netrashetty
Netra Shetty
Sears, officially named Sears, Roebuck and Co., is an American chain of Department stores which was founded by Richard Warren Sears and Alvah Curtis Roebuck in the late 19th century. Formerly a component of the Dow Jones Industrial Average, Sears[2] merged with Kmart in early 2005, creating the Sears Holdings Corporation.
From its mail order beginnings, the company grew to become the largest retailer in the United States by the mid-20th century, and its catalogs became famous. Competition and changes in the demographics of its customer base challenged the company after World War II as its rural and inner city strongholds shrank and the suburban markets grew. Eventually its catalog program was largely discontinued.
Sears Holdings (NASDAQ: SHLD) is the third largest general merchandise retail company in the United States after Wal-Mart (WMT) and Target (TGT).[1] The company generated over $44 billion in sales in 2009 from 2,192 Sears Domestic stores, 1,327 Kmart stores, and 402 Sears Canada stores.[2][3] SHLD operates under the Sears and Kmart names in the US and Canada. Product offerings in SHLD stores include apparel, jewelry, appliances, hardware, sporting goods, car repair services, home improvement services and electronics.
The company was formed in 2005 by the merger of Sears Roebuck (Sears) and Kmart Holdings. The merger was coordinated by Edward Lampert, the current Chairman, whom now holds over 54% of the shares outstanding through his hedge fund ESL Investments.[4] Despite strong brand recognition, Sears Holdings, as with Kmart and Sears before it, has suffered several successive years of falling sales and market share erosion. These negative trends can be largely attributed to increasing competition in the industry. Other retail giants such as Wal-Mart Stores (WMT) and Target (TGT) have been aggressively capturing ever greater amounts of customers' wallet share through expanded selections and steeper discounts. In addition, the company has also struggled through the economic recession as consumers cut back on discretionary spending. Domestic comparable store sales decreased 5.1% in 2009 and the company's net income fell from $1.5 billion in 2006 to just $253 million in 2009.[2]
Contents
1 Company Overview
1.1 The Merger
1.2 Business Segments[7]
1.3 Brands
1.4 Alphaline Entertainment
2 Business Growth
2.1 FY 2009 (ended January 30, 2010)[2]
2.2 Q1 2010 (ended May 1, 2010)[12]
2.3 Q2 2010 (ended July 31, 2010)[13]
2.4 Q3 2010 (ended October 30, 2010)[14]
3 Trends and Forces
3.1 Using Technology to Meet Customers' Needs
3.2 Department Store Migration to Off-Mall Locations
3.3 Growing Sears' Exclusive and Private Brands
4 Competition
5 References
Company Overview
Sears Holdings is composed of three business segments: Kmart, Sears Domestic, and Sears Canada. As of the end of FY 2009, the firm had no international presence outside of Canada. SHLD's product assortments in both Sears Department Stores as well as Kmart SuperStores and Discount Stores cover virtually all product categories: clothing, major home appliances (refrigerators, dishwashers, etc.), home improvement/home repair, auto repair services, and groceries.
