While some retailers experienced increased sales during the 2011 holiday season, Sears Holdings Corp. is closing up to 120 Sears and Kmart locations due to lackluster sales. In total, income during the eight-week period before Christmas was down 5.2%, while year-to-date purchase fell 2.6%.
In a statement released on Dec. 27, 2011, Sears Holdings Corp. revealed that the company’s yearly earnings were expected to be less than half of its 2010 income of $933 million. Lower sales, increased margin pressure and high expense rates were all causes of the company’s downfall, according to Lou D’Ambrosio, CEO of Sears Holdings Corp.
“Given our performance and the difficult economic environment, especially for big-ticket items, we intend to implement a series of actions to reduce on-going expenses, adjust our asset base, and accelerate the transformation of our business model,” D’Ambrosio said. “These actions will better enable us to focus our investments on serving our customers and members through integrated retail — at the store, online and in the home.”
Following the merger of Sears and Kmart in 2005, Sears Holdings Corp. has struggled to make improvements to store locations. The closing of 120 stores is the first necessary step the company is taking to decrease spending and revamp the brands, according to Mickey Klein, head of the consumer team for The Astor Group, a global investment firm.
“After the merger, the overall investment into the physical being of the two retail brands was overlooked and handled improperly,” Klein told Retail TouchPoints. “The two chains needed to improve dramatically. Although the upgrade process began with a few landmark locations, it was never rolled out fully because Sears never saw a great impact on sales. However, the improvements were rolled out when the economy was coming to a crashing halt. I think both the Kmart and Sears stores lack a customer experience. The stores don’t match their competitors aesthetically, and overall, their merchandising falls short.”
Sears Holdings Corp. plans to take additional measures to rebuild Sears and Kmart. These efforts include:
· Reducing 2012 domestic inventory by $300 million, in addition to the store closings, as a result of cost decreases in apparel, tighter buys and a lower inventory position;
· Focusing on improving gross profit dollars through better inventory management and more targeted pricing and promotion;
· Reducing fixed costs by $100 to $200 million; and
· Tracking and evaluating store performance to better recognize valuable versus poorly performing locations.
Klein noted that despite these actions, Sears Holdings Corp. must make customer experience the top priority. “While it’s very important for Sears Holdings Corp. to bring consumers back, it also is vital that the company doesn’t lose more customers,” he said.
To thrive and survive in a turbulent economy, retailers must focus on three key areas, according to Klein: the product, the shopping experience and customer service. “The customer service you receive is going to stay with you long after you leave that store,” he said. “If you’re treated well, you remember that; if you couldn’t find the merchandise you were looking for and you became frustrated, you remember that, as well. It’s a three-pronged approach that retailers really need to tackle.”
Kmart’s total eight-week store sales dropped 4.4%, while income for Sears dropped 6.0% within the same period. Although this drop in profit performance seems like a daunting task to tackle, Klein noted that it is not impossible. With the recent hiring of Ron Boire as Chief Merchandising Officer, Sears Holdings Corp. has extreme potential for improvements.
“Let’s see what this guy can do,” Klein said. “Boire may be able to revitalize the look, feel and overall shopping experience of the brand, and bring the consumer back.”
Klein added: “At the end of the day, these are two American brands that are very mainstream. There is a reason for them to exist; they just have to refine what that reason is. They cater to certain categories within the marketplace and should embrace them in a stronger way.”