follow the path it has forged.
In this ever-changing competitive retail landscape, it is difficult to imagine how a chain could count on its future when it won’t invest in that future today. Holding spending on needed CapEx impacts today’s and tomorrow’s operations, limits your relevance as a future competitor and turns customers away.
It is possible that Sears Holdings is looking to maintain the status quo while they negotiate a buyer for their strong retail locations. It is no secret that Tesco is gaining ground in its quest to expand internationally and while Sears Holdings doesn’t provide its strongest retail format (grocery) it does provide some pretty inviting locations.
Pretty far fetched? Probably, yet so are the current operating practices of this company…truth is always stranger than fiction.
It’s nice that Sears H. hides behind profits that are basically being achieved by employee layoffs and other non-retail related endeavors. They won’t last long with cost cutting measures as a means for creating profit. Solution: gut all the Kmart stores and revamp them in a new style that is consumer centric, with focus on good products, reasonable prices and “fun” informative areas that will create a shopping experience. It’s a Wal-Mart be damned strategy that has worked for Target.
Sears Holdings is plagued with two unsolvable problems as its legacy: 1) It does not have the talented people to succeed in its competitive markets and is unlikely to be able to attract enough of them. 2) It has two chains that are chronically flawed–Sears is neither fish nor fowl–and loses to Macy’s et al on the upside and Penney, Kohl’s, and Target/Wal-Mart on the downside.
Sears operating costs as a percent of sales preclude it from being properly profitable without charging higher than competitive prices for parity merchandise. Kmart has been chronically deficient in operations and merchandising and there are few signs that this problem has been fixed. It’s stores are old, layouts widely variable and merchandising poor. Worse, both are plagued by systems that are below the industry norm.
The only question is how long the cash from manipulating real estate and investments will hold out. Its sales in both chains of stores are declining. It is slightly better than it was, because some of the credit risk is less–but that too is a temporary benefit.
Nothing that has been done since the merger bodes well for this company to equal or even come close to industry leaders Target and Wal-Mart on the discount side, or a rejuvenated Penney, Macy’s and Kohl’s on the department store side. Worst of all, Lowe’s, Home Depot and Best Buy are eating into Sears profitable hardware, appliance and electronics businesses. With those trending down, the last positive as a retailer goes away.
2008 or 2009 will signal the need for some kind of massive “surgery” with the remainder being a much smaller chain of stores. Perhaps the money from further liquidation of real estate and fund attracting the talent to make such a downsized chain a viable no. 3; Maybe, maybe not.