Sears Holdings Corp. is still in transformation mode, but the eventual success of its Shop Your Way loyalty program remains a big question mark.
Investing money in its online platform has been a project that is several years in the making, resulting in fewer brick-and-mortar stores and those that remain being turned into showroom space and pick-up locations. The company’s explanation of the strategy — as far back as November 2011 — is that disruptive technologies such as digital, social media and mobile have pushed it to turn itself into an integrated retailer where loyal members and customers can shop any time and any way they want.
The amount of work that still needs to be done was evident on Monday, though, even as Sears posted a narrower first-quarter loss at $303 million, or $2.85 a diluted share, for the three months ended May 2, compared with a net loss of $402 million, or $3.79, a year ago. Net sales dived 25.4 percent to $5.88 billion from $7.88 billion, as comparable-store sales slid 10.9 percent. By nameplate, comps at Sears domestic stores declined 14.5 percent and at Kmart, decreased 7 percent.
Chairman and chief executive officer Edward S. Lampert has claimed that Shop Your Way is reinventing retailing. But he faces the challenges of turning around Sears and Kmart as those chains remain encumbered by too many stores and excess real estate. To reconfigure those chains, Lampert has undertaken a series of asset divestitures that some have referred to as financial engineering. Those actions include spinning off Lands’ End, a rights offering for Sears Canada, joint ventures for some of its Sears stores, and Seritage Growth Properties — a real estate investment trust that will hold 325 of the retailer’s better locations.
Lampert said last month at the company’s annual meeting that Sears has already spent “hundreds of millions of dollars” on pushing its rewards-driven Shop Your Way platform with its corresponding integrated technology initiatives. But in a blog post last month, the Sears chairman and ceo admitted one reason for all the financial maneuvering was that, “We haven’t had or generated the money to fund our transformation quickly enough.”
The engagement of Shop Your Way members might not be growing fast enough, either. On the company’s blog on Monday, Sears said first-quarter member sales penetration for the first quarter was at 74 percent. That appears to be up just 1 percent higher than in August 2014 when the company posted second-quarter results. Lampert at the time touted “increasing engagement from our Shop Your Way members, which drove 73 percent of eligible sales in the quarter.”
A spokesman for Sears said Monday that while financial results are driven by many factors, “[W]e do believe in our strategy and we continue to be encouraged by our member results.” He noted that the company made progress in its ability to personalize its interactions with members, which more than doubled to 2014 from 2013 and allows the company to increase the relevance of the interactions to drive higher retention and engagement.
“We have a very substantial member base with more than 70 percent of sales being derived from members,” he said, noting that applying resources to better understand the needs of the best members will allow the company to improve its engagement with all Shop Your Way members. “We believe that by building these relationships, there is significant opportunity for growth through member retention,” the spokesman concluded.
The company said it plans to invest in its best categories, which are home appliances, home services and apparel. In a slide presentation for investors, the company said it will elevate the style and quality of its proprietary branded product assortments, as well as reduce lead times and improve its assortment planning.
Sears has had improved earnings before interest, taxes, depreciation and amortization results over the last three consecutive quarters, as well as better gross margin rates at both nameplates. But Moody’s senior credit officer Scott Tuhy noted that the “operating losses still remain sizable.” He said that while the added liquidity from the close of the REIT will be a positive, it “in and of itself does not solve Sears’ operational problems.”
Shares of Sears fell 4.3 percent to $39.01 in Nasdaq trading.