Inside Eddie Lampert's Brain: His Plan to Make Sears Both Bigger and Smaller
Eddie Lampert says less is more when it comes to Sears.
The Sears chairman rarely discusses what he thinks of the country's fourth-largest retailer, so the shareholder letter he writes in the annual report is always keenly awaited. In this year's version, Lampert makes the case that the retailer can generate new revenues without big investments as it pays down debt.
In the letter Lampert describes the strategy of "creating lasting relationships with customers by empowering them to manage their lives," in part by selling a whole bunch of new or reconfigured goods and services. Among the most important:
- Sear's international shipping option incorporates a filter that allows customers to select only the items that are available for shipping to their selected destinations. It also tallies duties, VAT taxes and shipping as part of the checkout process, all of which can be accomplished in a range of currencies. Third-parties work with Sears, with an outfit called FiftyOne shipping products to Brazil, for instance.
- Marketplace adds more products to the Sears online assortment, and also provides access for other sellers who cut the retailer in on the money they make via its website. The Home Furnishings section of Sears.com, for example, includes products available through UnbeatableSale.com. Click on the website name and Sears.com provides a rating of the merchant with a description and information about its return policy. The company began testing Marketplace in July and has now launched it. (It didn't take long for Walmart to announce a similar service.
- The expansion that rendered ManageMyHome.com as ManageMyLife.com remains anchored to ideas that work in and around the house but extends to areas such as gardening and electronics. The site provide forums, expert advice and product manuals, and connects with a wide range of services offered by Sears and affiliated providers such as home renovation contractors.
We created or expanded marketing programs including ShopYourWay, "Life. Well spent," Sears Blue Appliance Crew, Sears Blue Electronics Crew, Sears Blue Tools Crew and "there's smart, and there's kmart smart." We grew our online engagement platforms, MySears.com and MyKmart.com, allowing our customers to interact with each other and us, and get advice before they buy. We launched the ShopYourWay Rewards program at Kmart and Sears that will provide even more value and opportunities for our customers. We also re-launched a Christmas Club program at Sears and Blue Light Specials at Kmart to offer more convenience, value, and excitement for our customers.What it comes down to, is that Sears is building new revenue streams directly, by providing services through its Blue crews, and indirectly, by offering social networks that tune customers in to its product and service pitches. Even when one of its retail brands is slated to appear in actual buildings, Sears won't be footing the bill for the real estate. That, at least, is the case with the expansion of Sears Automotive Centers, which are being offered on a franchise business largely to former car dealers who were left out in the cold by retrenching in the auto sector. Developed as independent businesses, these operations could be sold off or reconstituted with alternative ownership arrangements.
Finding new ways to generate more dollars from existing operations is theoretically sound, of course. The difficulty is to monitor and maintain standards. Yet, by offering Automotive Center franchises to former car dealerships, Sears is bringing in partners with expertise and reputations. Also, the company's previous work with outside contractors in its home business provides a framework it can apply to newer operations.
Whether the eventual idea is to sell the real estate on which Sears sits, or simply to keep costs down, structuring sales and service functions that act independently of stores makes sense. But it is tough to manage.
Though the letter was generally optimistic in tone, Lampert complained about the "reckless expansion of retail space leading to lower profitability for many retailers and to low or negative returns on the investment required to expand space."
He added, "In other industries, consolidation rather than expansion has led to a more sensible competitive environment and better returns for shareholders." Sears has been doing its own consolidation, closing 60 stores last year, with more to come.
In a sense, Lampert is moving in two directions at once, contracting the number of stores, while expanding their operations. If he gets it right, Sears will become a more valuable, and less leveraged, business, and therefore one more likely to fetch a good price when Lampert's hedge fund, ESL Investments, eventually puts it -- or at least profitable parts of it -- up for sale.
Look for more from the Lampert letter in future posts.