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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 as well as home improvement warehouses Home Depot and Lowe's. 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 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 no sign of any imminent turnaround. The main Sears division, still the larger of the two brands, sells a wide selection of home furnishings and 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. In 2017, Sears' operations in Canada went into liquidation with the closure of all stores. Finally, towards the end of 2018, ESL accepted the inevitable and filed for bankruptcy protection for Sears Holdings pending a restructuring of the business and the likely closure of more than half its remaining Sears and Kmart stores.
Click here for agency account assignments. Sears Holdings declared total advertising expenses of $684m in the year ended Feb 2017. In the US, Kantar (in Advertising Age) reported group measured expenditure of $281m for 2016. Biggest spending brands were Sears (measured media $117m) and Kmart ($69m).
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The merger with Kmart initially appeared to offer several benefits to Sears. In addition to greater scale and buying power and reduced back-office costs, it offered Sears a sales channel beyond the traditional shopping mall format, while also providing Kmart with an improved product selection to help differentiate it from discount rivals Walmart and Target. The challenge has been to make that plan work without sacrificing either chain's existing strengths (such as they were). However, the results from the merger have been mixed, with little sign of a transformational difference. Indeed, the savage downturn in the US economy in 2008 did nothing to help the group's bottom line, and the dramatic shift by customers towards online shopping has continued to impact on performance since 2010. Since then the group has steadily sold off a dwindling pot of assets to raise cash.
Sears announced plans to merge with Kmart in November 2004, and the deal closed at the end of March 2005, structured for legal and tax reasons as the purchase of Sears by Kmart. The combined company, renamed Sears Holdings Corporation, is still among the biggest US retailers by revenues, but slipped out of the top ten for virtually the first time in Sears' history in 2011, and has continued to shrink ever since. Although most back-office functions, including buying, have now been centralised at holding company level, the group continues to operate two separate retail brands: Kmart (see separate profile) and Sears. Both brands target a similar audience of low-to-middle income shoppers.
On the Sears side, the retail portfolio is now led by a shrinking collection of what were, by early 2017, 670 full-line Sears stores, spread across the entire country and located mostly within shopping malls. They stock a broad range of merchandise including apparel, home appliances, consumer electronics, tools, fitness and lawn and garden equipment, and selected automotive services and products, such as tires and batteries, under the Sears Auto Center banner. A few stores still operate under the Sears Grand or Sears Essentials banner, carrying selected additional merchandise from Kmart, as well as groceries, health and beauty products, pet food and the like. (Most former Sears Grand stores have been converted to Kmart since 2010).
Sears merchandise is broadly split into two corporate divisions. Sears Softlines encompasses apparel and fashion accessories. The group manages several own-label brands, including womenswear career and lifestyle label Apostrophe; casual family brand Covington; the Canyon River Blues denim range for juniors and young men; and a women's apparel line by Latina fashion designer and lifestyle expert Lucy Pereda, launched in 2003. Sears also acquired Structure, a stylish but more mainstream menswear brand originally developed by Limited Brands. More recently the company has attempted to cross over into a more fashion-led male market with a range of multicultural menswear brands such as Icewear, Run Athletics by Russell Simmons, P Miller and South Pole. For a while in the 2010s it stocked an exclusive range of clothing under the name UK Style by French Connection, in a licensing deal with the British fashion retailer French Connection and the local arm of licensing company Li & Fung. It also agreed to begin selling apparel and accessories supplied by another UK retail chain Next through its online shopping service.
Another new strategy was the creation of Shop Your Way, a so-called "social shopping" rewards scheme offering free mail order delivery and discounts. This is designed in part to shift the basis of Sears' business towards membership along similar lines to Amazon's Prime system or wholesale warehouses. Among the various projects under the Shop Your Way banner is the development of exclusive celebrity apparel and fragrance brands. The first two such relationships were forged with Maroon 5 singer Adam Levine and singer Nicki Minaj.
Sears Hardlines encompasses appliances, electronics and home improvement products. The company is the leading US retailer of home appliances, lawn mowers and fitness equipment. The range is dominated by three main private label brands which have become household names. However, the group put these up for sale in 2016 to raise much-needed cash. Craftsman is America's leading tools line, with retail sales of over $3.5bn. The brand was introduced in 1927 for a range of hammers, and now encompasses more than 5,000 products in 80 tool and equipment categories from pliers and plumbing tools to tractors and chainsaws. It was sold in Jan 2017 to Stanley Black & Decker for up to $900m over three years. Kenmore is the #1 household appliance brand in the US by a clear lead, worth more than $3.6bn annually. Also introduced in 1927 (for a wringer-type washing machine), almost a third of all American homes now contain a Kenmore appliance. The extensive range includes everything from larger white goods such as refrigerators and dishwashers to cookware, vacuum cleaners and sewing machines. It is the #1 or #2 brand in every segment in which it operates. DieHard is the country's best-selling automobile battery, and also extends to a range of battery chargers, booster cables, consumer alkaline batteries and even rubberised work boots.
A separate unit, Product Repair Services, is the country's biggest after-sales and maintenance operation, managing call-out service contracts with around 35m households across the country, as well as home improvement services. Sears Optical is a national chain of eyecare centres, either located within Sears stores or as freestanding outlets. These are operated under license by eyewear giant Luxottica.