The Merger
In November 2004, Kmart Holdings bought Sears Roebuck for $11 billion. The merger created a new company called Sears Holdings and was the third largest retailer in the country at the time.[4] Before the merger, both companies, although well established since the 1800s, were struggling to compete against big box retailers like Wal-Mart (WMT) and Target (TGT). The idea behind the merger was to leverage the strength of both companies -- the reputation and service of Sears and the low prices of Kmart -- in order to compete with the new retail giants.[5] In addition, Sears primarily conducted its business in a mall-based format, whereas Kmart used large off-mall locations. By merging, the new Sears Holding could grow outside of the traditional mall setting without having to risk investments in new stores.[6]
Business Segments[7]
Kmart (35.7% of total revenue): Kmart is a general merchandise and discount chain that competes directly with Wal-Mart (WMT), Target (TGT), and other mass merchant stores. In 2009, Kmart stores earned $15.7 billion in net sales, down 2.9% from 2008 sales of $16.2 billion as a result of a 0.8% decrease in comparable store sales. At the end of 2009, SHLD operated 1,327 Kmart stores of which 1,321 were discount stores that sell general merchandise, home appliances, footwear, and some even included a pharmacy. 47 stores were Super Centers that are open 24 hours a day and include full-service grocery in addition to general merchandise. The company closed 42 stores in 2009 and plans to close 16 Kmart stores in 2009. Kmart has the lowest profit margins out of SHLD's segments with a 23.3% gross margin and a 1.1% operating margin in 2008.[8]
Sears Domestic (53.7% of total revenue): The Sears Domestic segment is comprised of full line department stores that sell general merchandise ranging from clothes and electronics to tools and appliances, specialty stores (i.e. Sears Hardware), Direct-to-Consumer Land’s End operations, and Home Services stores. In 2009, Sears Domestic stores generated $23.7 billion in net sales, down 7.7% from the $25.3 billion in sales in 2008, due to an 8.7% decrease in comparable store sales. At the end of 2009, SHLD operated 2,192 Sears Domestic stores, of which 908 were full-line stores and 1,284 were specialty stores. The number of Sears domestic stores increased a net 30 stores from 2008. Sears Domestic stores operated a net gain of $133 million in 2009, up from the negative growth in 2008, but still down almost $1 billion from levels in 2007.[9]
Sears Canada (10.5% of total revenue): Sears Canada is a consolidated, 73% owned subsidiary of Sears that conducts similar retail operations as Sears Domestic -- Sears Canada is composed of both full-line and specialty Sears-brand stores similar to Sears Domestic stores but with a greater sales emphasis on apparel and other softline products. In 2009, Sears Canada generated $4.6 billion in revenue, down 11.6% from 2008, as a result of unfavorable exchange rates. At the end of 2008, the company operated 402 Sears Canada stores, a net increase of 14 stores from 2008. The Sears Canada Segment was SHLD's most profitable segment in 2009, with a gross margin of 32.3% and operating income and operating margin of $390 million and 8.4% respectively.[10]
Brands
SHLD owns and trademarks many popular brands which help to increase company visibility and boost sales. Some of the company's most popular brands are:
Craftsman
Kenmore
Diehard
Lands' End
Jaclyn Smith
Joe Boxer
Apostrophe
Covington brands
SHLD has securitized the Kenmore, Craftsman, and Diehard brands into KCD IP (Kenmore Craftsman DieHard intellectual property), a wholly owned, bankruptcy-remote subsidiary. In addition, the company also has th rights to sell an exclusive line of Jaclyn Smith and Martha Stewart Everyday products.
Alphaline Entertainment
In December 2010, Sears and Kmart launched Alphaline Entertainment (powered by RoxioNow) through a multi-year agreement with Sonic Solutions (SNIC). The digital service allows customers on-demand entertainment via internet-connected devices including HDTVs, Blu-ray Disc players, computers and handheld technologies. Customers can purchase or rent movies and TV shows straight from their homes. The new service puts Sears in competition with digital entertainment providers like Netflix (NFLX).[11]
Business Growth
FY 2009 (ended January 30, 2010)[2]
Net income increased 343% from $53 million in FY2008 to $235 million in FY2009. The large factor of the substantial increase was not in sales growth (sales actually decreased for the year) but rather the decrease in selling and administrative expenses.
In FY2009, total sales was $44 billion, a decrease of 5.8% from $46.8 billion in FY2008. The decrease in revenue was primarily caused by declines in comparable store sales in Sears Domestic and Kmart stores, at 8.7% and 0.8% respectively, due to lowered demand for discretionary consumer goods during the economic downturn -- as a result, overall domestic comparable store sales decreased 5.1%. Sales were also lower due to the 62 fewer Kmart and Sears full-line stores. In addition, foreign currency exchange rates negatively affected sales by $142 million.
Domestic comparable store sales decreased 5.1% in FY2009. Specifically, comparable store sales at Sears Domestic and Kmart stores decreased 8.7% and 0.8% respectively.
Operating profit margin increased 1000 bps from FY2008, totaling $713 million, or 1.6% of net sales revenue.
At the end of FY20089 SHLD operated 3921 stores, a net decrease of 5 stores when compared to the 3926 stores open at the end of FY2008.
