Sears Needs to Get Real
Commentary
by George Anderson
There
is something missing from the reporting we’ve seen on the latest
results from Sears Holdings. Virtually all the coverage online,
in print and on broadcast media has talked about how the company
has had to cut back in light of the recession. Some reports even
include an analyst or two talking about how Sears is doing the
right thing in finding ways to control costs.
Reading
and listening to this stuff, we recently found ourselves channeling
our long-departed, grocery store manager of a father. A voice with
a deep Jersey City accent we don’t possess, blurted out, “Are you
fa real? Git atta here b’for I…” Fortunately, with young children
in the next room, we were able to gain control of the invading
spirit and not mutter what usually followed from dear old dad’s
lips so many years ago.
Sears,
for those who haven’t been paying attention, had been watching
its sales go south pre-Edward Lampert. Since taking over the company,
however, Mr. Lampert has turned in same-store sales declines with
a systematic precision that would be awe-inspiring were it not
so tragic.
Mr.
Lampert has managed to stay ahead in the minds of investors and
others expecting him to prove that he really is the next Warren
Buffet by finding ways to cut costs at Sears or deliver revenues
from investments not connected to selling goods.
His
failure to invest in the store experience has become a self-fulfilling
prophecy where fewer shoppers (each and almost every quarter) go
to the chain’s stores or website to purchase goods.
The
path to failure has been amazingly straight and Mr. Lampert and
company (AKA the execs who won’t tell him that he has no merchant
DNA in his body) have not strayed. That’s why as sales continue
to fall, Sears continues to cut one of the few ways it has to get
more people in the store. The chain reduced ad expenditures by
$107 million in Q1 ’09 and $45 million in Q2 (some of the $45 mil
comes from Sears Canada, Crain’s reports). Last year, $94
million was lopped from the ad budget.
To
demonstrate how committed Sears is to growing sales (not), W. Bruce
Johnson, the company’s interim CEO, said in a press release, “We
continue to take actions to increase the efficiency of our operations.
We have reduced our selling and general administrative expenses
by approximately $1 billion over the past four quarters, including
a reduction of $212 million this quarter.”
Discussion
Questions: What is the biggest impediment to Sears growing its
sales? Will the chain ever be successful under Edward Lampert?
You can’t destroy a company without a plan which may not be visible to us yet. Reminds me of “chainsaw” Al Dunlap, CEO of Sunbeam who became legendary for his rapid restructuring of companies seemingly plagued by slow sales, high overhead, and a lagging stock price.
At some point, you have to actually grow sales.
In the end, when you’ve cut past the extras, the limbs and the heart, there’s no roots left to support the brand. So it is with Sears. Oh wait, they’re adding Toys again–that’s sure to make the difference.
Sears has become increasingly irrelevant to American Life, especially for those of us old enough to remember when, for better or worse, it was American retail. America actually did shop at Sears, I think mostly because you got good stuff at a good price. Sears has let others take over its domain (appliances at DIY, home furnishings at places like BB&B).
They’re going to have to market their way out of this and advertising is going to be a key.
If Sears had a compelling in-store experience, it could have a real opportunity to pick up down-trading shoppers from department stores (the ones who want to save money but can’t bring themselves to go as “low” as a mass merchant). The problem is that they have nothing compelling about their store experience. And worse yet, other than their tools and appliances, there is almost nothing that the Sears brand stands for in the minds of consumers–and Sears is doing less and less to define even that.
I used to joke about Montgomery Wards, that the worst thing about their stores is the smell–the tire smell from their service department would pervade the entire store, and frankly made everything seem cheaper. It’s hard to convince yourself to buy expensive jewelry or a silk blouse when everything smells like rubber. Where’s Wards now?
Forget about customer service. Forget about assortment. Sears’ problems with their store experience are even more fundamental than that: smelled a Sears store lately?
I had an interesting conversation with an associate of Mr. Lampert a couple of weeks ago. He actually does have a merchandising plan…he buys for gross margin, not for breadth of assortment. Ironically, in these economic times, others are doing something similar–narrowing the assortment to minimize inventory investment. If you search our web site, you might find the article I wrote about our conversation.
