Sears Holdings (US)

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Once the world's biggest retailer, Sears has seen its market steadily eroded by mass-market discounters such as Walmart and Target. Sears probably suffered more than most other traditional retail groups, especially during the 1990s. But after two decades of inconsistent retail strategy, the group appeared to have made a substantial recovery by 2004. At the end of that year, Sears launched itself in a new direction by announcing plans to merge with discount retailer Kmart to create what was then a $50bn-plus giant, under the control of former hedge fund manager Ed Lampert. The enlarged group remains one of the biggest "broadline" retailers in the US but sales have drifted steadily lower since the merger, and there is little sign of any imminent turnaround. The main Sears division, still the larger of the two brands, sells a wide selection of home furnishings and home appliances, apparel and automotive accessories under a range of different formats including general and discount department stores, discount and specialty stores. Several satellite units, including Land's End and Sears Outlet stores have been spun out as independent companies though they are still controlled by Sears' ultimate owner, hedge fund ESL. See also separate Kmart profile.

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Brands

Kmart Craftsman
Land's End Kenmore

Worldwide

Sears Canada

Recent stories from Adbrands Weekly Update:

Adbrands Weekly Update 12th Jan 2017: The slow motion car crash that is US retailer Sears Holdings negotiated another lifeline with the sale of its Craftsman tool brand to Stanley Black & Decker for around $900m. The tool specialist will pay $525m upfront, with the remainder spread over the next three years. Stanley will develop the brand further and expand distribution in third-party outlets, while also licensing Sears and Kmart stores to continue selling the products. Sears is also seeking a buyer for its two other major private label hardware brands, Kenmore appliances and DieHard batteries, as well as for its Sears Home Services maintenance division. The latest move comes on top of another round of store closures, and a further cash injection from owner ESL Investments.

Adbrands Weekly Update 30th Sept 2015: Publicis New York was a surprise winner in the protracted Sears Holdings reviews, taking over creative duties from McGarryBowen (which withdrew from the review earlier this year) on the main Sears account. Meanwhile, Kmart will move from FCB Chicago to Havas Worldwide, which also retained the Craftsman, Die Hard and Kenmore tool and appliances brands; and Havas Media was reappointed for media.

Adbrands Weekly Update 5th Mar 2015: No one was expecting a good result from slowly decaying Sears Holdings and they weren't disappointed. Revenues for the Sears/Kmart business slumped to a new low of $31.2bn, and it too delivered a 4th straight loss, which ballooned to almost $1.7bn. This continuing decline prompted controlling shareholder Ed Lampert to launch yet another restructuring program. In the latest carve-up of the moribund retailer, he will spin off up to 300 of the best performing stores into a separate real estate trust and then rent them back.

Adbrands Weekly Update 13th Nov 2014: Troubled retailer Sears Holdings, which also owns the Kmart chain in the US, is reported to be considering a consolidation of its creative and media accounts into a single holding company. Duties are currently split between Dentsu Aegis (the main Sears account), Interpublic (Kmart) and Havas (all media and Sears' Kenmore and Craftsman brands), but Sears is reported to have approached all the major groups for proposals.

Adbrands Weekly Update 9th Oct 2014: Another stage was reached in the slow motion disintegration of once mighty retailer Sears. Owner Edward Lampert announced plans to sell the bulk of its 51% holding in Sears Canada through a rights offering to shareholders. That will generate additional cash reserves as Sears heads into what is expected to be a difficult holiday trading period. For several years, Lampert has been steadily selling off assets to generate cash. Past steps include the spin-off of Land's End and the group's speciality retailing division. However the latest sale prompted renewed fears among both investors and Sears' suppliers over the group's future. As WWD commented, "The overall sentiment is not whether Sears will kick the bucket, but when."


