As Sears Sales Slide, Ad Budget Shrinks

Retailer Has Slashed Total of $152 Million in Two Quarters

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NEW YORK ( -- As Sears Holdings grapples with slow sales and a tough economy, its ad budget has gotten the ax.

In its fiscal first quarter, the retail giant slashed its advertising expenses by $107 million. That was followed by a $45 million cut in the second quarter. In 2008, the retailer cut $94 million from its advertising budget.

While the cuts to advertising were not as pronounced in the second quarter as they were in the first quarter, sales continued to slide. During the second quarter, which ended Aug. 1, domestic sales dropped 10%, to $10.6 billion. Same-store sales at Sears Roebuck & Co. dropped 13%, while sales at Kmart fell 4%. In the first quarter, sales declined 9%, to $10.1 billion. Sears reported a 12% drop in same-store sales, and Kmart slipped 2%.

Richard Gerstein, Sears Holdings senior VP-marketing, has said the retailer is leveraging its scale as a major retailer to get better media deals for its ad buys, which has helped it slim down its budget. A spokesman for Sears did not immediately respond to a request for further comment.

The retailer said the $45 million cut from advertising expenses in the second quarter included reductions at its Sears Canada division. According to the company's annual report, it spent $2.1 billion on advertising in fiscal 2008.

It seems that additional cuts could be in the works as the retailer seeks to align its slowing sales with operating expenses. The company reported a $94 million loss in the second quarter.

Interim Sears Holdings CEO W. Bruce Johnson highlighted the company's cost-cutting efforts in a statement. "While the overall retail market remains difficult and its impact is reflected in our results, we continue to take actions to increase the efficiency of our operations," he said. "We have reduced our selling and general administrative expenses by approximately $1 billion over the past four quarters, including a reduction of $212 million this quarter."

Kim Picciola, an analyst with Morningstar, pointed out that in a research note the retailer continues to underperform its peers. "As we expected, Kmart held up better in this retail environment than Sears," she said. "While the top line remains weak, management is taking the right steps, in our view, to better align inventories and operating expenses with the reduced level of sales."

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