HOFFMAN ESTATES, Ill.— “With few exceptions, all of retail is changing.”
So said Edward S. Lampert, who focused on the transformative power of technology and the shifting retail landscape during his first annual meeting as Sears Holdings Corp.’s chief executive officer here Wednesday.
The hedge-fund-operator-turned-retailer didn’t skirt tough issues about his company’s financial performance and appeared open and at ease as he answered questions from reporters and investors.
Asked about J.C. Penney Co. Inc.’s recent challenges, Lampert drew a close comparison with Sears Holdings, which he created by merging the Sears and Kmart chains.
“Like us, they’re in need of a big transformation,” he said of Penney’s. “Do they have differentiated products that are going to drive people there? I don’t know.”
At Kmart, Lampert said, apparel and home goods could help the chain revive sales after declines in other categories, such as music, movies and photo development. Kmart has new lines on tap from Adam Levine and Nicki Minaj developed by the Shop Your Way Brands unit.
The 1,221-store Kmart needs to drive foot traffic, Lampert said, drawing an analogy to newspapers, which bundle a variety of items — sports, comics, news and weather — that can be found online.
“Those things have become unbundled,” he said. “Their products have become better, but the business model is predicated upon advertising. That’s the challenge for Kmart: evolving the business model.…What we need to figure out is, Is there a separate identity for Kmart that allows it to thrive?”
Apparel is at the core of that identity, Lampert said.
As for apparel at the 798-door Sears, the ceo noted, “It’s always been a challenge. Our productivity is still very, very low. That business is in need of further evolution and transformation.” He was considerably more optimistic about the Lands’ End business, saying, “I feel like there’s a solid plan.”
Lampert acknowledged Sears Holdings still has a ways to travel. “We know the level of profitability is well below where it needs to be,” he said. “We’ve got a lot of work to do. What you’re seeing here is giving us hope. When members see it, it will help to build the business.”
Last year, the company posted net losses of $930 million as revenues fell 4.1 percent to $39.85 billion.
“I feel like we’ve made a lot of improvements in the services we provide,” Lampert added. “But we can’t keep going on without generating sufficient profit.… I want both names [Sears and Kmart] to be viable, and I want both names to mean something positive to people.”
Lampert is clearly steering the company toward a more digital future.
Online and mobile sales are still a “relatively small” portion of the company’s business — but grew 17 percent last year. “In 2013, we’re ready to really emphasize our integrated retail capabilities,” Lampert said. “How people are shopping is changing, and we want to have a brand identity around how people are shopping.”
That brand identity is a dedicated Web site built upon the company’s Shop Your Way rewards program, which provides access to special deals on the company’s array of 65 million stockkeeping units. Shop Your Way members drive 60 percent of the company’s revenues, a spokesman said. The program will become much more visible in store this year, and Sears plan to hone its search engines so online shoppers can actually find those millions of sku’s.
“There’s having the products, and then there’s having people know you have the products,” Lampert said. “If 3 million products matter a lot, we want those prioritized.”
The company is bringing its offering of free shipping to consumers’ attention with an apparel-oriented ad campaign that’s drawn some controversy for its scatological double entendre, in which people of various age groups — from a young boy to a grandmotherly figure — talk enthusiastically about how they plan to “ship my pants.”
“We need to break through,” Lampert said. “We need to break the stereotypes of Sears and Kmart. We’re not trying to offend anybody; we’re trying to break out. We have an opportunity as a retailer to deliver both services and a wider array of products.”
Sears has reduced its typical shipping times for online orders from four to five days to one to two days for almost the entire country, leveraging its network of stores by using 13 Sears stores and eight Kmart stores as shipping centers, Lampert said. “Doing this is not easy,” he said. “It shows how companies are going to compete in the 21st century.”
Sears also has begun to offer products of third-party retailers on its Web sites, which he noted is “not how Wal-Mart and Target do business. We want to partner with them. We have a chance, together, to be very, very competitive.” That might mean selling products that compete with Sears or Kmart’s own, but that “gives you something to measure against. Competition makes you better,” he said. “I’ve taken a lot of inspiration from how tech businesses operate: Competitors seem to be doing business with each other at the same time.”
To provide Shop Your Way member services on mobile devices, the company is rolling out the Member Assist application — available in 360 stores, with 40 more slated to come online this year — through which members can instant-message questions about products that might be in stock, get answers and come into the store to purchase them, or be directed to the right spot online, Lampert said. The app allows the user to find the closest store and someone in the appropriate department before asking their question.
“We want to use our associates to do more than just wait for people to come into these stores and get served,” he said. “Of course, this means a lot of training for our associates and the willingness to have a continuous relationship between members and associates.… If we can give more information about what we carry online, we think this will be a game changer. But it’s really important that we execute.”
Sales associates are becoming more comfortable as time goes on, and the company has begun pushing past initial paranoia that the real purpose of creating the app was to make consumers more comfortable with online shopping, so that more stores can close, Lampert said. “When you’ve been closing stores…there’s a trust issue,” he said. “Is this something that will take my job away from me?” But now, associates at stores that don’t have Member Assist want it: “Why aren’t we getting it? It’s not fair.”