May 4, 2007
Same Same-Store Sales Story at Sears and Kmart
While Edward Lampert and Sears Holdings haven’t shown any real talent for retailing, investors in the company have been able to take solace in the strong performance of the company’s stock. That may have made yesterday’s share price drop of $9.76 (-5.2 percent) in after-hours trading a bit more jolting.
The drop took place after both Sears and Kmart once again reported declines in same-store sales, this time for the first 12 weeks of its fiscal 2007 first quarter. Sears was off 2.4 percent for stores open at least a year while Kmart was down 4.7 percent.
Sears said it was hurt by slower than expected home appliance sales. The company said the soft housing market and increased competition in the category played roles in its home appliance category performance.
While sales at the two chains continue what may be an inexorable path downward, Sears Holdings remains flush with cash ($3 billion in cash and cash equivalents) to either invest in the retail businesses (when pigs fly) or to purchase another entity. Companies including RadioShack, Home Depot, BJ’s Wholesale Club, Safeway and Gap Inc. have all been rumored at one point or another as potential acquisition targets. Mr. Lampert has attempted to purchase the remaining shares of Sears Canada not already owned by Sears Holdings but that bid has been unsuccessful to date.
Discussion Questions: What do you make of the latest numbers from Sears and Kmart? What do you expect Sears Holdings to do with all its cash?
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Oh ye of little faith. Does anyone remember J.C. Penney’s rise from the (alleged) ashes and transformation from middle American retail antiquity to teen destination and web power house?
As Target, Kohl’s and even Wal-Mart push upward, Kmart is uniquely poised to become the one true blue (light) discounter. Kmart’s apparel and home private labels, direct sourcing prowess, Manhattan fashion hub (others followed suit), etc. bode well for the future.
As for Sears, its brand equity may have faded a bit; however, it is far from “out of mind.” Mr. Lampert has placed some talented individuals in key positions (Lisa Schultz in apparel comes to mind)…don’t count ’em out.
All I can see right now is fence sitting and maybe a bit of hubris.
I think we all know that Eddie’s first and primary focus with Sears/Kmart is in the company’s real estate value, but it seems he can’t resist the challenge of turning around the company and the cache that would come with such a success. Yet as we all know the most important key to retail happiness is customer satisfaction, Eddie believes in customer service just as long as it does not affect profits. Finally start taking a serious look at Sears Canada especially when it comes to the catalogue business, you may be surprised to find this company expanding its operations into the U.S. There is a reason why Mr. Lampert has not been able to buy those outstanding shares.
With its same-stores customer base declining, how long can Sears/Kmart remain vital retailers? Not forever. One thing we do know is that Eddie Lampert knows money, and how money works, particularly for his and his group’s interests. How long would Mr. Lampert lament if there was no more Kenmore or if Martha Stewart’s goodies added allure to some other retailers space? Is he a caring Craftsman in that regard?
Perhaps Eddie Lampert will tired of milking his style of retailing, do a reverse stock split until he has all the Sears Holdings stock, then sell the real estate, inventories, any remaining trash and pocket the cash for some other “dash.” Whoever said, “Don’t go into retaining. There’s no big money in it!” We doubt if it was Mr. Eddie.
Comp sales, or same store sales is a retailing specific metric which would be categorically derided in any other vertical. Consider the reaction of P&G if they were required to report on the gain or loss in revenue of existing brands…and that was the bellwether metric, not total revenue, total market share or any of the other performance measures looked at. If Coke was judged on the market share performance of existing brands…if The Jones Apparel Group was evaluated based on “sales from brands in operation a year ago”….
Comp sales have become the lazy analyst’s “do everything” metric. Mr. Lampert is proving that this is not so. In almost any other industry, Sears Holdings would be considered a high performer in a turnaround situation. Many companies in many industries have intentionally allowed volume to decline while improving net profits.
Yes, for long term success, there is a point where the top line erosion needs to turn around and grow. So what if that top line growth is accomplished via acquisition? Since when has that been a “bad” thing to do? If synergies exist within the acquisition (as has obviously been the case with Sears-Kmart)then the overall bottom line will show improvement as well as top line growth.
As an industry, let’s stop being so hidebound. Same store sales are not the sole arbiter of health in a retail business.