Of course, as we know, Sears has very favorable real estate deals, so Mr. Lampert does not have to worry about sales/sq ft or total sales to meet his rents. That’s one reason the comp store sales continue to decline. It’s almost by design in a way. He’s buying for earnings, not for sales.
This brings us to 2 philosophical questions: 1) Does this make sense as a sustainable strategy and 2) If it does, does it translate to other retailers?
I believe the answer to both is No. I think too much SKU rationalization makes stores totally boring. Shopping is emotional, not rational. There really IS an art to merchandise assortments and to store layouts. Technology can help, but you’ve got to have an eye. And that’s why sooner or later, Sears will hit the bottom of the barrel, and that will be that.
There’s a lot more I could say, but bottom line, whether or not Sears survives, no other retailer should follow this strategy.
There are so many issues at play here, it’s hard to know where to begin. Many of my fellow panelists have had plenty to say on this subject going back to the Sears/Kmart deal five years ago:
1. The original deal looks more and more like a financial “play” rather than a legitimate attempt to make something strong out of two weak players, and Kmart should have been killed a long time ago;
2. From everything reported about Lampert’s leadership style, he’s made it impossible to hire a CEO with real autonomy or merchandising chops…and has now made it impossible to fill the job at all;
3. The lack of capital investment in the business, as sales have spiraled downward, has only fed the negative comps. There are so many category killers (Lowe’s, Best Buy) and midtier retailers (Target, Kohl’s) providing more attractive shopping options to the worn-out neighborhood Sears store.
I could go on and on…but the other panelists will have plenty to say on this subject today.
It’s a crying shame about Sears. On Sunday, I went to a Sears Town location, a free standing Sears, that’s what I still call them, knowing them that way as a small boy in the 1960s where your dad would get the oil in the car changed, get new car seat covers installed, I would get a baseball cap, and Pop would buy some craftsman tools. They were cool times.
I went through the Tool Territory door, since I wanted to buy that nifty Craftsman Power Hammer. I found it myself, and did get one of the last two boxes displayed.
The checkout process was way less than I even expected from Sears. I could not understand the sales associate, and I just went there to get that, no impulse buying, whatever that is, in Sears today.
That is the sad state of affairs at Sears today. Even if you wanted to impulse buy, it is the most unattractive shopping atmosphere imaginable. Even the cheaper Craftsman hand tool display, they messed up. The Kmart Craftsman hand tool display is a much better set up.
I wish Eddie had tried to buy Home Depot. You can impulse shop there, but never at Sears. Even Ace Hardware is a more interesting shopping experience than the hard line side of Sears.
Wish they had never promoted, “The softer side of Sears.” That might had been their biggest blunder in recent memory.
I still hope Eddie can pull some retail pizazz for Sears out of his magic hat.
I’m actually mobile and sitting outside a Sears in Northern Jersey at the moment.
Sears needs to answer 2 questions- Who are we? And why should anyone care? All the sales in the world won’t make you relevant.
Frankly, I think the strategic issues facing Sears are so significant and so long overdue, I question their ability to survive.
To start with, Sears was not bought to turn around. Actions taken to date prove this point. It was bought as a real estate play. Long leases at below market rates have good value. Unfortunately, the commercial real estate market is tanking and likely never to come back. There is this thing called the internet which has sales growth every year. Sears real estate is losing its value as the population shifts. They are not opening new stores in the growth areas so how can they expect sales to grow? The chain has two brands Kenmore and Craftsman. The rest of the store has little value. They have not invested in these stores so they just get old and tired.
Sears is only going one way and that is down. Shortly, I expect the decline rate to increase. This can only end badly.
You can fail to plan or plan to fail. We still do not know which one it is for Sears, but they still have a retailing presence. What they do with it is determined by how they wish to advance their stores. Sears needs to recognize that their entire department store basis is gone. Keep the great performing departments (tools, appliances, etc.) and get rid of the rest. Grow this business in all of their locations and become the greatest retailer for these products. Forget toys, clothing, etc. These do not deliver the profits and customer loyalty that their Craftsman and Kenmore brands have demonstrated over the years. Add great customer service to this mix and Sears will be profitable, memorable and a retailer for the ages!
The biggest impediment? Identity. What is Sears (or Kmart) to a consumer? What’s their secret for success–what’s their point of difference?
