Sears to Reorganize and Then What?
Edward Lampert has failed to turn Sears and Kmart around and perhaps he’s begun to recognize that. That would be one explanation for why he’s about to undertake a reorganization of Sears Holdings that would divide the company into several operating units and presumably make it easier to sell off assets.
The plan, according to a number of reports, is for the company to set up independent units to manage its real estate holdings, proprietary brands such as Craftsman, Diehard and Kenmore, and online businesses.
Sears issued a statement when its plans became public. “We are introducing an organizational structure that provides operating businesses with greater control, authority and autonomy. Each operating business unit will have a designated leader and an advisory group comprised of senior Sears Holdings executives to provide direction and oversee the business unit’s performance.”
What isn’t clear at the present time is what will happen to the Kmart and Sears retail businesses. It does appear from the initial information leaked out that moves could further compromise the chains’ already weak competitive position by selling its brands to other retailers.
Mr. Lampert, according to an anonymous source quoted in The Wall Street Journal, is “trying to find a different way to manage the company where he can be involved in a more effective manner. The previous structure wasn’t working.”
Discussion Question: What do you expect to happen as a result of Sears Holdings reorganizing its businesses?
Candidly, with 30 years in this business, and working with every version of Kmart throughout the period, I find it absolutely amazing that Edward Lampert thought he could turn Kmart around with what seemed to be only monetary infusion but without a solid strategy to turn around the actual business to compete with Target, Wal-Mart, and others in the mass markets.
Kmart has been “lost” for several years now with little or no direction or identity. The situation is similar to a struggling airline with neither a marketing position, nor point of difference, nor even a point of similarity, nor even a consistent route map or schedule. Kmart for many years has been merely a name with a lot of history, much of it for the past 20 years or so, which isn’t very well defined as far as retail is concerned.
My question is–if this was a pure financial play from the beginning, why wait so long, and just start this process now?
Surely the crown-jewel brands and other assets have lost value over the last few years by staying tied to the Sears name. But there must have been some thought that they could help bolster some sort of revival effort that evidently never took place in any serious way.
Well now. let’s just think about this. It’s obvious that nothing significant has changed with regard to Sears’ and Kmart’s operations. That does not mean they are worthless, only that they aren’t leaders in their segments.
Sears does have a very strong position in appliances and tools. Their automotive is OK. I could be wrong but I don’t think they compete well in soft goods. Why don’t we keep appliances, electronics, tools and auto and lease out the rest of the store? In most places the appliance business is a hodge podge of independents and low-end sellers. Sears could grab the mid- to high-end appliance business and do the same with electronics.
With regard to Kmart, I don’t know of anything they do well. I would turn them into the worlds largest liquidator or turn them into a do it yourself store. I know Home Depot is supposed to own this market but they are doing a horrible job and I believe there is room to grow there. There isn’t any room to grow competing with Wal-Mart and Target.
Having visited every Sears “concept” and watched them all close or struggle, nothing has worked so far for Mr. Lampert and crew. And the idea of selling real estate locations of aging Kmarts and mall-oriented Sears stores, when malls in general are struggling, does not sound like a successful, money-making strategy in today’s marketplace.
It’s becoming increasingly difficult to imagine that Sears and especially Kmart can survive as retail entities. As has been said, they do not make any statement or have any sales strategies that give a customer a reason to shop there. There may be a few stores that are strong because of their location, but not enough to carry the chain.
I don’t have much hope for Kmart’s chances but Sears could be saved. Kmart’s only claim to fame is much better served by Wal-Mart and Target leaving no space for them. They still have some strong brands that they may be able to leverage beyond their own stores but they need a well thought out strategy to maximize them. I don’t think using them to try to save Kmart is the answer. I think that would dilute the brands and still not save KM.
Since it appears none of the executives or Mr. Lampert has a clue about how to turn Sears/Kmart around, the only answer is to, once again, reorganize the company. With little or no actual investment in the stores, few associates to actually serve customers and service that has become a pathetic joke, it might be better to pay attention to what goes on in the stores rather than simply go through another reorganization. Don’t you think?
“Searsmart” might be getting old and tired. Start fresh with a new name, something refreshing like SK Market Place and then refresh their strategy to become one entity.
There are some retailers that may actually be envious of Sears Holding. Who, you may ask? Those that don’t have any brand equity (certainly Kenmore, Lands’ End and Craftsman are good starting points). And, still others don’t have a lick of decent real estate thanks to other giants like Wal-Mart, Target, etc. Sears/Kmart actually have both.
That being said, I also agree with the majority of my learned colleagues who say that the emergence of a Phoenix from these unsightly ashes may be near impossible. It would appear that rebuilding begins not at the top in this case but at the bottom. Sears/Kmart cannot get much lower–it’s time to re-emerge with an entirely new and unique identity built on the brand equity that remains.