I’m hard pressed to describe coherently the Lambert/Sears/Kmart strategy, let alone comment intelligently on it…and judging from the disparate comments here, that can be said of most people.
It is, however, amusing/disturbing to see the large number of >Stock price increasing because Lambert’s a genius; > Lambert’s a genius because the price is increasing; > circular arguments put forth.
Does it really matter? It’s a holding company of real estate,
and poor retailing. Bad market positioning, whether against Wal-Mart or the great Target-type operations. And then you will have Kroger with its Fred Meyer’s mass merchandising operations rolling out.
Sears Holdings’ operation is in a good position, to _ _ _ _ !
Hmmmmmmmmmmmmmmmmmmmmmmm
I worked at Sears in the late 90s and the writing was on the wall back then–declining hard good sales, brand equity that rarely resonated with a younger consumer and the end of the “softer side” success story. Sadly, in 10 years the company has failed to address the issues that got it there and continues to fade from consciousness for most Americans. When I was there Sears had strong equity and loyalty with their Hispanic market segment–great equity to build and leverage but unfortunately I don’t think they knew how to take a customer centric approach to benefit from the good will. Lampert has never been interested in running a retail company. He wants to buy out Sears Canada so he can sell the Sears brand name outright in NA to someone who wants the asset. The rest of the value in the assets is in the real estate. What will he do with all that cash? I don’t know but I suspect it will have very little, if anything, to do with retail.
Since the merger with Sears, Kmart the retailer seemed to be indeed much more of a “holding” company than a full scale retailer, however, I have noticed some signs lately that Kmart might be interested in doing “retail” business again with suppliers. In my twenty-five plus years in the business I have learned to view Kmart as sort of an enigma that has gone through more ups and downs, and more cycles and trends, and more changes than the weather in Troy, MI., or, hmm, make that Hoffman Estates, IL. Kmart has been everything from a totally aggressive and dominant hostile market leader, to a homeless group of panhandlers looking for friends and supporters, to a cash rich holding company that seems disinterested in their retail business, to lots of other “things” at any given time throughout the years. Therefore, at my age for as long as I have been wrapped up in this industry, I view Kmart, uhh, make that Sears Holding Company, as just today’s crossword puzzle.
Reading this article and the comments caused me to reflect on how far Sears has actually fallen. When I was young, Sears was THE place to buy tools and appliances. They had quality, price and service along with a fabulous warranty. It was a no-brainer to buy washers and dryers and refrigerators from Sears. And Craftsman tools with a life time warranty and less expensive than companies like Snap-On made it easy to just go Sears for anything in this area. Wards and Penney’s were OK but didn’t measure up to Sears. We lived in a small town in Iowa and the Sears catalog was a big deal! Especially the Christmas catalog was such a thrill when it came out every year. It was the “dream book” as a kid and you would make your list for Santa from it.
Fast forward…there is no Sears catalog. We don’t even consider Sears for appliances anymore. Craftsman tools are still a choice but not an automatic one like they used to be. Home Depot, Lowe’s and Menards are now the first place one thinks of when looking for tools. And I have to drive past 2 Lowe’s, 2 Menards and 1 Home Depot to even get to Sears.
I feel sorry for all the many fine employees of Sears from the years of excellence to have to see this once fine company go through the ugly death spiral that I believe it is in. Unless a miracle happens, the only question seems to be when will the lights go out for the last time?
There actually are some signs that Sears Holdings will put the cash into retailing. The company scaled back some multi-channel initiatives while consolidating its merger with Kmart, but the company is looking to make up for lost time, and one of the most significant efforts will be its buy-online-and-pickup-in-store program.
They are consolidating the Sears and Kmart web sites, looking to build a better overall e-commerce foundation, and seeking to create a better multi-channel synergy with its 3800 stores.
Sears has also opened a prototypte 3-dimensional showroom on the virtual reality web site Second Life. Called the Sears Virtual Home, the store allows consumers to experiment with options in virtual kitchens, bedrooms, living rooms, garages, etc. Sears will also be opening an e-commerce development center in its flagship store in Chicago, a testing and user experience laboratory that will conduct design, function and application testing.