Before it reduces expense to the point of no return–if they haven’t already–I’m hoping they can define their market position, strategy, shopper and store expectations.
I still have a soft spot for this giant but my faith is waning.
The plain simple fact of the matter is that they are still there. Yes, still there. My assumption is that they will still be there.
Regardless of the cries of foul that we all have about Sears and Kmart, they both continue to survive. That is, from most of our viewpoints that they survive in spite of themselves.
In the end, there really is something to be said for survival. What is said for it may be as diverse as our viewpoints. Yet, in spite of all of our views they continue to survive. Flourish? Nah. But, they do survive.
Maybe we simply just don’t understand what is REALLY going on with either brand. There just has to be something. Right? I am certainly not sure, but there really must be a secret to their survival. Many have certainly predicted their failure, exit, demise, you name it. In spite of that there seems to be a quite miraculous survival capability. Maybe we all need a different perspective to understand that simple fact. How’s that happening? There might be something to learn here.
The deathbed of any business is ‘irrelevance’. No living system is exempt from the life cycle which predicts that, unless you reinvent yourself and ‘jump the curve’ to a new life cycle, you’re going to die. Unfortunately many organizations think that being an American “icon” gives you a pass. Not so. Heck, if General Motors doesn’t get a pass, no one does.
Unfortunately many companies finally see the inevitability of their demise about two weeks too late.
There’ll be no tears for Sears though I agree with Nikki and ‘weo’ that it’s the Craftsman Tools we’ll miss. That’s a store I’d go to…the Craftsman Tool Store. No potted plants or lawn furniture…just every Craftsman tool ever made. Just the thought makes me tingly.
Seems we all poke fun at Sears about once a month on this blog. The latest joke is the Christmas club where they give you a whopping 3% bonus so you can come in and pay 20% more than Wal-Mart. Nobody cares about that. And the layaway plan which caters to people who can’t afford to shop at Sears anyway. These are just press releases to impress ignorant stock analysts.
Take a look at the Kmart and Sears sales by individual store. It’s the worst sales per square foot performance I’ve ever seen and it’s beyond me how they can keep the doors open. The declining sales have to be by design because no company could do that unless they were doing it on purpose. Sears is simply cutting expenses to show a profit. The question is how much lower can sales go? The biggest barrier to growing sales for Sears is they really don’t want to grow sales. Will Sears be successful? Depends on how you define success. Certainly not by sales per square foot.
My guess is the real estate is way over-valued. As the stores continue to deteriorate and become more blighted, even if they get free rent it might now help. I think we all have to give Sears some credit because if it was any other retailer, the doors would have been shut years ago.
I too have been channeling my long departed, retired Sears executive of 35 years father with a South Jersey accent. He would be waxing nostalgically about the good old days when Sears actually stood for something. He no doubt would be snipping about the “…young Wall Street slickster” (yes, he actually spoke like that), who thinks he knows how to run a retail establishment better than the seasoned retail veterans! A defining moment for Sears was back in the ’60s when Kmart, Walmart, and Target made their debut. I can remember the day my father came home and told my mother that the discounters would be the demise of Sears! How prophetic!
I don’t know when Sears will ever get its groove back, or if it even can. It used to be everybody’s store where our whole family shopped on Saturday; dad to hardware, mom to clothes and appliances, and us kids to toys. We knew the sales people and they knew us and the products. Customer service was more than just a slogan or a poster in the break room. Their sales people were professionals and were treated as such by the company, and in return the company was the beneficiary of their fierce loyalty.
I think there is a lesson here for all retail. Know who you are, know who your customer is, and never forget either one.
I think there’s two issues being raised here, the longer-term prospects for Sears, and what’s happened over the past few quarters.
Start with the past few quarters first. Sears hasn’t been doing anything that every other retailer has been doing as well. They responded to the most challenging environment that most of us has ever seen by focusing on cash preservation. That meant focusing on margins, inventory management and expense control, in a period when the top line was shrinking and no amount of merchandising innovation or marketing creativity was going to change that. Let’s not beat up on them for being prudent business managers in a really tough, and uncertain, period.