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Background

Free for all users | see full profile for current activities: The roots of Sears, Roebuck & Co were laid down in the late 19th century. In 1886, Richard Sears was responsible for managing the railway station in the town of North Redwood, Minnesota. In his spare time he sold wood and coal to residents, but discovered a more lucrative line when a local retailer asked him to dispose of an unwanted shipment of watches. Sears made a tidy profit on the deal and decided to set up in business for himself. The following year he moved to Chicago and opened his own store, the RW Sears Watch Company. He advertised for a qualified watchmaker to become his first employee, and the job went to one Alvah Roebuck, who spent the next six years working his way up to become a Sears' partner.

Sears' experience as a station manager taught him the value of being able to deliver goods to people in their own town instead of waiting for them to come into a store, and the company repositioned itself as a mail order business around 1890, delivering its goods via America's fast-expanding railway network. Initially, Sears offered just watches and jewellery, but as demand grew the company began to widen its range to sell a variety of other products including household furniture, clothing, bicycles and farm equipment. By 1895, the company was publishing a mail order catalogue with more than 500 pages, and sales topped $750,000.

Towards the end of the decade, Roebuck was forced to resign as a result of ill-health. Sears recruited former clothing manufacturer Julius Rosenwald to manage the business, and the new recruit was appointed as vice-president and treasurer in 1901. Five years later the group floated its stock, and the following year the company's massive new warehouse opened in Chicago. Covering 3m square feet, with a building cost of $5m, it was at the time the world's biggest business building. But Sears and Rosenwald clashed over policy and in 1908, Sears himself left the company.

By the 1920s, under Rosenwald's leadership, the group had built a number of mail order plants nationwide to manage local demand. The business had matured also, replacing hard sell with a drive towards value and quality; but also some crafty marketing ploys. One involved rewarding existing customers with a free gift if they passed on catalogues to their friends. But the company was still dependent on rural sales, and had almost no business in the country's fast-growing cities. More damagingly, JCPenney and other city retailers were expanding fast into smaller towns and beginning to eat at Sears' market dominance. In 1924, Sears hired Robert Wood, recently fired by arch-rival Montgomery Ward for trying to persuade the company to open chain stores. His ideas found a more receptive response at Sears Roebuck, and a year later the company opened its first store in Chicago, housed within the mail order factory. It was an immediate success, and the company quickly mounted a massive nationwide roll-out.

In the space of just three years, the group opened 300 stores around the country. There were many teething problems, not least bitter feuding between old-time catalogue salesmen and newly appointed store managers, as well as often poor choices of store locations. Nevertheless, sales rocketed. In 1931 store sales overtook revenues from the catalogue division for the first time. The group also began to develop its own range of exclusive brands, including Craftsman tools, Kenmore appliances and DieHard car accessories. Also in 1931, the company launched a new subsidiary to market low-cost car insurance using the name of one of its successful tire brands, Allstate.

During the 1940s, Sears Roebuck took its first steps abroad. A store opened in Cuba in 1942, followed by Mexico (1947) and other Latin American countries. Sales skyrocketed, passing $1bn in 1945. In 1953, Sears Canada was established as a joint venture with local retailer Simpsons; Europe got its first Sears outlets later that decade. By now, Sears was without doubt the world's biggest retail group. In 1969 the company celebrated its success by commissioning the world's tallest building, Chicago's Sears Tower, completed in 1973. The 1970s was a good decade for the group, and sales boomed as the brand was seized upon by affluent suburbanites. But during the 1980s Sears began to lose its way. In 1981, the company started to diversify, acquiring financial services company Dean Witter as well as real estate agent Coldwell Banker. The same year it launched Sears World Trade to pioneer a global expansion drive, but the project was a disaster, and was abandoned in 1986. Meanwhile parts of its retail business were being stolen away from under its nose by fast-expanding new chains such as Toys-R-Us and especially discount chain Wal-Mart, which overtook Sears as the world's biggest retailer at the start of the 1990s.

