"The Sears-Kmart merger creates a retail giant -- and a platform Lampert can use for more deals," reported the magazine. "Most investors loved the deal. Kmart's stock soared 8% the day of the announcement."
Two losers don't make a winner
Kmart had just emerged from bankruptcy and Sears had been going sideways for years.
For 90 years, Sears was America's largest retailer, but in 1991 it was passed by Walmart Stores. Today, Walmart outsells Sears almost 10 to one, and that includes Sears plus Kmart.
Furthermore, the Sears-Kmart combo is making very little money. Here are sales and net profit margins in the year 2010 for America's top retailers.
- Walmart : $421.8 billion (3.9%)
- Home Depot : $68.0 billion (4.9%)
- Target : $67.4 billion (4.3%)
- Lowe's : $48.8 billion (4.1%)
- Sears-Kmart: $43.3 billion (0.3%)
Oddly enough, Sears once owned the position Walmart owns today.
"Shop at Sears and save," was the slogan Sears used in the early days. And it was true. Most consumers thought that Sears offered the best combination of quality products and low prices.
What's a Sears today? In 2001, it was "Sears. Where else?" In 2005, it was "Good life. Great price." In 2007, it was "Where it begins." And in 2009, it was "Life. Well spent."
In other words, Sears today is not much of anything.
Slogans or taglines or positions have fallen out of favor among many marketing people. Consumers don't pay attention to these things, goes the thinking. And it's true, they don't.
But if you can't define your brand in a couple of words, then it's likely that consumers won't be able to file away your brand in their minds. And if you're not in their minds, you're out of business.
One indication that Sears has trouble defining its role in the retail community is the fact that its CEO and Eddie Lampert took 90 days developing a relatively short vision-and-mission statement for the company.
If management has trouble defining its vision, no wonder consumers don't have a clear picture of what either Sears or Kmart stands for, in spite of the $702 million spent on advertising in a recent year. Among retailers, that lagged only Macy's ($890 million) and Walmart ($902 million.)
Rx for a company in trouble
The common remedy for a company in trouble is "more." What else can we do? Who can we buy? How can we expand?
In 2002, Sears paid $1.9 billion for Lands' End. In 2008, Sears tried to buy Restoration Hardware. And, of course, the 2004 acquisition of Sears by Kmart is a typical example of the "more" approach to marketing strategy.
Management should have studied Sears "socks to stocks" strategy. At one point in time, Sears owned Allstate (insurance), Coldwell, Banker (real estate), Dean Witter (stock brokerage) and the Discover card.
In 1992, Sears announced plans to shed these operations, and according to The Wall Street Journal, "take the company back to where it was in 1981 -- except without the dominant positioning in retailing it had then."
Retreat, don't advance
Sears should have studied military history. When a military operation gets into trouble, it doesn't advance to weakness, it retreats to strength.
Not Sears. Like many other companies, Sears has tried to fix its weakness rather than capitalize on its strength.
With three strong brands (Kenmore, Craftsman and DieHard), Sears has a dominant position in the appliance business. In 2001, for example, Sears had a 41% share of the domestic appliance market. (Currently, its share is about 30%.)
On the other side of the aisle, Sears is weak in soft goods. Hence the 1993 program, "Come see the softer side of Sears." Typical advertisement: "I came in for a DieHard. And left with something drop dead." (A black cocktail dress.)
"Our strategy is to make the store so appealing," said former CEO Edward Brennan, "that the customer walks out with a pair of jeans as well as a lawnmower."
Does that make sense to you? Is that the way consumers shop? As far as my own experience is concerned, consumers usually go out to buy something specific. Clothing perhaps on one trip. Appliances on another. Seldom do they go out to buy both.
Besides, what successful stores sell tools & T-shirts, batteries & brassieres, refrigerators & rejuvenating cream, all under one roof?
In a military war, if you have the superior force, you can extend your lines and still maintain control of territory. If not, you must do the opposite. Or as Carl von Clausewitz once wrote: "Where absolute superiority is not attainable, you must produce a relative one at the decisive point by making skillful use of what you have."
What's the decisive point? If Sears is going to have a future, it's not with soft goods, it's with hard goods.
Retreat to appliances
What Sears should do seems so obvious it's probably a waste of time to mention it. Sears should retreat to its strength in major appliances.
Actually, Sears has been using "No. 1 in appliances" as a theme in some of its marketing materials. But that 's not the bold move needed to turn the company around. What Sears needs to do is to get rid of the soft goods and focus its stores entirely on hard goods, especially major appliances.
Would that be easy? No, of course not. It would take time, it would be painful, and it would probably result in a few years of losses.
But as Clausewitz also wrote, "There is hardly any celebrated enterprise in war which was not achieved by endless exertion, pains and privations."
A good omen for an appliance strategy is Sears recent successes in fitness equipment. Over the past few years, Sears has muscled its way into the market and now holds the largest share.