But that doesn’t change the fact that Sears has become almost irrelevant in today’s retailing landscape. They are a ‘tweener, not fitting neatly into any particular segment, not a leader in any particular category, not a retail destination of choice for very many consumers. That’s not a strategy, nor is it sustainable over the long haul
Sears has cash, and a favorable cost structure, which translates into time, but they don’t have a retail strategy, and no longer resonate in the minds of most consumers.
What does Sears have to offer that is not available elsewhere? Craftsman and Kenmore! Why doesn’t Sears completely shutter their stores, and focus on their two best brands? Work an exclusive deal with either Home Depot or Lowe’s to sell their branded products in their stores? Sears would be significantly smaller, but potentially profitable. There is only one reason to be in business; that is to make a profit. All of the other excuses that you can make on a conference call mean absolutely nothing. If you are not profitable, you do not have a sustainable business. End of story.
Sears, as a retailer, is so yesterday’s news. It is sad to see a chain continue to limp along with absolutely no chance for survival in its current form.
When I walk in the front door of a Sears, I see a vast expanse of white space with sparse merchandise and I assume, low dollars per square foot. Where you do see merchandise, 9 times out of 10 it’s clearance. Especially in the softlines areas. I ask my wife every time we walk into our local Sears when she thinks they are going to close.
They have a very confused identity, with LL Cool J gear (do kids really know who he is?) to Lands’ End merchandise that is so scattered that it doesn’t make a cohesive statement. I can’t remember the last time I purchased clothes from them. Maybe for the kids when they were running a great sale. Joe Lunchbox is their customer, and he doesn’t have money to spend right now.
They need to make their displays compelling, bring a little color into their stores, and breathe life into their associates. For certain the appliance associates are hungry for commission, but I don’t see the slightest spark of life in the rest of their associates. They’re always congregated around the registers, talking.
Where are you, Sears of old?
I can’t speak for Sears, but as a long time (former) Kmart employee, they aren’t going to survive at the rate they are going.
One way to win customers is service and cutting the hours at store level saves them money but I recently was shopping in a local Kmart and overheard two customers looking for help; one said to the other, “forget it, there’s never any help here,” and they left. I myself have walked through the whole store without seeing one employee, except for the cashiers.
The question asked was: What is the biggest impediment to Sears growing its sales? Will the chain ever be successful under Edward Lampert?
I have read all of the posts before this and they are great. But the answer is simple: NO they will not survive and the reason is also simple; the competition is more focused and better at their job than they are.
If Sears wants to Restore itself to greatness, let’s start with other words that start with the letter R.
Relevance. The merchandising plan must achieve a whole new relevance, assortment by assortment. This means key items and a balance of complementary items in the right depth and breadth. When assortments are broken too early in the season, Sears’ BI system should scream for attention.
Recognition. When a shopper return to Sears, they want to recognized and supported in their shopping. A good way to do this is through email marketing and ecommerce. I suspect that many home improvement shoppers have abandoned Sears for Lowe’s or Home Depot. Yet Sears has an enormous data base of shoppers who have bought appliances and major tools. Connect the dots!
Reward. Shoppers want to be rewarded for their behavior. Study after study shows this is an effective way to boost the top line. Get busy.
Reactivation. Millions of Sears and Kmart shoppers have stopped shopping at these stores. A Reactivation campaign, coupled with Reward and Recognition would yield billions.
Relationship. Sears needs to improve its relationships with all of its best customers, its vendors and its associates. Each one of these is done one relationship at a time.
Once these R’s are handled, Sears can move on to the S’s: success, sustainability, and survival.
I am a little sentimental, and have been loyal to Sears for many years. The past few months though have eroded that position entirely. First, I ordered a new lawn sweeper and the customer service I received was horrible. I went this past weekend to buy a new battery for my lawn tractor at one of their satellite stores and they only had one battery in stock and it was the wrong model and they still tried to sell it to me. Then when I needed some minor parts, they weren’t in stock and had to go through the hassle of ordering online from Sears Parts Direct, where they purposely charge you more for poor service.
There is no continuity in their selection, service or customer experience. I think that Craftsman should be spun off as its own entity and the stores closed down.
I feel compelled to describe my experience at a Sears Outlet store last weekend. Granted, the Outlet is but a poor step-child to an ailing parent, but it’s symbolic, I think.
