Store Redesigns, Not Asset Sales, Top Lampert’s Priority List for Sears

Investors hoping Sears Holdings (SHLD) Chairman Eddie Lampert would quickly move to transform the company into more than just a retailer have been disappointed. Lampert clearly understands the tremendous value of his company’s assets, but thus far has not moved to revamp the company as much as his supporters would have liked. Instead, Lampert seems convinced that he can boost the company’s retail operating margins closer to industry averages with better management of the store base.

In fact, a press release issued Saturday sheds light into Lampert’s game plan:

Kmart Store Becomes a New Sears

MARIETTA, Ga., Nov. 17 /PRNewswire/ — The former Kmart at 4269 Roswell Rd is now a brand new Sears. Local Atlanta residents can expect a one-of-a-kind shopping experience that offers an expanded selection of merchandise including more national brands than ever before and a 23,000 sq. ft. Lands’ End shop featuring the largest selection of Lands’ End merchandise ever at Sears.

The new Sears will come to life by offering customers a “store-of-shops,” and a fresh design layout with different flooring, fixtures, and displays. Marquee brand names now found in the new Sears include Sony, Hanes, Workwear – by Craftsman, Carhartt, Timberland and Diehard apparel, Levi’s, and Nordic Track. The store will also feature expanded Home Electronics and Home Appliance showrooms, organized around favorite manufacturers, that will also help customers choose the right look, feel and function with other brands Sears carries.

A newly remodeled hardware department will feature innovative and interactive Garage Organization, Mechanics and Carpentry shops to help customers find the right item quickly and efficiently.

Five central internet workstations located throughout the sales floor will provide free high-speed Web access to enable both the customers and associates to quickly access the internet, verify prices, shop online and contact store personnel if help is needed.

The store will also carry a wide range of convenience items previously available at the former Kmart location including full pharmacy services, health and beauty, cosmetics and greeting cards.

This new format will help customers create the look they want and find the gifts they need all in one convenient location. Shoppers will find the quality brands they have come to know and love like Diehard, Craftsman, Ty Pennington, and Kenmore plus extended assortments of national brands from Nordic Track, Schwinn, Reebok and more. Customers can also shop for great fashions with the first 23,000 sq. foot mega Lands’ End shop that brings the legendary brand to life with items for women, men, kids, baby and home. Now families can touch and feel the quality and see the details of Lands’ End products. A special monogramming service is also available to easily personalize just about any Lands’ End item that will take a stitch. There’s even free shipping on any catalog or order placed from the store.

It remains to be seen if Lampert can boost profit margins further at Kmart and Sears. Initial attempts were successful, but 2007 has brought little improvement, due in part to the weak retail environment in both the low end consumer and home improvement/furnishing markets. That has resulted in Sears stock being down 28% year to date.

This press release is further evidence that Lampert is focused on improving store margins, not diversifying business lines. As a result, it indicates that the Sears investment thesis remains a long term story. By the way, if anyone lives near this redesigned store in Atlanta, I’d be curious to hear your thoughts on the new store.

Full Disclosure: Long shares of Sears Holdings at the time of writing.

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7 Thoughts on “Store Redesigns, Not Asset Sales, Top Lampert’s Priority List for Sears

  1. I’m beginning to wonder whether or not Lampert’s decision to both run Sears and operate as an investor is really serving him well. It would seem that the operations of Sears and KMart ought best be carried out by someone with retail or merchandising experience with Lampert concerning himself with the overall profitability and capital structure of the company – more similar to Warren Buffett. It took Warren Buffett about 5 years to begin diversifying Berkshire Hathaway’s business and begin acquiring other firms. Do you think we will see that soon with Sears?

  2. Chad Brand on November 19, 2007 at 8:25 AM said:

    I don’t think it is clear if Lampert is really running the retail operation or not. He has hired merchandising people, so they could be behind most of the retail related work. It could have been his idea, however, to try new store concepts, such as store-within-a-store, etc. Hopefully, he is not really being hands on with the designs, etc, as you pointed out.

    On the second point, I think you are right in pointing out that Buffett did not rid himself of the mill business right away, he waited years. I think investors were hoping for a quick flip, hence the stock has hit a wall in the short term. I don’t know if we have months more to wait, or years more, but hopefully after a more careful review of the store base and its potential profitability, we will see diversification.

    Until then, it is simply a retail turnaround play, which is not an easy task with all the competition in the U.S. market these days.

  3. sagacious on November 19, 2007 at 4:58 PM said:

    I’m intrigued by his nearly 14% ownership of Restoration Hardware and his decision to purchase it through Sears rather than through his funds. Certainly there is a strategic fit here, but we’ll see where he takes it.

  4. Stephen on November 20, 2007 at 8:22 AM said:

    Yeah, I’d be interested to hear Chad’s commentary on the 14% stake in RSTO.

  5. After reading that press release, it appears that the long term value bulls in Sears also want to believe in the tooth fairy. There is compelling evidence that the tooth fairy exists you know. The trick is that you have to look really really hard to see it.

    Chad I commented about Sears in one of your prior posts on the subject. You may recall that I was fortunate to be short when it finally cracked. I long since covered to my regret. Oh well, who knew.

    I even went long last week for a quick long trade that worked out well. In fact, I’m willing to go long again on a trade only basis. A long term hold of Sears is out of the question.

    Keep up the good work, but I think you missed the boat on this one. Bottom line, Sears is a 3rd or 4th rate retailer. That isn’t going to change.

  6. Chad Brand on November 21, 2007 at 7:04 AM said:

    I plan on posting about the RSTO development shortly, so be on the lookout for that.

    Congrats on that excellent short SHLD call. Long term though, I still disagree with your outlook, hence I remain invested in SHLD with that time horizon in mind, as I have been for years. Short term, meaningful gains are unlikely.

    I do not believe the company needs to become a first rate retailer in order for the stock to rise long term. This is due to a combination of the value of the company’s non-core assets, coupled with retail margins that could easily expand from depressed levels.

    Right now, the stock price reflects a long term after tax retail margin of around 2.5% along with assigning zero value to the company’s other assets. I see huge potential from both of those areas over time.

    Thanks for the insights, everyone.

  7. John Christy on December 4, 2007 at 6:28 PM said:

    I really like Sears’ strategy of boosting profit within its existing stores rather than mindlessly looking to expand. The problem I see with Sears is that it seems to lack an identity among retailers. It’s not discount, but it’s not premium either. Other than hardware nuts, there’s no archetypal Sears shopper, and most successful retailers have hung their hats on their most prolific shoppers.

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