Sears may have lost some relevance over time, but the company has set out in a new direction to regain some of the great market share it used to command. The store has a long retail history. They are now recognizing the new multi-channel competitive environment, taking a new approach, and reinvigorating a brand that so many people still trust.
As a wise stock investor has been known to say, buy on the dips. I’m putting Sears Holdings into my “recommended buy” category.
The recent numbers further confirm what many have believed for a long time, i.e., that Ed Lampert is a very good business man but not a retailer. From his business perspective, he understands that the ROI from internal operations is no match for the profits that can be earned from outside his retail business. So, he’s doing what makes sense: disinvesting in retailing and investing in businesses where the returns are better. This is a great example of the power of “creative destruction.”
The hiring of a Chief Customer Officer from Best Buy signals that Sears isn’t ready to throw in the towel just yet. It still has enough market share (in some businesses), retail locations and brand equity to be able to regain its relevance. However, they should pull the plug on Kmart as soon as possible, convert whichever locations are worth saving as small-format Sears stores at a much faster pace (to keep up with J.C. Penney and Kohl’s) and salvage the few brands at Kmart with credibility, such as Martha Stewart.
Otherwise, Sears Holdings is wasting energy on a “lost cause” (Kmart) instead of focusing its efforts on the parent brand. This is hardly the first time that a RetailWire commentator has made this suggestion; the surprise is how long it’s taking Sears to execute a logical strategy.
Don’t bet against Eddie Lambert. He has proved us ALL WRONG! His brain chip is processing at 3x Pentium speed that the rest of our brains are!
Sears expects first quarter net income to rise from $180 million last year to between $200 million and $235 million this year. Comp sales decreases disappoint some investors. Other investors realize that Sears Holdings is measuring its success using a new paradigm: profits, not sales. Getting great comp sales increases by giving away loss leaders isn’t the strategy most investors appreciate. Many RetailWire comments demean Edward Lampert’s retailing skills. Is the goal of a retailer to increase comp sales? Or is the goal to increase profits? Sometimes these goals are in alignment. But sometimes, it isn’t worthwhile to sacrifice one for the other?
Many people criticize executives who sacrifice long run gains for short term improvements. Ed Lampert of Sears and Terry Lundgren of Macy’s are both taking extremely unpopular short-term positions with long-term goals in mind. Sears Holdings doesn’t want profitless sales and Macy’s doesn’t want the unnecessary overhead of redundant brands. These executives aren’t “customer driven.” They’re “investor driven.” Is that bad retailing?
Seems to be a lot of hmmmmmmm going around on this topic. And it’s no wonder why. Sears has been flailing along losing brand equity by the bushels full. Although Mr. Lambert may be using his cash for non-retail related ventures, I have recently seen some interest in the company to actually try getting on the up-swing. As one of the old fogies who still thinks of Sears as a quality brand to some degree, I’ll take the optimistic road and hope they will try to return to being competitive in the market with some fresh, new ideas. Oh, wait. Pass me another beer.
I think they have learned by now that there is no sense in reinvesting in the Sears and Kmart format. Sears/Kmart appear to be retail zombies at this point. The lights are on but no customers in the stores. It’s beyond me how they can even stay open with such low sales per square foot results and many of their stores. It’s anybody’s guess how the cash will be invested. One thing I am glad for is that Sears/Kmart has stopped coming up with the next new retail concept every six months and then pulling the plug after six months. I did go into a Super Kmart recently and some college kid tried to sell me a washer. He looked pretty lonely.
Good hedge fund managers don’t hold onto cash in a market flush with liquidity (read easy credit, as indicated by Sears’ $1.8 billion securitization of the royalty stream from Craftsman, DieHard and Kenmore brands), and the S&P approaching record levels. Neither will Mr. Lampert. Look for an acquisition, and soon, lest some attractive targets be snapped up by other buyers. A holding company strategy is not always dependent on the underlying fundamentals of a retail business, but declining sales never helps the value of a retail asset over time. the Sears chain needs a refresh, and soon.
Of the Sears Essentials conversions that took place over the past few years, many locations have failed MISERABLY. One Kmart store I have researched had its sales DECREASE by 40 percent upon its conversion to Sears Essentials. You can’t expect to just change the merchandise inside and slap a new logo on the front of the building and expect people to flock to your store. What is the consumer’s reason for coming to your store? Is it great assortments? Great service? Great prices? It appears to me, sadly, that Sears Essentials has none of these attributes.