Q1 2010 (ended May 1, 2010)[12]
Sears' net income fell 39% from $26 million in the first quarter of 2009 to $16 million in 2010. The company attributes the decrease in earnings to lower margins as consumers primarily bought heavily discounted products and bypassed the store's other departments. Sears did have higher traffic resulting from federal rebates on appliances.
Net sales remained flat at about $10.5 billion. The lack of growth in sales was due to the effect of closing 63 stores during the period.
Comparable store sales at Sears Domestic increased 1.2% driven by the home appliance category, and partially offset by declines in the tools and home electronics categories. This marked the first quarterly increase in several years. Comparable store sales at Kmart increased 1.7% marking the third straight quarter of positive growth. Growth was driven by increases in apparel, home and toys categories, partially offset by a decline in the food and consumables category.
Operating income was $98 million in the quarter, compared to $128 million in 2009. The decline in operating income of $30 million, or -23% was primarily the result of a decline in our gross margin rate of 40 basis points as a result of increased promotional markdowns.
Q2 2010 (ended July 31, 2010)[13]
Sears reported a net loss of $39 million for the quarter, an improvement over the net loss of $94 million the company incurred in the previous year. The company faced stiff competition in the food segment as competitors like Target (TGT) and supermarkets cut prices to attract customers, leading to less traffic in Kmart stores.
Net sales decreased slightly' to $10.46 billion. Sales at Kmart was affected by decreases in the food and consumables categories, which was offset by sales in the apparel, footwear, and toys categories. Sales at Sears were affected by slow growth in the power lawn and garden, tools, and consumer electronics segments. Same-store sales at Kmart fell 1.4% and fell 2.8% at Sears domestic stores.
Q3 2010 (ended October 30, 2010)[14]
Sears reported a third quarter net loss of $218 million compared to a net loss of $127 million in the prior year quarter. The company suffered from declining sales at Sears domestic stores, especially in the appliances and clothing categories. K-Mart stores performed slightly better, but still added to the declining profits. The company expects added pressure this holiday season from rivals Target (TGT) and Wal-Mart (WMT).
The company's net revenue fell 5% to $9.68 billion. Same-store sales fell 4.8% company-wide. A majority of this decline came from an 8.2% decline at Sears stores. Same-store sales fell 0.7% at K-Mart.
This was the fifth straight quarter that the company reported a quarterly loss.
Trends and Forces
Using Technology to Meet Customers' Needs
In October 2010, Sears announced the launch of AdYourWay, a shopping tool that caters to the needs of each individual customer. The tool "gets to know" the customer by analyzing product selection and then displays personalized content and customized recommendations. For example, a customer can "follow" an item and receive notifications when it is on sale. As David Friedman, senior vice president and president of marketing, puts it "AdYourWay is a unique shopping tool that puts control back into the hands of our customers, allowing them to manage and organize both the products and the offers that interest them.[15]
AdYourWay marks a growing trend where retailers are using technology to better serve their customers. For example, Nordstrom (JWN) puts RFID chips on all of its items so that online customers can see exactly what is in each store and so that the store has better inventory management. As a result of this technological improvement, Nordstrom was able to better withstand the negative effects of the sluggish economy compared to its competitors. AdYourWay provides customers with an enhanced and more efficient shopping experience, which the company hopes to turn into more revenue.
Department Store Migration to Off-Mall Locations
Before the 2004 merger, Sears stores were primarily located in malls and Kmart stores were located in off-mall locations. However, at the end of 2008, over two thirds of Sears Holdings stores were located in off-malls locations. SHLD is actively expanding into the off-mall trend in order to increase sales and stay ahead of competitors. For example, Kohl's (KSS) is a leader in the off-mall trend, operating 938 of its 1004 stores in off-mall locations at the end of 2008.[16] J.C. Penney (JCP) operated 1,093 stores at the end of FY08, only 91 of which were off-mall,[17] but, JCP is trying to catch up to companies such as Kohl's, as 31 of their 35 new stores in 2008 were off-mall. In 2009, 16 out of the 17 new stores JCP plans to build will be off-mall.[18] Even though Sears is ahead of most of its competitors with regards to this trend, the company still lags behind big-box retailer Wal-Mart (WMT), which operates most of its over 3000 stores in off-mall locations.