When trying to put fresh paint on a broken fence, you still have a broken fence. This fence needs to be torn down and a new one erected. I’m hopeful they will finally focus on establishing some unique shopping experience!
There is a great deal of value in the Kmart locations as many conflicts with Wal-Mart have been closed and they have urban locations that will be difficult for Wal-Mart to duplicate and have little conflict. Look for Wal-Mart to take the urban sites and Sears to take the rural Kmart properties.
The city of Chicago has three Kmarts. It would be easy to convert them to Wal-Mart and double or triple their volume. Wal-Mart’s growth engine is not dead yet. Get Target and Penney’s into the auction and Eddie is in clover.
Kmart has been like a brain-dead patient on life support since the 1980s. The name will forever be associated with cheap merchandise and dingy stores among middle and higher-income customers. It might have once had an opportunity to resurrect itself as an urban counterpart to Wal-Mart, but that time is long past.
Sears failed to maintain, then regain its position in soft lines, as did competitors like Penney’s and Kohl’s. Then it let the quality of critical assets like Craftsman and Kenmore slide. Prior to the merger, it experimented with formats like The Great Indoors, Sears Essentials, and Sears Grand. Though these efforts were not well coordinated, they might have still paid off. While there has been some effort to continue the Sears Grand concept, it has been laughable. Painting a thirty-year old Kmart red and putting a new sign on it is not effective branding.
Can either name be saved? Perhaps Sears. It will take an effort that the company does not appear willing to make.
Without details of what each business unit will consist of, it’s sphere of autonomy, and the mechanisms by which each business unit will interact, it is impossible to formulate an opinion about the Sears reorganization.
And that statement should be extremely telling. As a 25 year veteran of retail and years spent as an observer/consultant to all channels and types, there isn’t much I haven’t seen. That changed this morning. Within the context of retailing as we know it, the sketchy outline available for the Sears reorganization doesn’t fall into any paradigm I’m familiar with. Or does it?
Breaking the merchandising function into “operating divisions” isn’t necessarily new. Many retailers have created GMMs as mini-presidents or operating executives of their own businesses, attempting to realign personnel and functions to create true bottom-line responsibility. It’s almost impossible to achieve, but it’s been done before.
Brand management has and is being applied within retailers. Macy’s applies it, as does (to a much lesser extent) JCP. It’s worth noting that the Macy’s model evolved out of FMC and a long history of a sustained competitive advantage in product development. Urban Outfitters sells Free Peoples in about 3500 boutiques across the country, and Macy’s sells its brands outside the nameplate (mostly internationally). However, neither is a very large business. Scores of apparel vendors operate their own retail stores as well as sell to department and specialty operators…but again, this is a different model with clearly understood dynamics.
At the end of the day, currently, SHC distributes products through brick and mortar outlets operating under the Kmart and Sears nameplates, as well as the online stores. It is unclear how this reorganization will impact the existing consumer desire to visit these locations, with the possible exception of the online operation.
What does this mean?
How about, “the logical end to this purely financial play”?
Let’s just hope the new stewards of these venerable brand names, Craftsman, Kenmore and Lands’ End, are more capable retailers.
One thing we haven’t talked much about yet however, is the shake up we may see in other retailers as a result of all this real estate coming onto the market. Will someone else try to rescue the old nameplates? Will existing retailers carve up the sites? Or will one (or more) totally new retailers emerge?
Why do “deck chairs” and “Titanic” pop to the top of the thought process with this development? I do not think for a minute that Eddie Lampert is not an intelligent investor but as a retailer I think he had/has taken on a challenge that may be beyond his grasp.
The greatest asset of Sears is real estate, not a compelling offering to the guest as a must-have destination for either the shopping experience or the merchandise.
He has some crown jewels like Craftsman and Kenmore, so he has assets that make the adventure into the Kmart/Sears merger worthwhile. But the end result seems to be the division (which is now done) and the breakup value for his investors once sold, which seems to be next. The only surprise would be if he was to hire a real merchant from a place like Target or a grocer from Kroger that could try to turn the merchandising and inventory replenishment around, otherwise I think we are more likely to see “for sale” signs in the future rather than “on sale.”
Sears and Kmart are both dying for a rebranding and makeover in order to be relevant to today’s shopper. However, that being said, there are some real positives to work with including some of their brand names.
Another encouraging sign is that Sears Holdings has been doing some innovative things with its cross-channel shopping offerings.
I think there is some play where the Sears brand becomes more visible with Kmart stores. On their own, the two brands are in a no man’s land against Kohl’s, Target and Wal-Mart, but considering their combined assets, some new labels and an updated value proposition could turn that around.
I don’t think Mr. Lampert ever seriously thought that Sears and Kmart could be saved. He just went through the motions of hiring some industry names but obviously, the shopper never saw many changes trickle down.
First, Kmart will need to be disposed of. The sales per square feet per unit number is getting closer to zero by the day. Then the rest of the company will need to be liquidated. In my opinion, the assets are overstated and there will be significant write-downs, particularly the blighted real estate holdings.