My sales associate was, honestly, trying his best. I called him over to a dryer we had our eyes on. It had no price tag.
“Sometimes that means it’s already sold,” he said.
“I see. And is that true in this case?”
He just looked around helplessly. We moved on and he found me a similar model. It was 50% off list. Good deal.
At the checkout, he tried at first to make small talk as the antiquated computer terminal chugged along. Finally, just silence. He stared at the ceiling as we waited for each screen to submit. He turned to me at one point, wearily.
“DOS,” was all he said.
Sears biggest impediment to increasing consumer sales is the wily financial mind of non-retailer Edward Lempert. Their like-stores sales won’t arise in lack luster environments. It almost seems like the current ownership of formerly proud Sears Roebuck wants to join Gimbals, Montgomery Ward, Food Fair, Meryvns, Levitz, Woolworth and others who died and were carried away forever in The Passing Parade.
It truly has become a sad story. Sears was the place where I learned my trade from people who cared, worked hard and did their very best to help build a great company. Sadly as we all know, those days are long gone.
Unfortunately, Sears has become symptomatic of many businesses these past few years. I remember speaking to the CEO of a of a very large small market retailer in 2007. He asked for my thoughts on the company. I unfortunately had the temerity to tell him the truth. “I don’t know how the hell you guys make money,” I said and went on to explain how just about everything they were doing seemed to defy the laws of retail gravity. “Bernie,” he said, “you’re ‘old retail’, you don’t know ‘new retail’ at all. It’s only about earnings per share.” Great when the market is so full of money they will gladly shovel bags of it into your “new retail” company, not so great when times are bad and you have to return to the basics to make money.
I have one word to sum up Mrl Lampert and his captaincy: Hubris.
Memorandum to Eddie Lampert:
Please read all the passionate comments above from Sears’ confused and frustrated former fans. The ideas for improvement we’ve outlined follow common lines and could restore Sears’ former lustre. Please give us a reason to come back into your stores.
Sears’ biggest challenge is its brand. The company has muddied itself by trying to be too many things to the consumer. Sure, it would be convenient to get your oil changed, shop for appliances, buy your Sunday best and lawn mower after getting family portraits made…if it wasn’t easier and cheaper to do it at Walmart.
Sears’ latest commercials push the “blue team,” where the company tries to convince us that it now has a team of experts to help us decide on (and provide the best prices) on appliances. So is it a Best Buy, a Home Depot or a J.C. Penney?
For Sears, reinvention needs to happen in a bold way. Pick a swim lane; I’d go with hardlines as fashion is never going to be the business Sears can be successful in, and go with it. Be the place in the mall where you can get full mechanical services while you shop and be known for selling tools and appliances. Be a place men want to go to look and tinker and buy while they’re wives shop, but a place that less “tool savvy” individuals feel comfortable and not intimidated. Dedicate more space to housewares. Look at it this way; Best Buy has TVs & PCs, but no power tools. Home Depot has the tools and appliances, but lacks in basic home furnishings. Fill the gap with a one-stop shopping center for the home. “Sears: Your Home’s Home.”
All good comments and suggestions for how Sears might have a far-fetched chance at future success; get rid of this and stick to that. I heard all the “R’s” they need and a few “S’s,” but in the end, what they don’t have and never will under this “leader” is a “C”; CULTURE. There is no Sears culture anymore. The nostalgia written about above came from a culture of the brand and its resonance with its customers in years past, and now long gone.
Retail doesn’t just succeed because of an assortment, no matter what it is. Lampert brings nothing to the brand because it doesn’t matter to him as a brand; its just numbers. The store reflects it and so does the staff. There’s no longer a Sears culture, and they have themselves to thank.
Circuit City destroyed their culture and paid the price. A recent former head of Home Depot did his best to destroy its culture and they are still trying to repair it. Most successful retailers have it and the smart ones know it. Problem is, it often is not given the credit and value it deserves, and someone brilliant comes along and thinks it can be a cost savings. Welcome to retail.
George Anderson has cut through Sears’ PR spin about cost cutting to the real issue that this company is adrift without power in heavy seas. The end could come with little warning. Ownership has banked profits from from the original acquisition of these companies and clearly sees no upside to further investment. Anyone care to start a pool?
