NEW YORK (AdAge.com) -- It's been a rough few years for Sears Holdings, even before the recession took hold and consumers fled stores. Cut budgets, fierce competition and management shifts all have dogged the organization's flagship retailers, Sears and Kmart, which continue to fight to prove their relevance to consumers.
Same-store sales were down 13% at Sears and 4% at Kmart in the last quarter. And Sears Holdings' annual advertising budget was cut from $2.2 billion in 2007 to $2.1 billion in 2008.
Meanwhile, Chairman Eddie Lampert, a self-made billionaire investor who had been anointed as the next Warren Buffet, has proven to be an endless source of fascination. Plenty are keen to see how his grand experiment -- the retail novice took over Kmart in 2003 and purchased Sears in 2004 -- will turn out.
Still, the retail giant keeps kicking, making $46.8 billion in sales last year at its 3,900 stores. And the recession has diffused the spotlight, as other retailers grapple with slowing sales.
"A lot of things are coming together at the right time to help us succeed," said Richard Gerstein, senior VP-marketing at Sears Holdings, adding that Sears' appliance division has gained market share in the past four quarters, after 27 quarters of declines. "There are a lot of fundamental issues that we are fixing."
One priority is tightening up core brand propositions for Sears and Kmart. The organization has been retooling marketing programs to focus on integrated content plays and digital assets, Mr. Gerstein said, such as Good News Now, a Sears and AOL collaboration that delivers uplifting news, and KmartDesign.com, which houses profiles of Kmart designers. Y&R, Chicago, handles Sears' creative, while DraftFCB handles creative for Kmart. MPG is responsible for media buying at both retailers.
Mr. Gerstein, who reports to W. Bruce Johnson, interim president-CEO, says Kmart is the choice for smart consumers on a budget, while Walmart is for those customers shopping only on price, and Target is for those who care about being hip. While that view may be overly simplistic, Kmart has been attracting media attention and new customers, thanks to recession-friendly programs such as layaway and Smart Assist, which is being tested in Michigan and offers 20% off private brands to the unemployed.
Such programs reflect a test-and-learn culture Mr. Gerstein -- an Alberto Culver Beauty and Procter & Gamble alum who spent a year as CMO of Sears before being tapped for the top marketing post last summer -- is implementing.
Mr. Gerstein also has used the recession to take a tougher stand with media partners and agencies -- "we're leveraging our scale, which we have a lot of, to challenge our external partners to deliver more for less" -- as well as implement back-office technologies to drive organizational efficiency, and seek out top talent.
In an interview with Advertising Age, Mr. Gerstein talked about why cutting $94 million from his budget isn't that big of a deal, why recession-friendly advertising is more reflective of core brand positioning rather than a reaction to the economy, and why the Sears store experience isn't as bad as critics say.
Ad Age: At Sears, you're all things to all people. You compete with Home Depot and Lowe's but also JCPenney and Macy's. Doesn't that split your focus?
Mr. Gerstein: We look at it as an opportunity. Sears can either run from being a general merchandiser or embrace it. Are we going to carry everything in store? No. But when you go online, you'll find not just more and more depth within categories but more and more new categories.
Ad Age: How do you keep Sears relevant moving forward?
Mr. Gerstein: If you look at how we're going to market, we are under the concept of "Life. Well Spent." We have a very strong hard-lines campaign called Sears Blue Crew, which is growing the business. And we're going to have a soft-lines campaign that you'll start to see coming out in spring and summer.
Ad Age: Store experience is something critics always point to as a cause of Sears' and Kmart's image problems. Is that something that's being addressed?
Mr. Gerstein: It's an overused excuse, frankly. I go into lots of different stores. What makes a Costco a great-looking store? What makes a Walmart a great-looking store? These things aren't dramatically beautiful by any means. We are looking to improve our stores. But we're focused on the 80% of our stores that look good. Sometimes when your businesses are soft, those fundamental issues are overplayed by people as the reason for a lack of success.
Ad Age: Sears and Kmart have traditionally been big spenders in measured media. How is your media buy evolving?
Mr. Gerstein: We are very aggressively shifting our assets to either mass media that we think is more equity building and relationship building or media where we can build a more targeted one-on-one relationship with customers. Examples would be Good News Now for Sears and KmartDesign.com. Those are both content plays.
Ad Age: You're showing a willingness to experiment, which means you're bound to fail sometimes. Is that acceptable?
Mr. Gerstein: Absolutely. There's a lot of patience for trying things, though doing it smartly and managing the financial risk associated with it. If you go back three or four years, what we were doing wasn't driving the results we wanted. So we need to be trying new things.
Ad Age: Your $2.2 billion advertising budget has been cut, though, by $94 million last year alone. Are you able to have the same impact with less money?
Mr. Gerstein: Yes. If you look at our working dollars our money is flat to up. What we've been doing is really leveraging our scale, which we haven't done in the past. And we're using technology to remove inefficient spend, as well as negotiate better rates for the same assets. I'm able to negotiate my media at a dramatically lower rate for the same gross rating points. I'm able to negotiate with a newspaper who distributes my circular and get them to distribute exactly what they did before for less money.
Ad Age: Do you expect that after the recession you'll see that money come back?
Mr. Gerstein: Nothing would make us happier than to double the marketing budget. Part of the reason you saw some of the reductions over the last year is because we weren't using technology to optimize [our buys], we weren't bringing [to the table] the right programs to invest in. I don't care whether I'm up 10% or down 10%, what I care about is if my ROI is improving.
Ad Age: Some are saying that we're nearing the end of the recession or even that it's already over. What sense do you get from your customers?
Mr. Gerstein: There is a fundamental shift in how the American consumer is thinking about what they buy moving forward. Even when the economy recovers, it will be different. [Right now] it's still tough. Unemployment is still increasing. We're focused on helping the family with things like layaway.
Ad Age: You're charging ahead with recession-friendly advertising. At what point do you start to tone down some of that messaging, or do you?
Mr. Gerstein: If you look at our advertising, it's not, "Hey there's a recession; come shop with us." It's about our core brand positioning. Because of our business situation, we've really tightened that up in the last year. But it's more about us as a company as opposed to a reaction to the economy.