Sears Sizes Up Home

New Leaders convey “Back to Basics” Message

Carole Sloan, Staff Staff, April 17, 2006

Hoffman Estates, Ill. — Sears is looking to its home fashions business as one of the driving forces for success under the new leadership of Edward Lampert and Aylwin Lewis, chairman and president/ceo of parent company Sears Holding Corp. respectively.

The executives, at the company's first annual meeting here last week following last year's merger of Sears and Kmart, emphasized the need to attract younger consumers — and home furnishings was cited as a key to achieving this end. “We see a lot of bonds to be built around homeownership,” said Lampert, who picked the home furnishings area as a means to this end.

In fact, at the annual meeting, poster-size examples of Sears and Kmart exclusive products were displayed — and home furnishings captured more than a third of the presentation. Shareholders also were invited to browse through a major presentation of the new home and apparel collections with home clearly dominating the effort.

Overall, the Sears executives' message to Wall Street and its shareholders was “back to basics” from everything including the greeting of customers in the stores, improving customer relations, service and remodels, to fixing the apparel scenario at Sears, and developing internal apparel programs at Kmart “where we were reliant on third parties to fill the inventory dollars,” Lampert noted.

In what could be a message to the marketplace about the two divisions' future merchandise procurement, Lampert said, “Those companies did great business with Kmart, but we should have done it ourselves.”

Specifically addressing the situation with Martha Stewart Living Omnimedia and its relationship with both Kmart and the newly signed program with Federated Department Stores' Macy's group, Lampert said, “We tried to have a bigger relationship with them. It's clearly a well established business at Kmart.”

Acknowledging that there had been potential for moving the Martha Stewart Everyday brand to Sears as well, Lampert said, “We would like to make sure there is continuity. We would like to understand what options there are. We've treated Martha really well.”

He noted that the Kmart contract has four more years to go, with the next two at the “high minimums; the second two then drop considerably.” The implications were that the two sides were barely talking about long-range potential.

In presentations and answering questions, both Lampert and Lewis hewed to the theme that “we can't do it overnight,” while citing advances, especially at Kmart where “it has stabilized,” Lampert said. “We're building on an emotional attachment” with customers.

Looking at the differences between Sears and Kmart, Lampert said, “There are more fixing processes needed at Sears — it's different. They need to build on the customers already there; it's more of fixing processes.”

For Kmart, he said, “It's a matter of changing the product and the stores.” But for both businesses, he emphasized, “We're going to do things we think make long-term sense,” a statement designed to state the company's direction and also to deflect the sense that the combined retailers were merely a part of a real-estate play.

Both Lampert and Lewis acknowledged in the meeting and in a session with the press later that “a lot of things didn't work. But the silos are gone [within operating areas] and we will make it work,” Lewis emphasized. With both Sears and Kmart still fighting similar competitive issues of the past few decades, both executives emphasized that this was a new regime, a new culture is forming, and mistakes have been made and will continue to occur.

Among the key initiatives, they said, were the opportunities that could evolve from identifying important consumer segments from the company's customer database, as well as intensifying information technology systems and upgrading the stores.

Changing the culture at both retailers, they pointed out, was another key element in succeeding.

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