Lampert, Lewis undaunted by Sears’ soft sales

HOFFMAN ESTATES, ILL. —Since billionaire Eddie Lampert took over Sears more than two years ago, many in the retail industry have wondered whether his true intentions were to manage the company like a hedge fund or run the company like a retailer. At the Sears shareholders meeting earlier this month, Lampert revealed that he’s serious about Sears being a major retailer and about its future prospects for a comeback in the industry.

“We spent the last couple of years in the weeds,” Lampert said, addressing why the company has not moved more quickly out of the red. “You don’t fix companies from the treetops. You have to get in the weeds, identify their strengths and aggressively recruit people to improve the company… We have started to do some of those things.”

Lampert believes the company has experienced success in its first full year as Sears Holdings, but that it does have a long way to go. According to the company’s year-end results, for example, its earnings per share improved and its EBITDA (Lampert’s preferred measure of operating profitability) has grown some, too. But the company’s same-store sales at both Sears and Kmart have shown that there is still some room for improvement.

According to Sears’ first-quarter results released the day before the meeting, Kmart comparable-store sales decreased by 4.7%, primarily due to lower transaction volumes across most businesses. Sears’ domestic comparable-store sales declined by 2.4%, primarily reflecting a reduction in home appliances sales, which Sears Holdings says reflects a slower U.S. housing market and increased competition. This decline was partially offset by an improvement in children’s apparel sales, Sears said.

Although Lampert has admitted in the past that he does not believe that same-store sales measures are everything in determining the health of a retailer, he did admit that he thinks both Kmart and Sears have a ways to go in terms of their store appearances and their sales.

“I think you have to get the profitability in a good place before anything else will improve in the long run—but of course, we’d like to see our same-store sales improve,” Lampert said. “None of our stores are up to our aspirations. We have very high aspirations.”

President and ceo Alywin Lewis said that he believes the company’s off-mall Sears Grand format will be a growth vehicle in the company’s future, once Sears Holdings is able to figure out the proper merchandising mix, category selection and store format.

“We have been testing a lot of things this year, such as our store in Duluth, Ga., which has a lot of nostalgic elements that play upon our heritage,” Lewis said. “We’re still evaluating what works and what doesn’t, but we know the off-mall space will be big for us.”

Sears shuttered its year-old Sears Essentials format last year in favor of the Sears Grand format, saying that the Essentials format had only “achieved various degrees of success.” Sears introduced the Sears Essentials concept in early 2005 and originally had plans to convert up to 400 Kmarts into the new format. But the stores failed to catch on with shoppers, because the company used it as a vehicle to place Sears products (like Craftsman and Kenmore) into Kmart stores.

Sears Grand stores have the same merchandise as a Sears department store, running the gamut from clothing to appliances. However, they also offer a pharmacy, drug store items, CDs and convenience foods. The Grand concept was first introduced in 2003 as a way for Sears to compete with the likes of Target and Kmart.

Lampert said at the shareholders meeting that new Sears Grands going forward would likely replace underperforming Kmart store locations.

Other news to come out of the shareholders meeting included a larger rollout of Lands’ End boutiques within Sears stores. The company implemented 100 store-in-store Lands’ End locales within Sears last year, and Lewis announced that this year, the company plans on having 200 stores with Lands’ End boutiques.

Lampert also said that an acquisition for Sears Holdings is possible, but only if the fit is right. Lampert dodged specific questions about what he has planned for Sears’ $3.3 billion in cash.

“We’re looking for investment opportunities,” Lampert said during a press conference after the shareholders meeting. “We’re always in that mode. It’s not easy to find the right thing to get the deal done.”