By guest author Suzanne Kapner from Wall Street Journal
Hedge-fund manager wants to shrink remaining Sears and Kmart stores and sell less apparel; hiring a new CEO
Edward Lampert has a plan for Sears after its trip through bankruptcy: smaller stores and less apparel.
The hedge-fund manager, who steered Sears into bankruptcy and kept it alive with a USD 5.2 billion offer for its assets, says he will sell or sublease some of the 425 remaining stores. He plans to devote more of the retail space to tools and appliances. He also wants to open more smaller stores, similar to one in Oak Brook, Ill., which at 62000 square feet is about one-third its original size.
“Our goal is to continue to shrink the size of our stores,” Mr. Lampert said in his first interview since his rescue plan was approved by the bankruptcy court this week. “If I had my druthers, I’d rather be bigger than smaller. We still have enough of a critical mass.”
The restructured company, which does not yet have a new corporate name, will be composed of 223 Sears stores and 202 Kmart locations, as well as the Kenmore and DieHard brands. Sears sold its Craftsman brand to Stanley Black & Decker in 2017 but retains a license to sell products under the name.
Mr. Lampert said he would remain the company’s Chairman but would hire a new CEO to carry out his vision. The billionaire, who rescued Kmart from bankruptcy and merged it with Sears in 2005, had served as chief executive since 2013, but he relinquished that role when the company filed for bankruptcy in October.
The shrunken Sears will compete against bigger retailers such as Home Depot Inc., Lowe’s Co s., Best Buy Co. and Amazon.com Inc. After closing hundreds of stores in recent years, it will lack the economies of scale and negotiating clout with suppliers that the larger players wield.
“They have already been category-killed by the big box chains,” said Burt Flickinger, managing director of consulting firm Strategic Resource Group. He said Mr. Lampert’s idea of focusing on so-called hard lines was a good one, but is a decade too late. “They have lost the confidence of the vendor community,” he continued. “Sears and Kmart prices are no longer competitive.”
Once the largest seller of major appliances in the U.S., Sears has fallen to fourth place, behind Lowe’s, Home Depot and Best Buy, according to research firm TraQline. But it still commands a 12.9% share of the market, which has $36 billion in annual sales, giving it a position from which to rebuild. With J.C. Penney Co. recently announcing it would no longer sell appliances, Sears has one less competitor in the mall.
“They have a shot, but it’s a long shot,” said Craig Johnson, president of consulting firm Customer Growth Partners. “Most of the profits on appliances are made on the servicing side, and Sears still has a good service business.”
In addition to the retail stores and brands, the restructured company includes Sears Auto Centers, Sears Home Services and logistics company Innovel Solutions Inc., which operates 11 warehouses, a fleet of trucks and specializes in delivering appliances.
One challenge is that appliances are purchased far less frequently than apparel, giving shoppers fewer reasons to visit a store or website on a regular basis. Mr. Lampert’s answer is his company’s Shop Your Way loyalty program. Points can be earned not just at Sears and Kmart, but also at partner companies, including Ulta Beauty and Uber.
“Shop Your Way has always been our answer for how we’re going to be more relevant,” Mr. Lampert said.
During a court hearing last week, a lawyer for the creditors’ committee questioned the Shop Your Way program, noting it has consistently missed expectations. A Sears executive acknowledged that targets had been missed, but said the program would be a cornerstone of the company going forward.
Mr. Lampert said Sears did not need to win over new customers, and could survive by doing more business with existing shoppers, something other retailers have echoed by launching loyalty programs that reward their best customers.
The Sears chairman said he hoped to win back suppliers now that the company was in better financial health. “We have a clean balance sheet,” he said, referring to the roughly $4 billion of debt and pension obligations that were eliminated through the bankruptcy process, including $1.3 billion that was owed to Mr. Lampert’s hedge fund. “We hope suppliers take a more constructive approach.”
Mr. Lampert said Sears didn’t always get credit for its innovations such as introducing curbside pickup and equipping its sales staff with iPads before it became fashionable to do so.
“We did things before others,” he said. “The problem is they didn’t end up mattering enough. Whether we didn’t do it well enough or we ran out of time, or we didn’t market it enough. It wasn’t the ideas, it was making them matter and turning them into profit.”
Although Mr. Lampert is buying the best Sears and Kmart locations, not all of them are profitable. “It would be very difficult to keep all 425 stores open,” he said. “We would like to maintain a presence in at least the stores that we’re in. That may be in a different location in the mall, if we were to sell the store, or sell and lease back part of the store.” In addition, Mr. Lampert is buying a number of stores that have already closed. He said those locations would probably not reopen and would likely be sold.
He said a lot depends on the mall owners. “The mall owners are very influential,” Mr. Lampert said. “They were not rooting for the company to emerge from bankruptcy.”
The restructured company is controlled by Mr. Lampert, but he doesn’t want Sears to stay a private company indefinitely.
“Being private has certain advantages of being able to do things that public investors wouldn’t endorse,” he said, adding that must be balanced against the opportunity to raise capital as a public company.
“If I am a betting person, which I am, I would say at some point we would be public again,” Mr. Lampert said.