The retail business continued to decline in the early 1990s, reaching its lowest point in 1992 when the group reported losses of $3.9bn. Management announced a massive restructuring. A key move was to spin off several of Sears' most successful subsidiaries in order to plug the massive holes in retail. The financial services group, in particular, had become a huge business, following the launch of its Discover credit card in 1986. In 1993, part of Dean Witter's stock was floated, with the remainder of the shares distributed to Sears shareholders. (The business was subsequently bought by Morgan Stanley and more recently spun off as Discover Financial Services). Later that year, 20% of Allstate Insurance was floated in what was then the US's biggest ever IPO. The remainder of shares were distributed to Sears shareholders in 1995. Other subsidiaries including Coldwell Banker and other financial services and real estate companies were sold, slimming the group back down to its principal business of retail. 

Meanwhile, within the retail division, more than 110 unprofitable stores were closed by newly appointed CEO Arthur Martinez (later group chairman). As many as 50,000 jobs were cut, and the group even pulled the plug on its bloated Sears catalogue, the core of the original business. The department stores were then repositioned to target women shoppers, while the group bolstered its growing chain of specialty stores in the auto repair, hardware and home services sectors. In 1996, Orchard Supply Hardware was acquired for $415m. But there were still problems in other businesses. In 1990 Sears had partnered with IBM to invest $1bn in the internet community Prodigy. It had the makings of a brilliant idea, with Sears managing the commerce and IBM the software, allowing users to shop online for the first time. At its peak Prodigy had 2 million subscribers. But the service was quickly hamstrung by two major problems: it banned "adult" content, and also took the decision to charge users for sending email. Members deserted the service in droves. By 1996, half the service's members had left and it was sold at a massive loss the following year. 

Also in 1997, a row over the handling of defaulters in its Sears card credit business led to a massive $475m charge. Two other businesses - Western Auto and HomeLife - were sold in 1998. In 1999 the group was forced to cut 1,400 retail jobs in a bid to cut costs in the face of competition. However the company put great faith in its Sears.com online shopping site, backing it with a $100m marketing spend. The stores were pruned to sell only the best-selling lines, while the website geared up to sell a vast selection of other products including a huge range of tools and appliance parts, and product ranges such as furniture which had been abandoned in stores years ago. Yet this was not enough to repair the fortunes of the increasingly tired retail network. In early 2001, in a bid to improve profit margins the group announced it would close almost 90 of its poorest performing stores in the US. It later closed down its its skin care and colour cosmetics business, including the proprietary Circle of Beauty brand, and its pest control division. In 2002, Sears announced plans to cut almost a quarter of its workforce, introducing self-service shopping to many of its stores. 

By 2003, the group's once extensive portfolio of different businesses had been reduced to just two: the main retail division, and a large consumer finance operation which ran the group's store and credit cards. Although retail generated by the far the biggest proportion of revenues - around 75% - profit margins had decreased dramatically, and more than two-thirds of net profits were generated by the credit division. This was hardly ideal, leading to accusations that Sears had become a bank masquerading as a retailer, but at least there were decent group profits to report. 

This threatened to change during 2001 and 2002 as a result of a sharp rise in bad debts, the end result of the strategy pursued during the boom years of the 1990s of offering generous credit to low-income shoppers who were now struggling to pay their bills in the wake of an economic downturn. Group net income virtually halved in 2001 as the result of an increased provision against bad debts of $1.9bn, more than double the previous year. As a result, Sears took the decision to sell off its credit division in order to refocus on the core retail business. In July 2003, Citigroup paid $3bn to take over the portfolio of 59m US credit and store card accounts. The credit business of Sears Canada was sold to JP Morgan Chase in 2005 for $2bn.

By now, Sears had begun to look like a prime takeover target for a buyer willing to embrace the considerable risks within the retail sector. Investor Edward Lampert, already the group's biggest shareholder through his investment fund ESL, launched a full bid for the business in 2004 and merged it with Kmart, which he already owned. The enlarged group adopted the new name of Sears Holdings Corporation. See full profile for current activities


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