Friday, September 08, 2006


There’s on old Seinfeld episode in which Elaine hosts a baby shower for a woman she’s trying to impress; and when things go wrong the unimpressed woman says, “Elaine, who catered this…Sears?”

That “Sears” had become a one-word punch-line in a popular sitcom pretty much sums up the problem Sears Holdings has with efforts to rejuvenate its brand—especially under the Eddie Lampert regime.

Lampert, whose track record in finding value in public companies—notably AutoZone—is among the best ever, shmooshed K-Mart together with Sears to create a retailing giant whose customer base is either dying off or increasingly shopping elsewhere.

That’s not mere opinion: sales at the combined Sears and K-Mart stores declined nearly 4% last quarter. Happily for Sears’ shareholders, however, margins were up—illustrating the major theme of the Lampert-engineered business model, which is to sacrifice unprofitable sales (something retailers hate to do) for the sake of fatter margins and excess cash flows (something shareholders love).

Wall Street’s Finest have been slow to embrace the Lampert makeover, mainly because they suspect that Lampert is starving the Sears/K-Mart store base of necessary capital. Unlike, say, natural gas pipelines, retail brands require intensive care and feeding every year to maintain their cash flows, because a fickle shopper has many alternatives.

Nevertheless, Lampert’s strategy worked wonders at AutoZone, the ubiquitous auto supply store, and Lampert appears to see no reason it can’t work at Sears/K-Mart.

But there is good reason it may not work at Sears/K-Mart—mainly that, unlike Sears and K-Mart, AutoZone is a convenience-based supplier of mostly specialty parts selling to mechanics and car-guys who couldn’t care less about a crack in the floor tile or whether they could find the same product cheaper in another store a half hour away.

To paraphrase Jim Morrison, they want that timing belt and they want it now.

Blue jeans, laundry detergent, diapers and washing machines are a different story. So Sears/K-Mart runs the very real risk that traffic continues to decline store by store until the business loses its customers and its cash flow.

To quote the Lizard King, “When the music’s over, turn out the lights.”

Still, Sears is not doing nothing. A recent story in the New York Times touted the company’s online efforts to market to college students for the all-important back-to-school season.

To whit:

Sears Holdings... has gone further than most other online retailers in appealing to college students this year by creating a Web site, Like other online executives, Lorna Sargent, director of e-commerce content for Sears Holdings, struggled to explain why retailers chose this year to pursue college students with such zeal.

“Everyone just kind of realized there was this untapped market out there,” Ms. Sargent said.

This sounds pretty good, as does the site description:

Perhaps fittingly, the site is designed for visitors who might like to relax a bit, browse articles and interact with various features, rather than rushing through the purchase process. Visitors are greeted with background music ranging from retro rock to contemporary metal, and a screen that bristles with features like idea lists and articles and videos about surviving freshman year.

Unfortunately, as with so many other recent attempts to recharge the Sears shopping experience (Lands’ End being one; Sears Essentials being another), this one has that Seinfeld feel to it.

“Today’s specials” highlighted on the first page include a “3 Shelf Bookcase” for $49.99, a “Manchester City Convertible Sofa”—whatever that is—for $299.99, and a “Back 2 School TXL Mattress Pad”—whatever “TXL” means—for $12.99.

(Hint to Sears: not many college students are looking for bookcases these days.)

For the record, I am not deliberately picking the least desirable stuff to show how dull the site is. I have even less time to bother with this than a college student trying to fill his apartment with—as the site calls it—“The Gear.”

For comparison’s sake, Sears’ laundry selection for the college-bound contains 8 items, 5 of which are laundry hampers ranging in price from $20 to $50. I am not making that up.

I don’t know about you but my college experience did not involve a major emphasis on laundry hampers. Nor would I have spent fifty bucks for the “Supreme Laundry Sorter” offered by Sears, or even twenty bucks for the “Collapsible Hamper.”

For one thing, the “Supreme Laundry Sorter” would have occupied most of the available free space in our cramped room. For another, if you asked a nineteen year old male what he would do if he had fifty bucks, the first thing he would not say is, “I’d buy a Supreme Laundry Sorter.”

He would probably say, “I could play foosball at Smuggler’s Tavern for the rest of my life or as long as I don’t flunk out of school,” not that I spent much time playing “foosball” at “Smuggler’s Tavern” when I was nineteen. (I was actually twenty at the time.)