And for Kmart: If Sears Holdings is satisfied seeing some of its Kmart locations sell less than 100 dollars per square foot (and some, in fact, do perform this poorly) then so be it. I think their best bet would be to take a hard look at their failures, and decide which strings to cut. You know that out of their myriad of store formats and store locations, some are a huge burden. They need to focus in on what seems to be surviving and eliminate what is not.
Many Kmart locations have continued to experience negative comps month after month–even after we had all already thought the bottoms had fallen out of some of these locations.
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Oh ye of little faith. Does anyone remember J.C. Penney’s rise from the (alleged) ashes and transformation from middle American retail antiquity to teen destination and web power house?
As Target, Kohl’s and even Wal-Mart push upward, Kmart is uniquely poised to become the one true blue (light) discounter. Kmart’s apparel and home private labels, direct sourcing prowess, Manhattan fashion hub (others followed suit), etc. bode well for the future.
As for Sears, its brand equity may have faded a bit; however, it is far from “out of mind.” Mr. Lampert has placed some talented individuals in key positions (Lisa Schultz in apparel comes to mind)…don’t count ’em out.
All I can see right now is fence sitting and maybe a bit of hubris.
I think we all know that Eddie’s first and primary focus with Sears/Kmart is in the company’s real estate value, but it seems he can’t resist the challenge of turning around the company and the cache that would come with such a success. Yet as we all know the most important key to retail happiness is customer satisfaction, Eddie believes in customer service just as long as it does not affect profits. Finally start taking a serious look at Sears Canada especially when it comes to the catalogue business, you may be surprised to find this company expanding its operations into the U.S. There is a reason why Mr. Lampert has not been able to buy those outstanding shares.
With its same-stores customer base declining, how long can Sears/Kmart remain vital retailers? Not forever. One thing we do know is that Eddie Lampert knows money, and how money works, particularly for his and his group’s interests. How long would Mr. Lampert lament if there was no more Kenmore or if Martha Stewart’s goodies added allure to some other retailers space? Is he a caring Craftsman in that regard?
Perhaps Eddie Lampert will tired of milking his style of retailing, do a reverse stock split until he has all the Sears Holdings stock, then sell the real estate, inventories, any remaining trash and pocket the cash for some other “dash.” Whoever said, “Don’t go into retaining. There’s no big money in it!” We doubt if it was Mr. Eddie.
Comp sales, or same store sales is a retailing specific metric which would be categorically derided in any other vertical. Consider the reaction of P&G if they were required to report on the gain or loss in revenue of existing brands…and that was the bellwether metric, not total revenue, total market share or any of the other performance measures looked at. If Coke was judged on the market share performance of existing brands…if The Jones Apparel Group was evaluated based on “sales from brands in operation a year ago”….
Comp sales have become the lazy analyst’s “do everything” metric. Mr. Lampert is proving that this is not so. In almost any other industry, Sears Holdings would be considered a high performer in a turnaround situation. Many companies in many industries have intentionally allowed volume to decline while improving net profits.
Yes, for long term success, there is a point where the top line erosion needs to turn around and grow. So what if that top line growth is accomplished via acquisition? Since when has that been a “bad” thing to do? If synergies exist within the acquisition (as has obviously been the case with Sears-Kmart)then the overall bottom line will show improvement as well as top line growth.
As an industry, let’s stop being so hidebound. Same store sales are not the sole arbiter of health in a retail business.
I’m hard pressed to describe coherently the Lambert/Sears/Kmart strategy, let alone comment intelligently on it…and judging from the disparate comments here, that can be said of most people.
It is, however, amusing/disturbing to see the large number of >Stock price increasing because Lambert’s a genius; > Lambert’s a genius because the price is increasing; > circular arguments put forth.
Does it really matter? It’s a holding company of real estate,
and poor retailing. Bad market positioning, whether against Wal-Mart or the great Target-type operations. And then you will have Kroger with its Fred Meyer’s mass merchandising operations rolling out.
Sears Holdings’ operation is in a good position, to _ _ _ _ !
