Lampert Defends Sears
December 12, 2005-- Home Textiles Today,
Hoffman Estates, Ill. — Sears Holdings' chairman defended the company's strategy — and berated critics — in a “Message from the Chairman” released by the company alongside third quarter earnings last week.
Edward Lampert, who is also the company's largest stockholder, defended Sears Holding's reduced capital expenditures, reminded investors that the merger of Kmart and Sears, Roebuck occurred only eight months ago, praised the pace of integration between the two, and cautioned investors against buying into the pessimism expressed by “so-called experts” about the company's long-term prospects.
“For a business executive, the key is to think about and understand one's business and its strategic and financial characteristics, make decisions based on that understanding, and have confidence to stay with well-reasoned decisions even in the face of vocal doubters,” Lampert wrote.
He continued: “Most observers and financial pundits missed the turnaround at IBM, missed the turnaround at American Express, missed the turnaround at JCPenney, missed the emergence of Google, and missed the resurrection of Kmart — until it was abundantly clear that those companies had succeeded.”
Although the co-joined company is the third largest retail operation in the country with $55 billion in revenues, Sears Holdings has been terse in its communications with the investment community since its merger last March. Not so last week, as the company announced a shift at the top of its merchandising organization and its interest in buying out the remaining shares of Sears Canada (see Retail Briefs, page 2). “In addition, the company reported third quarter profits that — while sharply off from the year-ago period — managed market opportunities,” Lampert declared.
On the merchandising side, Lampert highlighted the infusion of Sears brands into Kmart stores. The company is experimenting with adding to Kmart assortments some Sears' Kenmore and other appliances, Craftsman tools and DieHard batteries.
“These brands, together with the Sears credit card and home services offerings, allow us to put 'Sears Inside' of Kmart,” Lampert wrote. “I have always believed that Kmart customers had the inclination to buy more valuable products at Kmart if presented with the right value offerings.”
While the results of the “Sears Inside” strategy are preliminary, sales of Sears products in Kmart stores have been encouraging, he said. In addition, remodeled Kmart stores have experienced an uptick in gross profit, especially when the remodels include Sears merchandise.
The new Sears Essentials format — converted Kmart units that give Sears an off-the-mall footprint and blend Sears brands with Kmart consumables — will be but “one concept among many to be tested and to learn from … ” he said.
The 50 units now operating are performing at varying degrees of success, Lampert stated, although the company continues to believe the concept can be developed into a “very” profitable nameplate. Sears Essentials will continue to test new ideas within the format, he added.
Lampert also indicated the company would not be pressured into rapidly rolling out Essentials units.
“We will not simply throw money behind any concept, but instead will test, evaluate, refine and 'prove the math' so that the investment is justified before we make it,” he said.
Lampert took a similar tone when addressing critics of the company's reduced capital expenditures. Capital spending was cut back to $153 million in the last quarter from the combined $319 million that Sears and Kmart spent a year earlier.
He ridiculed the “accepted practice” that retailers should plow a certain amount of money into cap ex each year to demonstrate growth, noting that sometimes acquisitions or stock repurchases might generate better returns. As an example, he pointed to what befell the telecom industry when it tried to ape WorldCom's expenditure levels simply because that was the prevailing practice.
Noting that Sears Holdings has more than 1,000 stores in its portfolio than rivals Target, JCPenney and Kohl's, Lampert said the issue is not to build more stores, but to make the stores more productive.
Related Content By Author
Industry Related Content
Explore Latest Business Trends at Heimtextil