Has Sears Finally Received Its Wake-up Call?

By Sam Lewis

Struggling retailer reports continued decline in second quarter

The second quarter has not been friendly to apparel retailers. Kohl’s, Macy’s, and even Walmart have reported disappointing numbers and lowered their yearly earnings outlooks. Sears, it appears, has fallen in line with most apparel retailers, reporting losses in its second quarter report.

For the quarter ending August 3, Sears Holdings, which includes Sears and Kmart stores, reported a loss of $194 million, or $1.83 per share. This is a significant drop compared with the same time a year ago where the company saw a loss of $132 million, or $1.25 a share. Sears Holdings’ revenue also saw a loss, dropping six percent, down to $8.87 billion from $9.47 billion. The company blames losses on store closings and negative effects of its spinoff Hometown and Outlet brands. These brands sell mostly home goods — appliances, tools, and lawn and garden equipment. The Hometown and Outlet Stores shares became public last October. Revenue reported from these stores was around $450 million, down from $645 million a year ago. Revenue in stores open at least a year also saw a decline of just about 2 percent. This figure is a key gauge of retailer’s health as it eliminates numbers from newly opened and closed stores.

However, there is a bit of light for Sears Holdings among these dismal numbers. Edward Lampert, who took over as Sears Holdings’ CEO at the beginning of the year, has been making a push for the company to compete with online retailers. According to the report, sears.com and kmart.com saw increases in sales of 20 percent. This is a dramatic increase from the 3 percent it was reporting prior to the launch of Sears Marketplace. Sears also has begun equipping its brick-and-mortar store associates with mobile devices — iPads and iPod touches — to assist customers with product inquiries and research on the sales floor.

The company also is focusing on a loyalty program. The initiative is titled “Shop Your Way,” and has provided increases in revenue for Sears Holdings. Members of the program were responsible for 65 percent of Sears Holdings’ U.S. revenue for the quarter, up from 55 percent in the same period of 2012. “We made meaningful progress this quarter in our transformation to a member-centric company,” said Lampert. “While the increase in Shop Your Way promotional activity and member redemptions resulted in a meaningful increase in our costs, it demonstrates that our members are deepening their engagement with our program which will allow us to further accelerate our transformation.”

Sears and Kmart have been hit pretty hard by a slowly recovering economy, but they can’t blame the economy for all of their blunders. Some analysts have criticized Sears Holdings for not doing enough investing in its stores and programs to compete with other brick-and-mortar retailers like Target and Walmart, or online retailers like Amazon. The company has seen six straight years of declining sales. Perhaps that will serve as the wake-up call it needs to improve its stores, programs, and channels of retail.