Since the 2000's began, consumers have shifted their shopping habits to strip-malls and shopping centers rather than traditional malls[16]Department stores are traditionally attached to malls, but have begun moving out into shopping centers and other "off-mall" locations to follow the changing customer's shopping patterns. Off-mall stores are cheaper to operate than traditional mall-based department stores, due to smaller real estate costs and less in-store employees, and offer consumers convenience by serving as a one stop shop. Sears is positioned to gain from this trend as more than half of its stores are in off-mall locations.
Growing Sears' Exclusive and Private Brands
Department stores are increasingly seeking to distinguish themselves and earn higher profit margins by offering exclusive brands and private label brands. Exclusive brands are brands marketed under the wholesaler's name that are sold only in a particular chain; one exclusive brand at Sears is the Craftsman line that can only be purchased online or at Sears stores. Private label brands are produced by wholesalers, but sold under the brand name of the retailer. Exclusive brands such as Kenmore and Craftsman, can help draw customers into Sears stores, as the products can only be found at Sears. [19]
Competition
Sears Holdings is the third largest general merchandise retailer in the world (in terms of net sales) behind big box retailers Wal-Mart (WMT) and Target (TGT), whose enormous scale allows each to extract value in their inventory purchases and pass these savings on to consumers. SHLD's competitors in the mid-tier department store industry include Macy's Inc. (M), J.C. Penney (JCP), and Kohl's (KSS).
Wal-Mart (WMT): is the world's third largest company[1] with 7,873 stores worldwide. Because of its mammoth size and buying power, Wal-Mart can buy its products at rock-bottom prices, exchanging high purchase volumes for low cost while passing the savings onto its customers.[20]
Target (TGT): operates 1,682 stores in 48 states. Target offers a range of general merchandise in a similar store format to Wal-Mart but targets a higher income demographic than that of Wal-Mart.[21]
Macy's Inc. (M): is a mall-based department store chain and carries extensive offerings from Polo Ralph Lauren (RL), Calvin Klein, Kenneth Cole Productions (KCP) and other fashion brands. Macy's is far smaller than Sears in terms of sales ($24.9 billion in FY08) and number of stores (847 at end of FY08).[22] The company targets a higher income demographic than Sears.
J.C. Penney (JCP): is similar to Macy's but operates in off-mall locations as well. The company significantly smaller than Sears, with far greater 2008 sales and stores than Sears ($18.5 billion; 1,093).[23] J.C. Penney's prices are comparable to Macy's but JCP carries less prominent brand name merchandise but still targets a higher income demographic than Sears.
Kohl's (KSS): appeals to middle-class consumers with discounted branded and private label clothing and home goods, and its $16.4 billion of sales in 2008 place it well behind Sears. The company operates over 1,000 stores most of which are in off-mall locations.[24]
From its mail order beginnings, the company grew to become the largest retailer in the United States by the mid-20th century, and its catalogs became famous. Competition and changes in the demographics of its customer base challenged the company after World War II as its rural and inner city strongholds shrank and the suburban markets grew. Eventually its catalog program was largely discontinued.
Sears Holdings (NASDAQ: SHLD) is the third largest general merchandise retail company in the United States after Wal-Mart (WMT) and Target (TGT).[1] The company generated over $44 billion in sales in 2009 from 2,192 Sears Domestic stores, 1,327 Kmart stores, and 402 Sears Canada stores.[2][3] SHLD operates under the Sears and Kmart names in the US and Canada. Product offerings in SHLD stores include apparel, jewelry, appliances, hardware, sporting goods, car repair services, home improvement services and electronics.