With all due appreciation for the wisdom of my fellow panelists and writers (and I agree with virtually everything each has suggested) I think the best point made today was from “scanner.” The fact is that Sears is surviving, and doing so in a financially sound way. I spent some time poring over the most recent financial statement releases, trying very hard to find evidence that the company was in an irreversible spiral. I couldn’t find it.
Yes, consistent same store sales declines must eventually lead to operating performance disaster…I guess. Because my experience, education, and insight tell me so. Yet, the length and degree of the Sears decline should already have led to disaster, and it hasn’t. Yes, cutting marketing expense must eventually lead to even greater declines in sales. After all, marketing drives footsteps and lift on promotional merchandise, and Sears and Kmart continue to be promotional retailers. And yes, all of this should be a self-fulfilling prophecy. Yet, rumors of Sears death appear to be seriously wrong.
What is really going at Sears? From within the perspective of a retail veteran, the answer appears to be difficult to comprehend. So–as “scanner” pointed out–maybe we just don’t have the right viewpoint. Something is driving this thing, and despite predictions and lamentations and lambasting in the press, the enterprise remains profitable, cash positive, and viable. Huh.
Sears is dead and was dead long before Mr. Lampert took it over. Any efforts to turn it around would be wasted. The objective should be to milk it and make the best of the real estate the corporation controls.
Look at the history of retailing. No retailer stays around forever. If their concept doesn’t die, their customers do. Once Woolworth belonged to the Dow Jones Industrial Averages, Once Sears was the leading retailer in America. Once Kmart was, as well as A&P.
Let’s not try to turn Sears around. It is irrelevant and has been for a generation.
Though I usually find myself agreeing with David and ‘Scanner’, today I find myself much less supportive of their applauding of Sears’ (apparent) survival skills; I picture a similar “progress” report on the Titanic: midnight, looks OK…1 AM, still there…2AM, STILL there, guess we were all wrong about the situation….
Anyway, at this point the Sears story seems less and less about Sears, and more like a referendum on Eddie Lambert and similar Johnny-come-lately “saviors” (and their analyst enablers). I vote no.
My father worked for Sears, as a simple car seatcover installer, but he was respected in our hometown for the company he worked for…and this was a spare time job. I grew up with Sears being our family’s store of choice…wouldn’t think of going to J.C. Penney’s.
Then, Sears stood for something. To get on track, Sears needs to stand for something again TO THE CUSTOMER, not the executives. I feel sorry for those long term sales associates who are just hanging on until they can retire. But at the same time, I think Sears needs to revitalize its floor staff with new blood and new innovations.
When and IF, Sears/ Kmart decides to put the consumer in the center of the equation, will determine if they can again succeed as a retail entity. It has been, and continues to be, a real estate play.
The clock is ticking, as the stores deteriorate, merchandise weakens and doesn’t fit the needs of a broad consumer shopping base, in-store experiences have been lackluster at best, and neither the existing shopping base, nor new shoppers are shown reasons to engender loyalty.
With this pattern, the consumer will vote with their feet, and shop elsewhere. That translates to continued sales/revenue declines, and eventually, layoffs and store closings.
I am so happy to see the incredible response to this discussion. It shows that WE still care about Sears–even if the financial and real estate people running the company do not. I really believe(d) that the deal for Sears was a real estate play and that Mr. Lampert seems to be doing the best he can or the best he wants too (since he is not a Merchant).
I would love to see Sears resurrect itself to its former glory but What is Sears–like so many others have said–if they continue to lack differentiation, or definition of who and what they are and WHY they are, there is no other way forward but a dead end, literally. I really do not want to see that. Think of all the employees!
I worry that in a (short) while, Sears will be Wards again. So Sad.
As for Kmart, I still cannot believe that they are still open!
I hate to see the slow, painful, irrelevant death of this historically important and once proud retailer.
I happen to actually shop at Sears. I like the convenience of going to a small town store and not have to spend half my energy looking for a parking spot. I agree with the many posts here that they are lacking focus. They are trying to appeal to all shoppers that they have lost their identity. They need to trim down and focus only on what works and expand their appliance centers, that have almost all but disappeared. I hope they can turn themselves around in time. I would miss shopping there.