HOFFMAN ESTATES, Ill. — The fortunes of Sears Holdings Corp. continue to sag, and the parent company of Sears and Kmart stores is still searching for its “bottom” as it closes stores, with apparel one of the key categories on which it intends to focus, said Edward Lampert, chairman and chief executive officer, who spoke to shareholders during Sears annual meeting here yesterday and reporters immediately afterward.
The company’s 10-K for the fiscal year ended Jan. 30 tallies 941 Kmart stores and 705 full-line Sears stores in the U.S., for a total of 1,672 locations, including 26 Sears specialty stores, down from 2,247 locations for year-end 2010. Revenues for fiscal year 2015 totaled $25.1 billion, down from $41.6 billion in FY 2011, while total assets were $11.3 billion, down from $21.4 billion four years earlier.
Nonetheless, Lampert expressed optimism that the company’s long-term vision, built around the Shop Your Way membership platform and web site, would yield a return to profitability, possibly as soon as this year.
“We’re trying as hard as we can to make it happen this year,” he said. “That’s not a forecast, it’s an intention. Our willingness to close stores more than in the past is part of that [reason for hope].” But overall, he added, “I wouldn’t give us such a high grade. Our vision makes sense, but the proof is still in the pudding.…We’ve got to find that bottom, that foundation. The decision not to close hundreds of stores five or six years ago might not have been the right decision.”
Sears Holdings took a big step toward offloading real estate assets last July when it sold 235 Sears and Kmart stores to Seritage Growth Properties, netting $2.7 billion, with the majority of stores being leased back to Sears or Kmart. And the company plans to continue leasing out parts of its stores to complementary retailers like Forever 21 and Whole Foods, Lampert said.
“In many cases we need less space,” he said. “How do we get to a place with less space that adds value?.…You’re going to see a lot of experimentation with store sizes and formats.” And, he added, “There are going to be a lot more opportunities for retailers to partner with one another. If we as a company keep our eyes focused on who we’re serving, that’s going to lead us in the right direction.”
One of those store-format experiments will be unveiled next week in Fort Collins, Colo., where Sears is building a 7,000-square-foot unit devoted solely to appliance sales that Lampert said would feature “a lot of digital elements and online elements. We are excited about it.” The company envisions building other smaller stores similarly focused on a single product line in the near future, he added.
The company’s fourth-quarter earnings report listed apparel as one of three leading categories for Sears Holdings, along with home appliances and home services. The report mentioned a desire to deepen the focus on the most frequent customers, simplify the product strategy, bring product design in-house to elevate style and quality, and expand sourcing to increase profitability and cut lead times.
Apparel profitability has taken a hit in the past year, in part due to the unusually warm weather across much of the U.S. last fall, which led to “inventory hangover,” Lampert said. “It’s not an unimportant factor, but it’s not the only factor,” he said. “Apparel can be very fickle. It’s more of a basics business than a fashion business. We’ve had fits and starts with being more fashion-forward. But if you lean forward, sometimes it works, and sometimes you have to sit back.”
The company has been searching for and trying to promote the right assortment at Sears and Kmart, reducing the overall numbers of brands and product categories while focusing on several key lines, said David Pastrana, president of apparel for Sears Holdings. He cited Simply Styled, Simply Emma, Metaphor, Canyon River Blues and Everlast at Sears as well as Attention, Jaclyn Smith, Adam Levine and Nicki Minaj at Kmart. “We’ve introduced a very member-focused approach,” he said.
Apparel sales increasingly have moved online, which has changed the business model for brick-and-mortar, Lampert said. “It used to be you that could blanket communities” with clothing outlets, he said. “Now, can you afford the real estate costs when shopping habits are changing?”
While stores remain part of Sears’ focus, the company continues to shift its gaze more significantly toward the Shop Your Way platform and its members, whose purchases constituted 74 percent of the company’s revenues in FY 2015, up from 58 percent in FY 2011. Sears Holdings is focusing less on growing its membership base, which already numbers in the “tens of millions,” than on capturing a larger percentage of spending from those who are signed up, Lampert said.
“Getting participation is superimportant,” he said. “We have built the platforms. But are we really getting the bulk of their purchases? If you are shopping with us 10 times a year for $300, I want to make it 20 times for $3,000. Can I convince you to do more [business] with us, and if you do more, do you have a great experience?”
Lampert said he thinks of Shop Your Way as a membership program — not a loyalty program. “We focus on who we are serving, and what do they need?” he said. “We’re trying to go deeper with people who are already engaged. We want to get more frequency and more spending in exchange for better value and service.”
The company continues to sell through sears.com and kmart.com because they have higher sales conversation rates but sees shopyourway.com as a social hub that can ultimately lead to sales through connections to Pinterest and other sites, Lampert said. “It’s about engagement, and it’s about getting people to spend time,” he said. “The ability to communicate the right content to the right person at the right time is where the puck is going.”