Hmmmmmmmmmmmmmmmmmmmmmmm
I worked at Sears in the late 90s and the writing was on the wall back then–declining hard good sales, brand equity that rarely resonated with a younger consumer and the end of the “softer side” success story. Sadly, in 10 years the company has failed to address the issues that got it there and continues to fade from consciousness for most Americans. When I was there Sears had strong equity and loyalty with their Hispanic market segment–great equity to build and leverage but unfortunately I don’t think they knew how to take a customer centric approach to benefit from the good will. Lampert has never been interested in running a retail company. He wants to buy out Sears Canada so he can sell the Sears brand name outright in NA to someone who wants the asset. The rest of the value in the assets is in the real estate. What will he do with all that cash? I don’t know but I suspect it will have very little, if anything, to do with retail.
Since the merger with Sears, Kmart the retailer seemed to be indeed much more of a “holding” company than a full scale retailer, however, I have noticed some signs lately that Kmart might be interested in doing “retail” business again with suppliers. In my twenty-five plus years in the business I have learned to view Kmart as sort of an enigma that has gone through more ups and downs, and more cycles and trends, and more changes than the weather in Troy, MI., or, hmm, make that Hoffman Estates, IL. Kmart has been everything from a totally aggressive and dominant hostile market leader, to a homeless group of panhandlers looking for friends and supporters, to a cash rich holding company that seems disinterested in their retail business, to lots of other “things” at any given time throughout the years. Therefore, at my age for as long as I have been wrapped up in this industry, I view Kmart, uhh, make that Sears Holding Company, as just today’s crossword puzzle.
Reading this article and the comments caused me to reflect on how far Sears has actually fallen. When I was young, Sears was THE place to buy tools and appliances. They had quality, price and service along with a fabulous warranty. It was a no-brainer to buy washers and dryers and refrigerators from Sears. And Craftsman tools with a life time warranty and less expensive than companies like Snap-On made it easy to just go Sears for anything in this area. Wards and Penney’s were OK but didn’t measure up to Sears. We lived in a small town in Iowa and the Sears catalog was a big deal! Especially the Christmas catalog was such a thrill when it came out every year. It was the “dream book” as a kid and you would make your list for Santa from it.
Fast forward…there is no Sears catalog. We don’t even consider Sears for appliances anymore. Craftsman tools are still a choice but not an automatic one like they used to be. Home Depot, Lowe’s and Menards are now the first place one thinks of when looking for tools. And I have to drive past 2 Lowe’s, 2 Menards and 1 Home Depot to even get to Sears.
I feel sorry for all the many fine employees of Sears from the years of excellence to have to see this once fine company go through the ugly death spiral that I believe it is in. Unless a miracle happens, the only question seems to be when will the lights go out for the last time?
There actually are some signs that Sears Holdings will put the cash into retailing. The company scaled back some multi-channel initiatives while consolidating its merger with Kmart, but the company is looking to make up for lost time, and one of the most significant efforts will be its buy-online-and-pickup-in-store program.
They are consolidating the Sears and Kmart web sites, looking to build a better overall e-commerce foundation, and seeking to create a better multi-channel synergy with its 3800 stores.
Sears has also opened a prototypte 3-dimensional showroom on the virtual reality web site Second Life. Called the Sears Virtual Home, the store allows consumers to experiment with options in virtual kitchens, bedrooms, living rooms, garages, etc. Sears will also be opening an e-commerce development center in its flagship store in Chicago, a testing and user experience laboratory that will conduct design, function and application testing.
Sears may have lost some relevance over time, but the company has set out in a new direction to regain some of the great market share it used to command. The store has a long retail history. They are now recognizing the new multi-channel competitive environment, taking a new approach, and reinvigorating a brand that so many people still trust.
As a wise stock investor has been known to say, buy on the dips. I’m putting Sears Holdings into my “recommended buy” category.
The recent numbers further confirm what many have believed for a long time, i.e., that Ed Lampert is a very good business man but not a retailer. From his business perspective, he understands that the ROI from internal operations is no match for the profits that can be earned from outside his retail business. So, he’s doing what makes sense: disinvesting in retailing and investing in businesses where the returns are better. This is a great example of the power of “creative destruction.”
