According to Eddie Lampert, Sears Holdings Corp. has been ahead of the curve.
This story first appeared in the January 23, 2014 issue of WWD. Subscribe Today.
Lampert, chairman and chief executive officer of Sears Holdings and chairman of hedge fund ESL Investments, wrote a blog post earlier this week on the retailer’s Web site titled “Are the new ideas about how retail is changing really new?”
In the piece, he noted that data from the 2013 holiday season is “feeding a growing consensus: store traffic has decreased significantly across the industry and may never return to previous levels.”
His initial point was that Sears Holdings launched a “major transformation” of Sears and Kmart years ago because it saw that consumers had “permanently changed how they shop” due to the Internet, social networking and mobile devices. That change, the Shop Your Way membership program, entails buying online and picking up in the stores. It’s what Lampert refers to as the foundation for Sears’ integrated retail strategy.
He noted: “When we were among the first to pioneer these ideas, many people outside of our company found them revolutionary. Many others questioned what we were doing. Today, changes like these are what people expect everywhere they shop.”
Lampert said the consensus about “decreased store traffic also highlights another decision that has steered our work: We very often need less space to serve our members better and we may need fewer locations as well.”
Lampert was also quick to note that Sears isn’t the only one observing the change.
“This is true of our competitors too. In recent years, several chains have slowed once-robust expansion rates. Many, including Home Depot, Lowe’s, Kohl’s and Macy’s, have slowed their rate of capital expenditures on stores. Some, like Borders and Circuit City, invested heavily in stores but failed to fully focus on the growth of online sales and had to shut down entirely. And quite a few, including us, are now reducing their overall number of locations,” he said.
He added that “[w]e don’t make decisions to close stores lightly, and we know just how hard these decisions are on our loyal associates who have provided years of excellent service. But we’ve also carefully studied where other retailers went wrong and how they failed to adapt to changes.” He cited several chains, such as Macy’s, Target and J.C. Penney, as retailers that are adjusting their store base to reflect the changing consumer shopping dynamic.
The latest casualty in the Sears store base is its Chicago flagship, which will close in early April.
The unit, located at 2 North State Street and opened in 2001, will begin liquidation sales on Sunday, according to a Sears spokesman.
He noted in an e-mail that the store has “lost millions of dollars since opening and we can no longer continue to support the store’s operating losses.”
About 160 employees — most part-time hourly workers — will be affected by the closure. Those eligible will receive severance and have the opportunity to apply for open positions at nearby Sears or Kmart stores.
The Sears spokesman added, “This store closure is part of a series of actions we are taking to reduce ongoing expenses, adjusting our asset base, and accelerating the transformation of our business model.”
He noted that there are three other Sears stores in the Chicago area. As for the State Street location, while the Sears nameplate will no longer have a ground floor storefront presence, it will still have staffers at the building. A new lease was signed for 20,000-square-feet of office space on the fourth floor for 150 staffers who work in its online and information technology units. The lease contains an option to “build out the balance of the floor — 30,000 square feet — for our future business needs.”
In closing his blog post, Lampert said that not everything that’s considered news today is new.
He noted how years ago, Sears and Kmart began a major transformation in strategy and in capital expenditure decisions because of what it saw then that’s becoming more increasingly clear today.
He concluded: “As difficult as these changes are, we believe the alternative of failing to plan for or even see where the retail industry is heading would be far, far worse.”
Sears earlier this month provided a fourth-quarter update for the period ending Feb. 1, noting that it now expects a net loss of between $250 million and $360 million, or $2.35 and $3.39 a diluted share, below the $489 million loss, or $4.61, for the same period a year ago. Stripping out a series of nonrecurring items, the adjusted net loss would be between $230 million and $316 million versus an adjusted net loss of $119 million last year.
In a blog post related to that update, Lampert said of the change from a retail store network to one more Internet-based: “Together, we’re investing in capabilities to enable our members to interact with us and access the widest possible assortment of products and services.…The annual investment associated with these activities is measured in hundreds of millions of dollars and hundreds of thousands of hours of hard work by our associates and the other members of the team.
“We see signs that it is working.…The fact that these results are obscured by our overall performance doesn’t make them any less real or any less central to the needed transformation of our company,” he wrote.