By  on April 13, 2006

HOFFMAN ESTATES, Ill. — Sears Holdings chairman Edward Lampert couldn't be pinned down on some big questions dogging the company, like how much more Sears and Kmart real estate would be sold, or the budget for remodels.

Those issues ruled the $55 billion retailer's annual meeting here at headquarters Wednesday, but instead of addressing them directly, Lampert and his second-in-command, Aylwin B. Lewis, president and chief executive officer, outlined a "back to basics" approach for the two chains.

Without providing many specifics, the officials told the 150 or so shareholders that the approach involves improving store-level management and fighting turnover. Twenty-five percent of Kmart managers and 35 percent of Sears store managers were replaced last year. "We need to get great store leaders," Lewis said, adding that a recent store tour in Tampa, Fla., revealed three Kmarts that were "good" and two that were "not good."

"We see [Sears Holdings] as a $55 billion start-up," Lewis said.

He outlined the company's mission as building customer relationships, making more money and improving the business every day. At the store level, Lewis stressed teamwork, integrity, accountability, coaching for execution and "positive energy" as key to building a corporate culture. The company is bringing store managers to headquarters each week to "talk about culture," Lewis said.

He noted that the focus is on managers at the top 500 stores: "If we get the top 500 right, it will impact the rest of the organization." He also said more stores would be remodeled and more money would be invested in information technology, but provided no specifics.

"We're very focused on the stores and how we operate," Lewis said.

Lewis stressed the stores' commitment "to bringing solutions to customers" and creating "deep, emotional" bonds with shoppers. "We have to stop treating them as transactional in nature," Lewis said.

Institutional investors asked Lampert whether the Kmart-Sears merger was strictly a real-estate deal. "No retail company should aspire to having the real estate value of a store be worth more than its operational value," he said. He did acknowledge, however, that at the time of the merger, some Kmart stores' real estate was more valuable than the stores' operations. Lampert said, "It would be a shame to sell or sublease" a site to a competitor and then have them do a better job with the site.He added that "the strategic reason" for the merger was to create efficiencies so stores could perform at a higher level.

Much of the meeting focused on apparel, which Lampert referred to as "a business opportunity forever" at Sears. "If we get someone in to by Craftsman tools, why can't we say 'here, buy a jacket or here, buy a pair of shoes?'" Lampert asked rhetorically. He said store managers have been surprised by the interest of "non-Lands' End" customers in Lands' End.

The company plans to use some of its strongest brands, such as Craftsman, DieHard and Kenmore, to lure younger customers to the store, and persuade them to buy clothes. But hard goods will continue to be the primary hook for getting customers into Sears. Pushing apparel as the primary draw isn't an option: "If we do that, we lose," Lampert said.

Still, he was positive about apparel and credited Lisa Schultz, executive vice president of apparel and design for Sears and Kmart, with improving apparel sales at Kmart. Schultz eliminated much of the duplication of merchandise among the Route 66, Jaclyn Smith and Basic Editions brands, and took better control of the buying process, improving margins and styling. Before Schultz joined the company, "the idea of filling racks was more important than quality," Lampert said.

In the past month, the retailer has added senior apparel staff, including Irv Neger, a former Family Dollar Stores executive vice president who is now senior vice president of Kmart apparel. The company continues to search for apparel talent.

Lampert didn't provide specifics for Sears store remodels or the rollout of the Sears Grand concept, which is replacing the Essentials idea. "We won't be a slave to brand strategy," he said, repeatedly using the word "flexible" to describe his approach to revitalizing Kmart and Sears.

He also wouldn't specify expenditures for capital improvements. "Spending more doesn't always mean better, and spending less doesn't always mean worse," Lampert said.

One shareholder mentioned stopping in a store and seeing a line of customers "curving around" with only two cashiers operating, then asked, "Shouldn't we invest in a third cashier so we don't lose that customer to Wal-Mart?" Lampert's answer: "It's not unusual to hear that type of thing. The results in stores we have prioritized has been phenomenal. We're touching more and more stores this year."

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