Meet Edward S. Lampert, visionary.
This story first appeared in the February 26, 2016 issue of WWD. Subscribe Today.
Ignoring the naysayers, Lampert says there’s still hope for Sears Holdings Corp. and he reminded shareholders that the changes at retail are the ones he’s talked about — and Sears has addressed — years earlier. He certainly seems to have the support of Wall Street — at least for now: Sears’ shares jumped 3.2 percent Thursday to close at $17.52 even though the company dove deeper into the red in the fourth quarter with a $580 million loss.
Lampert, chairman and chief executive officer, said in his annual letter to shareholders: “Because of Sears and Kmart’s long-standing history and cultural impact, we are targeted for criticism when our results are poor. But it is unfair to evaluate our approach through the rearview mirror without acknowledging the changing circumstances in our industry as well as our bold attempts to change the way we do business to meet this changing reality.”
Sears’ loss for the quarter ended Jan. 30 was equal to $5.44 a diluted share and compared with a loss of $159 million, or $1.50 a year ago. Included was a onetime noncash accounting charge for the impairment of the Sears trade name. On an adjusted basis, the loss was $181 million, or $1.70 a diluted share, from a loss of $36 million, or 34 cents, last year.
Revenues fell 9.9 percent to $7.3 billion from $8.1 billion. Comparable-store sales dropped 7.1 percent for the quarter, with Kmart down 7.2 percent and Sears falling 6.9 percent. The company missed Wall Street’s estimates by 34 cents, but met revenue expectations.
The company earlier this month said it would accelerate store closures following a sales slump in the quarter.
The retail economic backdrop was the focus of Lampert’s message to shareholders, and not just on the warmer weather in the fourth quarter. He used the opportunity to tout his message from 2012 about the changing retail landscape. Back in his January 2013 annual letter on 2012 results, he wrote about living in a hyper-connected world, and how customers are looking for convenience in terms of shopping when and where they want. He noted online research and the need for an integrated store, online and mobile experience. That was the year the company rolled out tablets and mobile devices to Sears stores and began talking about its integrated retail strategy.
In the letter released Thursday, Lampert noted how the impact of the changes he previously spoke about “has spread more broadly to retailers that had previously proven to be relatively immune to such shifts,” citing Macy’s Inc., Nordstrom Inc. and Wal-Mart Stores Inc. and others who are now feeling the “impact of disruptive changes from online competition and new business models.”
He also reminded investors that even from a real estate standpoint, many are reducing the size and number of stores they operate or are reconfiguring their retail space. That’s something he bragged Sears has done in the past year or so as it redeployed its real estate assets, either through the spinoff of its real estate investment trust Seritage Growth Properties or leasing some space to third-party retailers.
Lampert’s answer in trying to hold onto market share has been to push the firm’s “Shop Your Way” membership program, an enhanced loyalty program that puts a focus on digital to leverages off the brick-and-mortar sites, such as pay in-store or buy-online, pick-up-in-store.
While questions remain over the long-term survival of Sears, retailers across the board have been rushing to adapt to a landscape shaken by disinterested consumers, economic turmoil and changing shopping patterns, especially the shift to online and mobile shopping. On Thursday, Kohl’s Department Stores said as it posted fourth-quarter results that it would close 18 stores, but add some smaller-format locations. Macy’s on Tuesday said it would reallocate some square footage space inside 15 existing full-line stores to roll out its Backstage off-price concept. Separately, J.C. Penney Co. Inc.’s answer to grow market share is a spring marketing promotion that plays off its name — Penney Days — where select items from its private-label assortment will be available for just 1 cent, the retailer said Thursday.
But fine-tuning the structural back end isn’t enough when on the front end, the merchandise leaves something to be desired. That didn’t go unnoticed by Lampert, who said, “While the weather conditions magnified our apparel problems in the fourth quarter, our apparel business nevertheless needs significant improvement. The operating leverage in our apparel business is significant — it can change our profitability meaningfully if we manage the business differently.”
The ceo said improving its apparel business “will be a priority” for the leadership team in 2016. Rob Schriesheim, chief financial officer, said in the company’s prerecorded call to Wall Street analysts: “We are refining our product strategy to be more focused on basic categories like denim and activewear.”
Although Lampert emphasized that he remains committed to returning Sears to profitability, in recent months he has come under criticism from some former longtime backers. On Thursday Sears moved to silence at least one of them when the company added two new board members to help with strategy, including Bruce R. Berkowitz of Fairholme Capital, a longtime investor who has a 26 percent stake and who had been questioning Sears’ direction. Lampert even acknowledged that other challenges remain, notwithstanding whether consumers will even want to buy apparel from Sears.
But his letter didn’t focus simply on the nitty-gritty of retail. He said firms such as “Amazon were able to grow rapidly without having to collect sales tax,” while large companies such as Sears have additional burdens, like high minimum-wage costs. He also said of newer start-ups, “[i]n an environment where new companies like Uber can raise almost unlimited capital, what are the implications for older companies that are held to a very different standard when it comes to profitability and regulation?”
Lampert insisted Sears remains asset-rich and can fund its transformation. But he ended his letter noting that he and his team will have to “think, work and move harder and faster…to compete effectively against traditional and new competitors alike.”