The hiring of a Chief Customer Officer from Best Buy signals that Sears isn’t ready to throw in the towel just yet. It still has enough market share (in some businesses), retail locations and brand equity to be able to regain its relevance. However, they should pull the plug on Kmart as soon as possible, convert whichever locations are worth saving as small-format Sears stores at a much faster pace (to keep up with J.C. Penney and Kohl’s) and salvage the few brands at Kmart with credibility, such as Martha Stewart.
Otherwise, Sears Holdings is wasting energy on a “lost cause” (Kmart) instead of focusing its efforts on the parent brand. This is hardly the first time that a RetailWire commentator has made this suggestion; the surprise is how long it’s taking Sears to execute a logical strategy.
Don’t bet against Eddie Lambert. He has proved us ALL WRONG! His brain chip is processing at 3x Pentium speed that the rest of our brains are!
Sears expects first quarter net income to rise from $180 million last year to between $200 million and $235 million this year. Comp sales decreases disappoint some investors. Other investors realize that Sears Holdings is measuring its success using a new paradigm: profits, not sales. Getting great comp sales increases by giving away loss leaders isn’t the strategy most investors appreciate. Many RetailWire comments demean Edward Lampert’s retailing skills. Is the goal of a retailer to increase comp sales? Or is the goal to increase profits? Sometimes these goals are in alignment. But sometimes, it isn’t worthwhile to sacrifice one for the other?
Many people criticize executives who sacrifice long run gains for short term improvements. Ed Lampert of Sears and Terry Lundgren of Macy’s are both taking extremely unpopular short-term positions with long-term goals in mind. Sears Holdings doesn’t want profitless sales and Macy’s doesn’t want the unnecessary overhead of redundant brands. These executives aren’t “customer driven.” They’re “investor driven.” Is that bad retailing?
Seems to be a lot of hmmmmmmm going around on this topic. And it’s no wonder why. Sears has been flailing along losing brand equity by the bushels full. Although Mr. Lambert may be using his cash for non-retail related ventures, I have recently seen some interest in the company to actually try getting on the up-swing. As one of the old fogies who still thinks of Sears as a quality brand to some degree, I’ll take the optimistic road and hope they will try to return to being competitive in the market with some fresh, new ideas. Oh, wait. Pass me another beer.
I think they have learned by now that there is no sense in reinvesting in the Sears and Kmart format. Sears/Kmart appear to be retail zombies at this point. The lights are on but no customers in the stores. It’s beyond me how they can even stay open with such low sales per square foot results and many of their stores. It’s anybody’s guess how the cash will be invested. One thing I am glad for is that Sears/Kmart has stopped coming up with the next new retail concept every six months and then pulling the plug after six months. I did go into a Super Kmart recently and some college kid tried to sell me a washer. He looked pretty lonely.
Good hedge fund managers don’t hold onto cash in a market flush with liquidity (read easy credit, as indicated by Sears’ $1.8 billion securitization of the royalty stream from Craftsman, DieHard and Kenmore brands), and the S&P approaching record levels. Neither will Mr. Lampert. Look for an acquisition, and soon, lest some attractive targets be snapped up by other buyers. A holding company strategy is not always dependent on the underlying fundamentals of a retail business, but declining sales never helps the value of a retail asset over time. the Sears chain needs a refresh, and soon.
Of the Sears Essentials conversions that took place over the past few years, many locations have failed MISERABLY. One Kmart store I have researched had its sales DECREASE by 40 percent upon its conversion to Sears Essentials. You can’t expect to just change the merchandise inside and slap a new logo on the front of the building and expect people to flock to your store. What is the consumer’s reason for coming to your store? Is it great assortments? Great service? Great prices? It appears to me, sadly, that Sears Essentials has none of these attributes.
And for Kmart: If Sears Holdings is satisfied seeing some of its Kmart locations sell less than 100 dollars per square foot (and some, in fact, do perform this poorly) then so be it. I think their best bet would be to take a hard look at their failures, and decide which strings to cut. You know that out of their myriad of store formats and store locations, some are a huge burden. They need to focus in on what seems to be surviving and eliminate what is not.
Many Kmart locations have continued to experience negative comps month after month–even after we had all already thought the bottoms had fallen out of some of these locations.