Facts from Eddie Lampert:
- The company is not a real estate play.
- The company will be run as a retailer
- The company will not be selling its most valuable brands
- The company is pursuing lower costs of capital and improving debt levels
- The company is focused long-term and is not competing with WalMart
Step One) Identify the best markets for Sears/KMart store locations. If Sears hopes to capitalize on its strong brands it needs to focus on higher-end customers. This means selling real estate in low end markets and keeping the proceeds on balance.
Step Two) Continue to acquire quality brand names. This winter, SHLD began its purchase of Restoration Hardware - a high quality furniture and home product retailer. Instead of building a portfolio of businesses like Berkshire, Sears can buy its own durable competitive advantages by owning strong brands. Add Restoration to Kenmore, Craftsmen, Land's End, Martha Stewart, and DieHard brands. These high-end brands support the plan of appealing to wealthier customers and command higher margins.
Step Three) Improve the cost of capital. SHLD caught a set back after the most recent quarter when S&P lowered its credit rating from B to BB. To turn this ship around management has three main tasks, continue to erase debt, hold more cash on balance, and improve cash flows (this is the most difficult task for a retailer). Lampert still believes Sears deserves an investment grade on debt.
With more cash, lower cost of capital, and improved brands Sears can afford its final and most important step.
Step Four) Nation wide overhaul of stores. In an effort to create a high quality retailer, Sears needs to drop the KMart brand name and renovate its stores to reflect the quality shopping experience that Sears hopes to create. Coupled with some good publicity and well managed renovations, Sears can return to its nationwide presence and quality reputation.
Is this the definite plan for Sears? No. But I have more evidence to support this long-term turn around than Barron's real estate play or Stockpickr's "Next Berkshire" theories. Just ask the boss.
3 comments:
Martha Stewart is leaving SHLD from what I read..
If Sears is to restore itself as a quality, i.e. high end, retailer it needs to do seveal things almost simultaneously.
Too much KMart "culture" has been allowed to infest the stores, such as "seen on TV" specials bombarding consumers hourly and service which has become time consuming and onerous.
Lead times in critical areas such as appliances is driving business to Lowes and HD regardless of pricing and is further exacerbated by longer lead times in providing services for which they were once well regarded.
Store upgrades are a necessity but not a priority at this juncture.
Sears stores look like Wal Marts and Kmarts. The presentation is poor, cheap and not higher end. Get rid of shopping carts and make it a full service department store. Not a kmart or Wal mart. Sears needs higher end apparel nanes, nice displays, an actual shoe dept again, cosmetics and fragrances. Sears then was nicer and better than how terrible it is now. They need to step it up and bring in lest trash and apparel
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