See the full article and a video by Cat Rabenstine at Medill Reports
In the midst of the holiday shopping season during a recession, Sears Holdings Corp. is plodding along compared with other retailers.
Analysts say more cost-cutting looms if Sears fails to solidify a competitive strategy.
William Dreher ofÂ Deutsche Bank AG said Sears has made progress with Internet sales, but â€œunless they start selling thousands of stores, theyâ€™re going to have to figure out something to do with them.Â The survival and success of their stores cannot be accomplished through the Internet alone.â€
Sears Holdings operates Kmart and Sears stores domestically and in Canada, with 324,000 full-time employees.
In the year endedÂ January 2009, Searâ€™s same-store salesÂ were downÂ 11 percent, after declines of 4.5 percentÂ Â and 3.1 percent in the preceding two years.
Gross margins, whichÂ improved in 2004 following Sears’ merger with Kmart,Â haveÂ since beenÂ stagnant between 23.36 and 28.66 percent, ahead of low-margin Wal-Mart Stores Inc. but not competitive withÂ otherÂ large retailers. (See graph.)
According to Tom Aiello, division vice president of public relations, Sears is focusing on innovative Internet sales strategies, including the ability to buy products, from small items to large Craftsman tractors, viaÂ aÂ smartphone using the Sears2Go application.
In a press release Dec. 8, Sears announced that it was ranked third by Experian Hitwise in overall Web traffic for a multichannel store retailer for the week ended Nov. 28, 2009, which included Black Friday, the big shopping day after Thanksgiving.
So customers are visitingÂ Sears’ site, but are they buying?
Revenue decreased to $10.2 billion in the third quarter ended Oct. 31 from $10.7 billion in the year-earlier quarter, a decrease of 4.4 percent, still beating analyst expectations.
Sears net loss in the third quarter narrowed to $127 million, or $1.09 per diluted share, compared with a net loss of $146 million, or $1.16 per diluted share in the same quarter a year prior.
â€œSears is a strange one because they really donâ€™t communicate,â€ said Dreher.
â€œTheir strategy is not traditional.Â They make little to no effort to communicate what that strategy is,â€ he continued.Â Dreher noted that Sears is buying back shares, focusing on expanding its margin, and playing with store prototypes such as mygofer.com, where customers order products online and pick them up at a warehouse.
What Sears is not doing, said Dreher, is bringing in new brands and exciting products, making investments and solidifying a permanent CEO–all signs that Sears is stagnant, in his view.
The lack of new brands “leads us to the conclusion that brands donâ€™t want to do business with Sears,â€ said Dreher, who believes chairman Edward Lampert might be moving towards taking the company private.
â€œThey seem to be all focused around assets and not around operations,â€ said Dreher.
What SearsÂ might do, analysts suggest, is eliminate stores that are under-performing and solidify a strategy to differentiate itselfÂ from competitors like Wal-Mart Stores Inc. and Target Corp.
â€œEveryone recognizes Sears as a turnaround,â€Â acknowledged Tom Aiello, division vice president of public relations. â€œThere are things weâ€™re doing that are unique and customer-driven that we believe are the right things to do in the market.â€
Kim Picciola, analyst for Morningstar Inc., believes Sears will continue to experiment with things like online shopping and new kinds of promotions and services like lay-away. Also, Sears will continue to try to leverage its Kmart stores base, said Picciola.
However, she added, â€œI donâ€™t think they have the formula figured out quite yet and theyâ€™ll continue to work on it.Â Itâ€™s going to be an uphill battle.Â I think itâ€™s very hard to compete with Wal-Mart on price so Kmart really needs to have something that differentiates them in consumersâ€™ minds.â€
According to Ayat Shukairy, managing partner of Invesp Consulting, â€œSears.com has gone through a number of changes throughout the years, but increasingly they are trying to position themselves as a retailer that is the one-stop shop for all the family needs. Although Target and Wal-Mart still provide the grocery element, Sears has also carved the niche of providing large appliances in addition to toys, clothing, electronics, etc. Thatâ€™s a big distinction that sets the companies apart.â€
Sears began its holiday sales much earlier than other retailers, starting after Halloween.Â Black Friday was â€œa very positive day,â€ said Aiello, with â€œvery strong customer traffic.â€
Picciola said, â€œItâ€™s going to be a difficult holiday for them.Â Retailers are being very competitive on price and consumers are responding to promotional activity.Â That will be a challenge for Sears over the next month or so.â€
Customers are as undecided on Sears as theÂ analysts are.
â€œWe grew up on Sears,â€ said Daphne Bennett during a shopping trip to Sears on State Street. â€œSears has been around, I think theyâ€™re gonna stay around.â€
Another shopper, Gail Katz said, â€œItâ€™s expanded, itâ€™s not a mom and pop shop anymore.â€Â Katz says she usually finds good deals at Sears, particularly when it has sales and specials, but worries how the storeÂ will do given the economy.
While customers like Bennett and Katz find the appeal of Sears in its history, other customers, like Larry Simmons, find the prices too high or do not find what they need at Sears.Â Simmons said he believes the prices have increased through the years and chooses to shop elsewhere.
Picciola said, â€œWhen it comes to Sears, some of their hard-line brands still have strength.â€Â With the merger of Kmart and Sears, the company routed some of its reputable brands, like Kenmore appliances, to off-mall Kmart stores.
Analysts surveyed by Yahoo Finance have mixed recommendations.Â ThreeÂ rateÂ the stockÂ buy or outperform,Â threeÂ rate it sell or underperform, and oneÂ rates it hold or neutral.
Analysts polled by Zacks Investment Research estimate earnings of $1.27 per diluted shareÂ for the current year ending in January, but look for $1.60 per share next year.
Sears trades around $71, compared with a 52-week high of $79.75 and a 52-week low of $34.27.