Lampert’s Fix for Sears Becomes Not Your Parents’ Department Store

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Edward Lampert is remaking Sears Holdings Corp. (SHLD) to be quite unlike the department store Americans have known since 1893.

Billionaire chairman Lampert is lessening his company’s dependence on full-size locations, where sales have fallen. In his latest attempt to turn around the largest U.S. chain of its kind, Lampert is turning to smaller store formats, Web sales and the lure of its brands to re-ignite growth.

Sears has closed 171 of its large U.S. stores since Lampert merged the chain with Kmart in 2005. It’s accelerating franchising efforts — including the Sears Hometown and Sears Auto stores. It’s leasing space to such retailers as Forever 21. And departing from a strategy that has prevailed for most of Sears’s history, it’s allowing other retailers to sell the popular DieHard, Craftsman and Kenmore products and licensing those brands.

The brands “still have equity, they still resonate” with consumers, said Robert Passikoff, president of Brand Keys, a New York brand-equity consulting firm. He has a proposition more radical than the company’s current strategy: “Close down the stores and just license the heck out of the brands.”

When Lampert merged Sears with Kmart in 2005, he said the new entity would have the geographic reach and scale to compete withWal-Mart Stores Inc. (WMT) Sears service and products are “every bit as good as any of the competition,” Lampert said when announcing his plan to buy Sears in November 2004.

Four CEOs

Lampert, who along with his hedge fund owns about 60 percent of Sears, has since presided over 18 consecutive quarters of declining sales. The chain is on its fourth chief executive officer. While the shares soared in the first few months, the company’s market value has since tumbled to about $7.7 billion, a 37 percent drop from the $12.3 billion acquisition price. The shares fell 2.8 percent to $72.25 at 4 p.m. in New York.

Few retailers have tried and abandoned as many initiatives in so short a time. An initial push involved converting 400 Kmart stores to a format called Sears Essentials that featured grocery and convenience items. Sears Grand, another concept, hewed to a superstore model. Now it’s the franchised Hometown outlets, which sell tools, appliances and outdoor goods.

“I don’t know how they could materially turn this around in a way that could make Sears a viable retailer over the long term,” said Matthew McGinley, a managing director at New York- based International Strategy & Investment Group, which recommends selling the shares. “It’s almost too late now.”

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