Retail: Sears struggles to remake its image.
Analysts say image change needed
The latest turnaround plan at Sears Holdings suggests that the company has more runway to work with than previously believed.
But another round of financial engineering won’t stop the fact that the ailing retailer hasn’t articulated a compelling reason to exist, analysts said.
The department-store chain generated enthusiasm among investors for its latest financial turnaround plan, sending its stock skyrocketing as traders glommed on to the company’s projected $1 billion in annual cost cuts and $1.5 billion in debt reduction.
The fresh round of confidence in Sears’ future came despite the fact that the company’s retail store sales decline as of November was the worst among the top 250 retailers tracked by eMarketer.
But Sears’ bleeding goes beyond the red ink. The retailer, whose stores include Kmart locations, has failed to redefine its image in the digital age, when even the fittest department-store chains are struggling to lure customers.
“I’m kind of surprised that they’re getting a whole lot of love from investors because it’s the type of pronouncement that we’ve heard several times before,” said Greg Portell, lead partner in the retail practice of strategy and management consultancy A.T. Kearney. “They have to address, why go to Sears?”
That unanswered question remains the company’s most vexing challenge as the chain’s heyday as a destination for appliances, clothing, tools and electronics has faded.
Sears Holdings CEO Edward Lampert has identified a customer loyalty program that awards discounts as a route to restoring the company’s connection with customers. He said in a statement that the company’s debt reduction, cost cuts and new credit arrangement will help.
Christina Boni, retail analyst at Moody’s Investor Service, said the Sears Shop Your Way program has helped the company make strides. But the retailer’s strategy of selling assets, including a recent $900 million sale of Craftsman to Stanley Black & Decker, and closing unprofitable stores won’t amount to a sustainable path.
The Kenmore brand might be next. But where does it stop?
“You can’t cut your way to prosperity,” Boni said. “Ultimately you have to be a franchise that resonates with consumers.”
Lampert’s personal investments in Sears have helped propped up the company, Portell said.
Without it, bankruptcy might be near.