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Sears Must Ignite Imagination, Turn Excitement Into Sales

BY Murray Forseter

When was the last time a washer/dryer combination stopped you dead in your tracks? It happened to my wife and me the first weekend in May as we ambled off the escalator in the Sears store in the Cross County Shopping Center in Yonkers, N.Y. The Pacific Blue Kenmore HE washer and dryer set mesmerized us. We weren’t in the market for new appliances, and we did not buy any that day. But the power of that display “ignited” our imagination.

A week later, Maureen McGuire, chief marketing officer and executive VP of Sears Holdings, used the word “ignite” several times when speaking to journalists about the objectives of the company’s new integrated marketing campaign that includes a new tagline, “Sears. Where it begins.” “Sears ignites true possibilities for life at home,” said McGuire, a former IBM marketing executive now part of financier Eddie Lampert’s team committed to restoring Sears to retail relevancy.

Anyone who invested in Sears since Lampert took control has to be pleased. Earnings have amazed, as Lampert has squeezed operations and taken advantage of underlying assets. But comp-store sales continue to be negative (at both Sears and corporate sibling Kmart). When, industry watchers want to know, will the sales trend reverse? When will Sears begin anew to act as a retailer, not a financial entity?

McGuire provided no concrete answers but dropped hints. The strategy is to get core customers to buy more and to bring back disaffected customers. “It’s not about looking back. It’s about going forward,” she said. “We need to be a contemporary 21st-century retailer.”

No one can dispute that objective. McGuire ticked off a list of products, including washers and dryers, fitness equipment, lawn tractors and mowers, for which Sears enjoys top status as the nation’s No. 1 outlet. There is no doubt Sears has significant residual loyalty among shoppers for many of its key brands, including Kenmore, Craftsman and Lands’ End.

But even McGuire admitted “things don’t change because of a marketing campaign.” Sears will have to invest more to spruce up stores that are looking rather shabby. It will have to concentrate on store operations to improve customer service. Even the best marketing campaign can turn against a company if its stores do not reflect the promise contained within and conveyed by the commercial.

It’s easy for me and my media peers, along with investment analysts, to criticize Sears. The company simply does not play by the retail rule book we long ago accepted as fact. Moreover, Sears suffers from the same bias affecting Wal-Mart, that is, the stores, the merchandise, the customer service and even the customers don’t measure up to the taste level New York-based journalists and Wall Streeters find comfortable, if not acceptable. Let’s face it—there’s a certain amount of Eastern Establishment snobbery at play here. “Tar-ghey” is cool; Wal-Mart and Sears are not.

Sears does not deserve a free pass from journalists and analysts. It must prove itself across the country, including the New York metro area. It must show that it can not just ignite customer imaginations but also convert those dreams into sales.

CHANGES AT WAL-MART

To the Editor:

I’m writing to compliment [Kevin Coupe] about [his] Wal-Mart column in the April Chain Store Age. I’ve been reporting on Wal-Mart for 25-plus years and I am seeing exactly the same ambiguity.

As far back as when Sam Walton was running a Ben Franklin store, he said he needed to sell fabric because it attracted the kind of customer he wanted in his store. Then he added crafts for the same reason. His wife Helen was such an ardent crafter that Wal-Mart eventually opened three craft stores called Helen’s Creative Crafts (later sold to Michaels).

After Sam’s death, rumors would spread periodically that Wal-Mart would drop crafts and/or fabric. Never materialized. A former craft buyer for Wal-Mart told me a few years ago it wouldn’t happen because the craft/fabric department always performed well in store-destination studies. So execs knew Coke might outsell fabric, but without fabric, they wouldn’t sell as much Coke.

Now Wal-Mart is dropping bolt fabric and merging crafts with party goods into a “celebrations” department in new and remodeled stores. Eventually it supposedly will be systemwide.

Except … I’m hearing of select cases where Wal-Mart will rescind the change in a particular store if enough local customers complain. In many smaller towns, Wal-Mart is the only source for fabric.

There’s that ambiguity you talked about, and alienating core customers as the company struggles to attract more affluent customers.

So between us, we’ve cited books, drugs, guns and fabric. I wonder how many other departments are in turmoil?

Best wishes, Mike Hartnett, publisher, Creative Leisure News

P.S. One thing guns and fabric have in common: they both need a clerk, which apparently is too expensive in this modern age.

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Sears comps hurt by energy costs

BY CSA STAFF

HOFFMAN ESTATES, Ill. Sears Holdings today reported net income of $216 million, or $1.40 per diluted share, for the first quarter ended May 5, compared with net income of $180 million, or $1.14 per diluted share, for the first quarter ended April 29, 2006.

“In part, our domestic operating results reflect the impact of some of the same challenges being faced by our customers, such as rising energy costs and a slower housing market,” said Aylwin Lewis, Sears Holdings’ ceo and president. “However, as an organization, we need to overcome these factors by better controlling costs and developing innovative solutions that better meet our customers’ needs and allow us to generate a more reasonable level of profitability even in the face of such challenges.”

Domestic comparable-store sales declined 3.9% during the first quarter of fiscal 2007. Sears domestic comparable-store sales declined 3.4% for the quarter, while Kmart comparable-store sales declined 4.4%. We believe these declines reflect both increased competition and the impact of external factors such as rising energy costs, a slower housing market and poor weather conditions during the latter part of the first quarter of fiscal 2007. Kmart experienced lower transaction volumes across most merchandise categories, most notably within home goods, health and beauty products, and food and consumables. Similarly, Sears domestic recorded comparable-store sales declines across most merchandise categories and formats, with a notable decline in home appliance sales, which we believe reflects both a slower U.S. housing market and the impact of increased competition.

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Big Lots 1Q net sales up 3.4%

BY CSA STAFF

COLUMBUS, Ohio Big Lots today reported first quarter fiscal 2007 income from continuing operations of $29 million, or 26 cents per diluted share, compared to income from continuing operations of $14.5 million, or 13 cents per diluted share, in the first quarter of fiscal 2006. Including the impact of discontinued operations, first quarter fiscal 2007 net income totaled $28.8 million, or 26 cents per diluted share, compared to $13.7 million, or 12 cents per diluted share, in the prior year.

Net sales for the first quarter ended May 5, increased 3.4% to $1.13 billion, compared to $1.1 billion for the same period in fiscal 2006. Comparable-store sales for stores open at least two years at the beginning of the fiscal year increased 4.9% for the quarter.

For the second quarter 2007, the company expects income from continuing operations of 7 cents to 10 cents per share versus income from continuing operations of 4 cents per share last year. Comparable-store sales are expected to increase 2% to 4%, compared to a 5.2% comparable-store sales increase recorded last year.

For fiscal 2007, the company expects income from continuing operations of $1.25 to $1.30 per share versus income from continuing operations of $1.01 per share last year.

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