Edward Lampert sears holdings bruce berkowitz fairholme capital

HOFFMAN ESTATES, Ill. In hopes of returning to profitability, albeit it on a smaller scale, Sears Holdings Corp. continues to shed assets, forge partnerships and extend others in business lines like fashion, as it takes steps to find its footing in the quickly evolving omnichannel retail environment, according to Edward S. Lampert, chief executive officer and chairman.

“This is absolutely the most exciting time to be in the retail business. It’s also the most dangerous time,” he told shareholders during the company’s annual meeting here on May 9. “The retail industry, and how people make decisions on how to shop, has irreversibly changed. And that’s only going to accelerate.”

Sears has beaten some analysts’ expectations in recent quarters, but continues to struggle, having closed 25 percent of remaining stores in 2017, Lampert acknowledged. “We did improve our financial performance,” he said. “But we all know the results aren’t where they need to be.…We’re far from where I would have hoped we would be by this time.”

Although Lampert once believed Sears would return to profitability at its previous scale, he knows that once-important advantages like capital and location mean less and less in an age of delivery to consumers’ doors.

“We’re a lot smaller than we were even two, three or four years ago,” he said. “We’re trying to eliminate stores. We need to get to the core. We need to get to where we can grow from. We need liquidity.…This company needs to make money. It’s going to continue to shrink until it does.”

Sears’ most recent move on the fashion front has been the introduction of the Jaclyn Smith ready-to-wear collection, a popular offering for decades at Kmart stores, to the Sears side of the business in March.

With prices starting at $10, the collection includes blouses, dresses, jeans, T-shirts, swimsuits and more, with bestsellers available at select Sears nationwide and the full assortment on sears.com. Smith, one of the first celebrities to develop a fashion brand, partnered with Kmart more than 33 years ago and since then, more than 100 million women have bought her brands of clothing or accessories, the company said.

Sears Holdings’ most recent partnership has been an agreement with Amazon announced May 9 through which Sears Auto Centers will provide full-service tire installation and balancing for customers who buy DieHard passenger tires, or any other brand, with ship-to-store capability when tires are ordered online. Starting at 47 auto centers in eight metropolitan areas, this will expand nationwide to all 400 centers in the coming months.

“When customers are buying a tire, they can select a Sears Auto Center installation, and the tire will be sent in time for the installation appointment,” explained Leena Munjal, chief digital officer. This follows an arrangement to sell Kenmore appliances on Amazon.com launched in July, which Lampert said accounts for a “small but growing” portion of Kenmore sales, and the addition of DieHard products starting in December.

Robert “B.J.” Naedele, chief commercial officer of Sears’ “Shop Your Way” loyalty program, said the company’s network of partners includes brands like Uber, Synapse Digital, FuboTV, GasBuddy and Truxx. Those partnerships “deepen the experience from Saturday shopping to three or four times a day, reestablish the brand, and the entire model comes back to better traffic and better engagement,” he said.

The “cornerstone of that ecosystem,” Naedele added, is the partnership with Citi Retail Services on a Shop Your Way cash-back credit card, launched in November 2016, that “we’ve seen move outside of Sears and Kmart,” he said.

“We’ve moved from selling refrigerators to helping members inside and outside our stores, [for example] connecting with Uber, [or] getting discounts on service at auto center,” Lampert added. “If you hook up Shop Your Way account with Uber account, you get $2 in Shop Your Way points every time use Uber. All of a sudden Shop Your Way is relevant to you every single week.”

The nine-year-old Shop Your Way membership loyalty program, which claims “tens of millions” of members, represented Sears’ commitment to omnichannel shopping long before the Amazon partnership, Lampert said. “If you look at our competitors, each one of us is doing different things to remain relevant,” he said. “The pace of change is very, very rapid. Sometimes that person who shops at the same grocery store every week for 20 years, they wake up one day and they’re ordering online and having it delivered.”

To boost its integrated retail capability — Sears believes 72 percent of online transactions result in or result from some contact with the brick-and-mortar store — the retailer offers an individual pickup service for items ordered online, Munjal said. In addition, associates who interact with customers in-store can send a digital recap of the store visit. “They can go home, get a personalized e-mail that replicates their research, and they can purchase online,” she said.

Naedele said Shop Your Way is at the heart of Sears’ omnichannel strategy. “Members who engage with Shop Your Way do more, engage more with our brands and formats, buy more, shop more often, refer their friends, and become brand advocates,” he said. “It’s more than the reach. It’s the direct connection; the permission members are giving us to be in their lives, in their homes, in their pockets.”

Key to Sears’ bottom-line hope for a return to profitability has been the sales of its once-tremendous and still considerable real estate and brand asset base, Lampert said. In addition to store sales and rentals, the company in January 2017 announced the sale of the Craftsman brand to Stanley Black & Decker for $900 million.

“A lot of the financing activities we’ve done are designed to say, ‘If we have enough time, we believe we can make this transformation. Time is not waiting for us, and we have a huge amount of competition,” Lampert said. “That’s the challenge. Can we get there fast enough? Do we have enough runway?”

After leasing out portions of its stores on an ad-hoc basis to other retailers, Sears three years ago established an arrangement with Seritage Growth Properties to manage the company’s properties in trust, and Sears Holdings’ brick-and-mortar space represents less than half of the rent being collected on those spaces by Seritage, Lampert said.

With the move to online and ommichannel sales, Munjal noted, “We don’t need 100,000-square-foot stores. We need 10,000 or 15,000 square feet.” The company opened its first small-format store in Fort Collins, Colo., in 2016, selling only appliances. Three more that sell only appliances and mattresses opened last year, as did three DieHard Auto Centers, and there will be more to come, Lampert said.

“We’re really focused on the smaller-store formats. Some may open this year, some in 2019,” he said. The continued asset sales “bring a lot of liquidity and capital into Sears, and we need that.”

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