And in fact, given the space issues in our dorm room by which only one of us could be standing at a given time, plus the finance issues, my laundry solution was a cheap old cloth laundry bag I could stuff under the bunk bed that probably cost five bucks.

For comparison’s sake, I checked out Bed Bath and Beyond’s web site—to take a real growing retailer, not a cash-cow being milked for all it’s worth—which has a college tab with actual products that a nineteen year old might need, at great prices. Including, by the way, laundry bags for five bucks.

New York Times puff-pieces aside, SearsSimplyCollege or SimplySearsCollege or SearsSimplyNotHappening or whatever the heck it is appears to be a cobbled-together effort to market existing Sears merchandise on the cheap, and in fact the company spokeswoman admitted as much.

Ms. Sargent said, which was introduced late last month … represents another first for the company, in that Sears Holdings has never before integrated products from Lands’ End, Kmart and Sears on one site.

“Sears has generally approached back-to-school from a school-kid age demographic,” she said. “So this is a new demographic for us.”

Any college students out there buying it?

Jeff Matthews
I Am Not Making This Up

© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.


Lee_D said...

Traditional department stores are in a bad place right now. Challenged by aggressive, focused specialty retailers, burdened by excessive layers of management, and worst of all, often completely out of touch with what consumers really want. As a Canadian retail hawk, I've been watching with great interest the struggles Sears Canada and rival HBC have undergone. Following HBC's takeover by Jerry Zucker, I blogged some helpful advice earlier this year:

In my experience, retailers with large, unwieldy management structures have two speeds in their gearbox: Glacier, and Panic. Since it was first Chartered during the Fur Trade of the 17th Century, I don't think HBC ever moved faster than they did when the collapse of dominant Canadian retailer Eaton's in 1999 delivered a harsh wakeup call to Canadian department stores. Given HBC's inability to accomplish much of anything in the intervening seven years, I'd say the tough times aren't over for large, slow, ponderous retailers.

In truth, I don't hold much hope for traditional department stores to stem the tide, unless they stop being so damn traditional.

Gone to the blogs said...

All good college furniture can be made from cinder blocks, plywood and bedsheets. Maybe that should be the focus of their website.

bgthej said...

Unfortunately, the peak of Lampert mania has hurt me, as I am short Radio Shack, probably the most tired brand on earth. However, when a former Lampert disciple (the former CEO of Kmart) came on board as the new CEO, suddenly all of the company's horrible problems were solved. Nevermind the average Radio Shack hasn't been rennovated in 13 years and the company's main product (wireless phones) are hitting saturation in the U.S. While Eddie Lampert might be a genius, I still have not bought into his strategy of ringing out profits out of tired declining retailers.

ptkelly said...

any retailer can tell you the easiest way to get higher margins is to starve the shelfs.

at its most benign level this indicates sears is doing just that and "sacrificing" unprofitable sales, at its most severe level this indicates that sears cannot balance the fundamental service level/stock-out operational aspects of retailing.

as customers continue to find limited value in sears' merchandising and cannot find the merchandise when they do, the SSS will continue the precipitous decline.

many fail to adequately match the "hidden" liabilities to sears' "hidden" assets as well when the great cash balance is extolled.

its great big stock buyback is fully accounted for by the cash on the balance sheet. it is simply an indication that there is no place to invest in this dismall business.why are people paying more that dollar-for-dollar for it?

are people actually willing to pay eddie $2 for a $1 in his hedge fund? that's certainly what they've been doing to SHLD.

warning: anecdotal sidenote below...

as the 1 of 5 kids of a former life long sears employee, i grew up with everything in my house from my underwear to the refrigerator from sears...i'm serious. it's obvious that has long ago passed. anyway, when it came time to purchase my first house a couple of years ago, i took advantage of the employee discount program and purchased all my appliances from sears (kenmore brand). when the inevitable service calls first came, the technicians commented on how they don't get into the city anymore (this being Chicago)...SHLD supposed strong hold!

vgtozz said...

depends on who the website is targeted at - college students may not buy this stuff themselves - but then what college students go to the Sears website anyway? However, I suspect parents may be the target - and who knows, maybe as they are browsing, they will think their child would find a laundry basket useful...

Anonymous said...

The Center for Media Research has released a study by Vertical Response that shows just where many of these ‘Main Street’ players are going with their online dollars. The big winners: e-mail and social media. With only 3.8% of small business folks NOT planning on using e-mail marketing and with social media carrying the perception of being free (which they so rudely discover it is far from free) this should make some in the banner and search crowd a little wary.