Why does Wall St. want Sears Holdings (SHLD) Eddie Lampert to buy more stores, doesn’t he have enough already? Aren’t they always saying that mergers never work? If that is true, why are shareholders wanting a big one and why are they disappointed he is trying to buy a small specialty retailer.
Two news item shed light into what Lampert is doing and no it does not include the purchase of Circuit City (CC), Home Depot (HD) or even the oft speculated about Macy’s (M) .
First: The New Retail Concept In Georgia (this location was a former Kmart).
“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 landsend.com order placed from the store.”
Another Brand:
Sears Holdings take a 13% stake in Restoration Hardware and is looking at acquiring entire operation.
Now, if you are going to build a nationwide operation of these stores, what do you need? BRANDS. Lampert already has about 3,5000 locations is both the US and Canada. Why would he need to buy another retailer and adopt more locations?
Think about it. What is the most expensive thing a growing retailer experiences? Building new locations. Just ask Target, they are begging Lampert to sell them hundreds of his prime locations because it is cheaper than building them. More space is not what Lampert needs.
What is Lampert going to do? Smaller acquisition of brands that he can then plug into the new concept. Worse case scenario with the Restoration Hardware deal if it goes through, they close up its “back of the house” operations and sell the products through the Land’s End catalog and stores and it is still a winner for him. One good thing about a successful mail order business, no matter who owns it, it makes money. Land’s End, who has years or success here can only make it better.
So, if we go with the Brands thesis, what do we look for? Women. Sears has men with Craftsmen and Kenmore. How about going after Victoria’s Secret or Bath & Body
Works from the struggling Limited Brands (LTD). Either would bring women into Sears for their products and traffic is what Lampert needs and has been shedding assets. Or, buy the whole company currently valued at $6.5 billion and then sell off the unwanted pieces to help pay for it. Maybe for just over a billion dollars he could go for Carter’s (CTI) and create a top notch children’s “store in a store”. Any mother knows Carter’s makes some of the best children’s clothing out there.
Either way, next week’s earnings announcement will be a fun one.
9 replies on “Sears Holdings: It’s About Brands, Not Stores”
I’m originally from Rockford,Il and there is talk of the Kmart being redesigned back home. Link can be found here.
I’m not sure how the store is being redesigned. I’ll probably take a look this holiday season when I go back to visit family. The Atlanta store confirms that they are doing some testing. I agree and expect expect to see more and more in the future.
Again in Cincinnati. Just this morning. Link
No offense Todd, but you seem to be flipping on SHLD somewhat lately. Several months ago you were writing how Sears should go and acquire an insurance business or do something to diversify away from retail and now you seem to have resigned yourself to accepting that SHLD is and will always be a retailer. Is this true? Listen, we all know Sears as a retailer is dead. If Eddie wants to try this new plan out and gradually spread it to other stores that is fine and all, but he is going to have to close some underperforming stores here. There are plenty of Sears and Kmart locations that frankly don’t make that much of a profit and selling the real estate would be a good idea. I think that this is Lamperts plan.. He is going to redefine SHLD as an upper end retailer with brands like Craftsman, Restoration, Lands End, etc. When the market turns around he will sell off or close some of the underperforming stores and take the profits from this along with the $5 Billion in new capitol he is raising and *hopefully* diversify out of retail altogether. Thereby making the retailer itself more profitable and increasing shareholder value. Can you be a bit more clear about the future you see for SHLD?
anon,
you are asking two separate questions. i have said from Feb. that Land’s End is the future of Sears RETAIL and the new “brands” idea is a natural extension of that.
Now, Sears Holdings as a company i still do feel will eventually diversify away from retail BUT, the retail operations are not fixed yet. even at that, if “dead” is as you put it healthy enough to produce $1 billion a year in cash, then “alive” will be very impressive.
people said JCP was dead years ago too and they are just fine now.
i have been against the HD or CC possibility from the beginning and have never said otherwise
do not confuse the retail operations with the future of the holding company, not the same thing.
I have also said that Lampert has a plethora of options with the # of stores he has and I have not changed on that. I have also said he will not be a seller of real estate in this market.
your confusion is the same as other investors. right now all you can see is sears future as a retailer being it end product because right now that is all there is, do not make that mistake. Lamper has so many options available to him. Eddie is patient and he will not run in six different directions to appease impatient people.
remember, berkshire was a textile company for three years before buffet did anything..
that business failed, sears will always be a retailer that produces cash for Lampert.
alway keep the future of sears holdings separate from its retail strategy. Sears will always be a huge retailer.
perhaps i could do a better job of defining that in my posts..
Todd I would be interested in seeing a post on how you derive the intrinsic value of Sears Holdings.
anon,
i think i addressed that here?
http://valueplays.blogspot.com/2007/11/sears-holdings-brand-and-land-values.html
Todd,
why do you want SHLD to diversify into things they have no expertise in running. Lampert investing style is not WB’s… SHLD is a turnaround and growth story – it should continue like that for a while. Diversifying this stock doesn’t do investors any good… it is much easier, more productive, and more efficient for the RETAIL INVESTOR to diversify his or her portfolio rather then ask a specialized company to do so; then SHLD can focus on growing in areas of their expertise (not insurance). I would much rather have a focused investment (i.e. MCD) then a diversified bunch (IACI). I can diversify, don’t need a CEO to do so in areas where their not qualified to do. If i want an insurance company in my portfolio, i’ll go out and buy one.
i agree it will continue on its current path for a while. lampert called it “holdings” for a reason though.
lampert wants cash and will invest in businesses that give that too him. he can buy a business with a person who has the expertise to run it, that is not an issue. buffett has no expertise in the insurance business himself but hires those who do to run them.
lampert will eventually want to diversify shld so that downturns do not hurt as much. by nature that requires he venture away from retail a bit.
“Do not just give a gift, grant a wish”. Know this slogan? Yeh! It is Sears!!!!!! Clothes, footwear, tools, electronics, jewelry, beauty products, appliances, furniture, and bedding – everything is there! But the company has lots of drawbacks as well. All the dissatisfaction with the services and products are on http://www.pissedconsumer.com. There you can post your complaints to share with others.