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Sears’ downward spiral: No more rabbits to pull out of the hat

Yesterday Sears Holdings reported its worst sales performance since it was formed through the merger of Sears and K-Mart. In fact, the Sears brand has not had a positive annual comparable sales increase in a decade (read that again and let it sink in for a moment).

10 years ago, when I was briefly the head of strategy at Sears (insert your own joke here about oxymoronic corporate titles), it became all too clear that we were competitively disadvantaged in EVERY major product category in which we competed and that radical action was required. Over the next couple of years, store operating costs were slashed, Lands’ End was acquired, an off-the-mall version of our full-line store was designed and rolled-out and every product category had major changes to its merchandising strategy. The results were initially pretty good, but fundamentally we did little to meaningfully close the competitive gaps.

Not long after I left, Sears merged with K-mart (apparently on the premise that the combination of a mediocre company and a lousy company would yield a great company). During the past six years, Sears’ has jettisoned assets, cut costs, bought back shares and pulled various rabbits out of the hat to create the illusion that shareholder value was being created. Stunts like selling Craftsman tools through Ace Hardware never had the potential to be more than a rounding error; Home Depot sells more tools in a good weekend than Sears will ever sell through Ace Hardware. The cross-selling of brands across the Sears and K-mart formats provided a short-term bump, but has done little to alter the continued loss of market share.

Now, faced with a dearth of ideas about how to get revenue going, Sears is talking once again about more cost cutting. Sears does not have a cost problem, it has a revenue problem. But apparently when all you have is a cost hammer, everything looks like a nail (by the way, that metaphorical hammer was bought at Lowe’s).

If not already there, Sears is on the precipice of an accelerating downward spiral. Cutting costs further makes an already bad store experience even worse. The continued loss of volume makes key vendors less likely to partner with Sears and more likely to focus on retail partners that are winning. As volume drops, Sears loses marketing and supply chain efficiencies.

So watch while Sears Holdings Chairman Eddie Lampert tries to pull another rabbit out of the hat through more cost cutting, another wave of share buy-backs and lame celebrity clothing lines.

But don’t buy it. It’s smoke and mirrors. It’s Bernie from “Weekend at Bernie’s” being propped up a bit longer until we realize he’s dead.

9 thoughts on “Sears’ downward spiral: No more rabbits to pull out of the hat

  1. The strategy brought in 3 years ago of having vertical P & L for each product category and a President for each one has not help. It only added about $10 million in overhead. Now you have a President for every Product, each with their own agenda and only one store. How do you think that is working out?

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  2. Sears will need to go eventually… I doubt anything, even a “star” CEO, will be able to pull it out of crisis at this point.

    It should have learned from the experience of its competitors such as TJX Companies that has managed to gain a large market share during this recession. The secret? Retargeting, rebranding, and repositioning. This is what has brought affluent and, increasingly White, customers to stores like TJ Maxx.

    And guess what, TJ also has some of the worst shopping experience. Rude, unmotivated staff, filthy stores… The list can go on. What they were successful at is introducing a better selection of goods and making the affluent customer feel better about shopping at TJ through new marketing slogans.

    And that’s why one would increasingly see Vuitton bags along with shopping bags from Lord & Taylor in those sorts of stores. Women love bargains, especially when the economy is tough.

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  3. Sad but ultimately unavoidable. I saw this coming six years ago (probably even before that) when I was with Sears.

    As others have said, rebranding was a must and never really happened.

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  4. Not surprising since Sears has pissed off virtually all of its core customers by hiring young , inexperienced staff to cut costs in a sad attempt to drum up “younger” business and reduce costs. The last time, and I do mean last, I stepped foot in a Sears store I did not see an employee that looked older than twenty and had a clue about the products in their department. The employee in the mens department had no clue what an oxford shirt is. I cut my Sears card up when I got home. Rarely used it anyway.