The company was formed in 2005 by the merger of Sears Roebuck (Sears) and Kmart Holdings. The merger was coordinated by Edward Lampert, the current Chairman, whom now holds over 54% of the shares outstanding through his hedge fund ESL Investments.[4] Despite strong brand recognition, Sears Holdings, as with Kmart and Sears before it, has suffered several successive years of falling sales and market share erosion. These negative trends can be largely attributed to increasing competition in the industry. Other retail giants such as Wal-Mart Stores (WMT) and Target (TGT) have been aggressively capturing ever greater amounts of customers' wallet share through expanded selections and steeper discounts. In addition, the company has also struggled through the economic recession as consumers cut back on discretionary spending. Domestic comparable store sales decreased 5.1% in 2009 and the company's net income fell from $1.5 billion in 2006 to just $253 million in 2009.[2]
Contents
1 Company Overview
1.1 The Merger
1.2 Business Segments[7]
1.3 Brands
1.4 Alphaline Entertainment
2 Business Growth
2.1 FY 2009 (ended January 30, 2010)[2]
2.2 Q1 2010 (ended May 1, 2010)[12]
2.3 Q2 2010 (ended July 31, 2010)[13]
2.4 Q3 2010 (ended October 30, 2010)[14]
3 Trends and Forces
3.1 Using Technology to Meet Customers' Needs
3.2 Department Store Migration to Off-Mall Locations
3.3 Growing Sears' Exclusive and Private Brands
4 Competition
5 References
Company Overview
Sears Holdings is composed of three business segments: Kmart, Sears Domestic, and Sears Canada. As of the end of FY 2009, the firm had no international presence outside of Canada. SHLD's product assortments in both Sears Department Stores as well as Kmart SuperStores and Discount Stores cover virtually all product categories: clothing, major home appliances (refrigerators, dishwashers, etc.), home improvement/home repair, auto repair services, and groceries.
The Merger
In November 2004, Kmart Holdings bought Sears Roebuck for $11 billion. The merger created a new company called Sears Holdings and was the third largest retailer in the country at the time.[4] Before the merger, both companies, although well established since the 1800s, were struggling to compete against big box retailers like Wal-Mart (WMT) and Target (TGT). The idea behind the merger was to leverage the strength of both companies -- the reputation and service of Sears and the low prices of Kmart -- in order to compete with the new retail giants.[5] In addition, Sears primarily conducted its business in a mall-based format, whereas Kmart used large off-mall locations. By merging, the new Sears Holding could grow outside of the traditional mall setting without having to risk investments in new stores.[6]
Business Segments[7]
Kmart (35.7% of total revenue): Kmart is a general merchandise and discount chain that competes directly with Wal-Mart (WMT), Target (TGT), and other mass merchant stores. In 2009, Kmart stores earned $15.7 billion in net sales, down 2.9% from 2008 sales of $16.2 billion as a result of a 0.8% decrease in comparable store sales. At the end of 2009, SHLD operated 1,327 Kmart stores of which 1,321 were discount stores that sell general merchandise, home appliances, footwear, and some even included a pharmacy. 47 stores were Super Centers that are open 24 hours a day and include full-service grocery in addition to general merchandise. The company closed 42 stores in 2009 and plans to close 16 Kmart stores in 2009. Kmart has the lowest profit margins out of SHLD's segments with a 23.3% gross margin and a 1.1% operating margin in 2008.[8]
Sears Domestic (53.7% of total revenue): The Sears Domestic segment is comprised of full line department stores that sell general merchandise ranging from clothes and electronics to tools and appliances, specialty stores (i.e. Sears Hardware), Direct-to-Consumer Land’s End operations, and Home Services stores. In 2009, Sears Domestic stores generated $23.7 billion in net sales, down 7.7% from the $25.3 billion in sales in 2008, due to an 8.7% decrease in comparable store sales. At the end of 2009, SHLD operated 2,192 Sears Domestic stores, of which 908 were full-line stores and 1,284 were specialty stores. The number of Sears domestic stores increased a net 30 stores from 2008. Sears Domestic stores operated a net gain of $133 million in 2009, up from the negative growth in 2008, but still down almost $1 billion from levels in 2007.[9]
Sears Canada (10.5% of total revenue): Sears Canada is a consolidated, 73% owned subsidiary of Sears that conducts similar retail operations as Sears Domestic -- Sears Canada is composed of both full-line and specialty Sears-brand stores similar to Sears Domestic stores but with a greater sales emphasis on apparel and other softline products. In 2009, Sears Canada generated $4.6 billion in revenue, down 11.6% from 2008, as a result of unfavorable exchange rates. At the end of 2008, the company operated 402 Sears Canada stores, a net increase of 14 stores from 2008. The Sears Canada Segment was SHLD's most profitable segment in 2009, with a gross margin of 32.3% and operating income and operating margin of $390 million and 8.4% respectively.[10]
Brands
SHLD owns and trademarks many popular brands which help to increase company visibility and boost sales. Some of the company's most popular brands are:
Craftsman
Kenmore
Diehard
Lands' End
Jaclyn Smith
Joe Boxer
Apostrophe
Covington brands
SHLD has securitized the Kenmore, Craftsman, and Diehard brands into KCD IP (Kenmore Craftsman DieHard intellectual property), a wholly owned, bankruptcy-remote subsidiary. In addition, the company also has th rights to sell an exclusive line of Jaclyn Smith and Martha Stewart Everyday products.