During the 10 weeks ended January 11, 2008 Sears spent $500 million buying back 4.9 million shares. Surely Edward Lampert knew that sales and profits would be declining, yet he increased his investment in the company. Warren Buffett says the best time to invest is when everyone else is scared. This is a very scary time for retailing in general as well as Sears in particular.
Edward Lampert’s plan to partially decentralize the management structure might very well be appropriate, especially if the folks at top of each pyramid are incentivized on total company profits as well as each pyramid’s profits. If clothing brands can sell to department stores as well as their own stores, why can’t Kenmore be sold at Sears as well as Best Buy?
Sears and Kmart appear to be two former giants wobbling towards insolvency. Sears is where “America used to shop” and Kmart is still smarting from its Martha Stewart losses and attempting to be a Wal-Mart look alike.
In the final analysis, the strength of this organization comes from recognized brand names and valued real estate. This move underscores the value of its brands and may lead the way toward capitalizing on its real estate holdings. It appears to do little to enhance the shopping experience at either retail format.
Remember Old Man Potter telling George Bailey (in “It’s A Wonderful Life”) that he’s worth more dead than alive? Eddie Lampert may have come to the same conclusion about the various pieces of his Sears “strategy.” The breakup value of the various pieces looks like the only way to salvage whatever value is left since the company is bleeding cash. Sad to say, almost every move made since the Sears/Kmart takeover has been a financial play instead of a solid merchandising strategy, and we may be looking at the endgame right now.
I agree with David Biernbaum. Edward Lampert knew what he was buying and this is a classic end game. The parts are worth more than their sum. Sell off the pieces, make some money and run. Maybe he did have a fantasy that he could fix the thing, but I doubt it. This has been a break-up/real estate play from the beginning.
I have been in sales for 35 years and have seen many retailers come and go. The Sears Holding thing just did not make sense except selling the real estate to bring cash into the business. They tried to re-invent themselves, but that’s difficult to do in the retail landscape we find today. They have too many competitors selling the same stuff.
If Wal-Mart and Target are struggling on comp store sales, think of what Sears and Kmart are doing. They will now be selling their real estate, creating some new specialty format and/or licensing/selling the Craftsman and Diehard franchise. Retail is tough…just ask all those folks that worked in the mass, food, drug and hardware/home center channels that no longer exist.
Some interesting points. However let’s not pound the final nail in the Sears Holdings casket just yet.
I agree with some of the comments that Kmart needs some tender loving care. I also agree that the initial remodels need to be expanded chain wide. I think the tweaking of Kmart and the cross pollination of various Sears brands into Kmart is an effective way to expose these well known brands into more stores. Also getting the crafts business back into Kmart would be a great idea, even incorporating A.C.Moore departments would bring in added traffic.
I also think that Sears should go full speed ahead with the Restoration Hardware acquisition, as well as making Lands’ End shops front and center in all Sears stores.
Regarding some kind of nationwide liquidator, the best bet for Sears Holdings now is to start a third mass merchandising chain called Roebuck$. Roebuck$ would be positioned as an upscale Big Lots, and would be a liquidator with various departments, clothes, hard and soft goods, groceries, HBA, etc. These Roebuck$ could replace under performing Sears and Kmart locations in places like Michigan and Florida, for example.
The room to grow in the retail sector is at the bottom: Wal-Mart’s low price boasts are simply that, especially in small markets where they dominate fashion and home textiles and where there are often aging Kmarts looming in a nearby strip center in ill repair.
I was in a very low-income area this Christmas season and the Kmart was packed but with lower-income shoppers versus the nearby Wal-Mart Super Center. The Kmart name is a loser, I second the nomination for Roebuck$ above and suggest becoming the “un-WalMart.”
In larger cities, there are far more Kmarts than Wal-Marts, which tend to be few and far between. These Kmarts fill an important need for nearby customers.
However, after the Sears takeover, I noticed that prices in Kmart rose significantly, although the appearance and organization of the stores remained sub-standard. Examples of the increase in prices (at least in my location: suburban Milwaukee) – (1) plastic underbed boxes with wheels are $20 each at Kmart versus about $10 at Wal-Mart (2) certain serving bowls at Kmart are $40 each, even though the bowls are not boxed and are sitting on a disorganized, dirty bottom shelf.
Raising prices at Kmart without making substantial improvements at the stores is certain to drive away shoppers–hardly a smart business move. In my own case, I’m now willing to drive the 20 minutes to Wal-Mart instead of shopping at the Kmart immediately behind my office, because of the higher prices.
From the many of us who have been unimpressed by the curious combination of naivety and, perhaps, arrogance that has accompanied the whole Lampert era, I can imagine hearing a resounding “I told you so!” But of course that’s a cold comfort for all involved. Sears may well be salvageable–I believe it still makes a profit–but the window of opportunity is closing fast, and I see little in this latest shell-game to impress….