    Another whammy for Sears is the poor service now being offered at their Auto Care centers. What was once a tool for bringing in customers is now a thorn in Sears’ side. Gone are the days when a customer could drop his or her car off at the Sears Auto and go into the store for a few hours to shop. I have a friend who took his car to Sears recently and they told him it would be all day to put tires and shocks on it. Sorry pal, I’ll take my car elsewhere he told them. The job takes three hours tops.

    If Sears has any chance of redemption it would be to try to attract the people who remember Sears has a good place to shop, not a place to be told “I don’t know” by a fresh out of high school employee. With the number of Baby boomers with time on their hands, a few bucks to spend, and memories of shopping at Sears in the 50’s, 60’s, and 70’s Sears could try to market toward them rather than trying to attract younger customers. Sears is not and never will be able to compete with the other stores that cater to younger buyers. “I got this at Sears” is not going to be heard in bars and clubs any time soon.

    Most Baby boomers still shop at stores. They don’t buy clothes and home items on the Internet. So, targeting older customers should be the priority, for the next 15 years or so until the last of the boomers begin retiring. Who better to attract then the people who shopped with their parents years before. Might be a good way to keep the company going for another decade or so.

    Sears needs to bite the bullet and hire older workers who can relate to older customers and the customers will return if the products and prices are fair enough. Continue on the current path of downward spiral in age of employees, customer service, and perception of Sears will soon enough bring Sears’ demise. One more relic of the good old days will be left to our memories.

    Rebranding is fine in theory but rebranding is what caused Sears’ trouble in the first place. That is why customers began shopping elsewhere. Why shop at Sears for the same things they could get at a discount retailer. Sears started losing customers when it switched from serving customers to selling to customers. There is a difference. Sears was very profitable when it was a customer service focused company. When it began to change its focus from employees helping customers find what they want to selling things to customers the company began its slide.

    Every decision since the merger with KMart has brought Sears through being of little consequence to nearing insolvency. So, Sears may be strolling on its last legs and one of them is poised above a banana peel. I fear the fall will make little noise.

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  5. When Lampert bought Sears and Kmart it was NOT about running them as a successful retail company…he is s fiance guy…it was about striping anything of value out of that company, and reduce costs to the bone so it can kick off cash for his investment vehicles…by all of those measures he has succeeded…Sears is being bled dry…all of the property was spun off to a separate Lampert company…property that had value was sold, the rest of the land that they couldn’t sell gets leased back to Sears…Sears now pays rent on land they had owned free and clear…All of the IP rights to the Sears brands were spun off to Lampert…Sears now pays a licensing fees to use their own brands…and so, and so on… the notion Sears as a retailer has been extinguished…

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  6. JohnQ is right but the press and Wall Street analysts never seem to zero in on these things. Sears Holdings provides an illusion of trying to compete in order to keep shareholders and to keep employees. In the end, the end will be the same…

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  7. Can’t we all just get along! I worked at Sears over seven years – about 6 years to long but I have only myself to blame for that.

    As I talk with folks I know who are still there – I generally hear how they hate it so much. That comment is almost always followed by some excuse for not moving on like: the economy and job market are so bad, they will start looking next week for a new job, there’s a rock in my shoe, the sun was in my eye… we didn’t have good sales because the weather was bad.

    One source told me they walk thru the store almost everytime they shop at the mall – mainly because they can park closer to the door due to there being fewer customer cars parked outside. Whatever.

    I am happy I’m not still there. I’m happy to have learned what I did and connected with some of the people I still know. With one supervisor exception – I’m glad to have had the bone headed union fearing managers I was assigned – if not for them I may have stayed longer.

    But really folks, let it go – move on.

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  8. I agree with JohnQ. Lambert has always been a financial guy. Real estate was his first play. Now Sears is parceling off brands (Craftsman tools are available at Ace Hdwe).

    Look for SHC to trot out Lands’ End as an acquisition option within 2011.

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