The group still serves as the umbrella for a large number of free-standing specialty stores, mainly located outside the mall environment. This portfolio has been pruned substantially, down from a peak of more than 2,100 outlets to around 1,300 by the beginning of 2012. The core of this group is a network of affiliated "dealer stores" under the Sears Hometown, Sears Hardware or Sears Outlet banner selling a broad selection of national and Sears-branded appliances and home improvement goods. However, virtually all these outlets were transferred towards the end of 2012 into a notionally independent company, now Sears Hometown & Outlet Inc (or SHOS). It continues to use the Sears name under license. Sears Holdings continues to own around 50 speciality stores. In addition the group had owned a collection of neighbourhood hardware stores under the Orchard Supply brands. These stores were also demerged in 2011 (and were later acquired by Lowe's). The Great Indoors, a small chain of home improvement warehouses, was shuttered. Although SHOS is legally separate from Sears Holdings, it is still majority-controlled by Sears Holdings' own controlling shareholder, Ed Lampert's ESL Investments vehicle.
ESL also still controls highly regarded catalogue retailer Lands' End, acquired by Sears in 2002 for $1.9bn. Although that business continues to operate primarily as a mail order service, its traditionally styled casual clothing has been introduced into more than 200 of the group's full-line outlets in separately branded stores-within-the-store. There are also a small number of standalone Lands' End retail outlets. The Lands' End brand generates retail sales worth around $1.6bn a year. In 2014, Sears Holdings spun off Lands' End as a separate public company. ESL continues to control almost 49% of its shares.
Sears' US-based National Tire & Battery store chain was sold in late 2003 to TBC Corp for around $260m. The group's US consumer finance business has been run since 2003 by Citigroup. The Sears Card is by far the biggest private label charge card in the US, with around 25m active cardholders. The credit operations of Sears Canada were sold to JP Morgan Chase in 2005.
For fiscal 2016, hardlines accounted for just over half of Sears Domestic's sales, or $7.1bn. Apparel & softlines accounted for 19% ($2.5bn) and services for 16% ($2.1bn).
Virtually all of Sears' once extensive foreign operations were sold off in the 1980s. The sole remaining business was until 2017 Sears Canada, which operated 113 department stores and around 360 specialty and dealer stores at the beginning of that year. The Eatons brand in Canada was converted to Sears during 2002. Until 2006, Sears owned a 54% shareholding in the Canadian business, with the remaining shares publicly owned. In February that year, Sears began to buy back all the minority-owned shares in Sears Canada, with plans to consolidate it with the US operations. By the beginning of 2010, the group had reacquired more than 90% of Sears Canada's equity. However, the performance at this division slumped alarmingly that year, prompting rumours that the business might be put up for sale. In 2012, the group said it would reduce its stake once more by spinning off its holding to minority shareholders. A large portion of these shares were acquired by Ed Lampert's ESL Investments vehicle. Sears Holdings' own stake had reduced to just 12% of equity by early 2015, while ESL's was 45%. In June 2017, after months if not years of steady decline, Sears Canada filed for protection for creditors pending a restructure. With no sign of a buyer or a financial turnaround, the company announced plans to liquidate a few months later, with the closure of all stores.
The group still controls around 20% of Sears Mexico, majority owned by Carlos Slim's Grupo Carso.
Despite the greater scale of the enlarged business, Sears Holdings has continued to face considerable pressure. Group revenues have been falling steadily for several years, from highs of over $53bn in 2006. For the year ending January 2015, they slipped 14% to $31.2bn, their lowest level since before the merger. Net losses ballooned that year to $1.68bn, the fourth consecutive annual deficit, and the worst since 2011's $3.1bn loss.
There has been little improvement since then. For the year to 2016, revenues slipped to $25.15bn, and then to a new low $22.14bn for year ending 2017. Domestic comparable sales slumped over 9% for the first of those years and over 7% in the second. Losses improved slightly to $1.1bn in ye 2016 before doubling to $2.22bn in ye 2017. That was the sixth consecutive loss.
The main Sears Domestic business reported revenues of $13.49bn in ye 2017 and an operating loss of $1.45bn. Domestic same-store sales have fallen every year for almost 15 years. Between 2009 and 2014, the rate of decline averaged more than 2% a year. It has increased since then to over 11% in ye 2016 and over 9% in ye 2017.
The group's various ESL-owned satellites aren't doing very much better. Sears Hometown & Outlet Stores Inc reported revenues of $2.07bn in 2016, and a net loss of $132m. Sears Canada reported revenues of C$2.6bn in 2016 and a net loss of C$321m. Lands' End reported revenues of $1.34bn for 2016 and a net loss of $110m.
Edward Lampert is non-executive chairman of Sears Holdings. An experienced investor in retail businesses, Lampert was already the largest shareholder in Sears Roebuck & Co in 2004 through investment fund ESL, and he and his associates now control around 48% of the equity of the merged group. In 2013, he became CEO as well. The top job has proved a little precarious since Lampert took control of the business. Former Kmart CEO Aylwin Lewis was appointed as group CEO shortly after completion of the merger. He left the company abruptly at the beginning of 2008 and was replaced on an interim basis by Bruce Johnson, previously head of operations and supply chain. Johnson remained "interim" CEO for almost another three years until the appointment of Lou D'Ambrosio in early 2011. However, D'Ambrosio also departed abruptly at the beginning of 2013 as a result of what were described as "family health matters".
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.
Last full revision 22nd May 2017
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