Alphaline Entertainment
In December 2010, Sears and Kmart launched Alphaline Entertainment (powered by RoxioNow) through a multi-year agreement with Sonic Solutions (SNIC). The digital service allows customers on-demand entertainment via internet-connected devices including HDTVs, Blu-ray Disc players, computers and handheld technologies. Customers can purchase or rent movies and TV shows straight from their homes. The new service puts Sears in competition with digital entertainment providers like Netflix (NFLX).[11]
Business Growth
FY 2009 (ended January 30, 2010)[2]
Net income increased 343% from $53 million in FY2008 to $235 million in FY2009. The large factor of the substantial increase was not in sales growth (sales actually decreased for the year) but rather the decrease in selling and administrative expenses.
In FY2009, total sales was $44 billion, a decrease of 5.8% from $46.8 billion in FY2008. The decrease in revenue was primarily caused by declines in comparable store sales in Sears Domestic and Kmart stores, at 8.7% and 0.8% respectively, due to lowered demand for discretionary consumer goods during the economic downturn -- as a result, overall domestic comparable store sales decreased 5.1%. Sales were also lower due to the 62 fewer Kmart and Sears full-line stores. In addition, foreign currency exchange rates negatively affected sales by $142 million.
Domestic comparable store sales decreased 5.1% in FY2009. Specifically, comparable store sales at Sears Domestic and Kmart stores decreased 8.7% and 0.8% respectively.
Operating profit margin increased 1000 bps from FY2008, totaling $713 million, or 1.6% of net sales revenue.
At the end of FY20089 SHLD operated 3921 stores, a net decrease of 5 stores when compared to the 3926 stores open at the end of FY2008.
Q1 2010 (ended May 1, 2010)[12]
Sears' net income fell 39% from $26 million in the first quarter of 2009 to $16 million in 2010. The company attributes the decrease in earnings to lower margins as consumers primarily bought heavily discounted products and bypassed the store's other departments. Sears did have higher traffic resulting from federal rebates on appliances.
Net sales remained flat at about $10.5 billion. The lack of growth in sales was due to the effect of closing 63 stores during the period.
Comparable store sales at Sears Domestic increased 1.2% driven by the home appliance category, and partially offset by declines in the tools and home electronics categories. This marked the first quarterly increase in several years. Comparable store sales at Kmart increased 1.7% marking the third straight quarter of positive growth. Growth was driven by increases in apparel, home and toys categories, partially offset by a decline in the food and consumables category.
Operating income was $98 million in the quarter, compared to $128 million in 2009. The decline in operating income of $30 million, or -23% was primarily the result of a decline in our gross margin rate of 40 basis points as a result of increased promotional markdowns.
Q2 2010 (ended July 31, 2010)[13]
Sears reported a net loss of $39 million for the quarter, an improvement over the net loss of $94 million the company incurred in the previous year. The company faced stiff competition in the food segment as competitors like Target (TGT) and supermarkets cut prices to attract customers, leading to less traffic in Kmart stores.
Net sales decreased slightly' to $10.46 billion. Sales at Kmart was affected by decreases in the food and consumables categories, which was offset by sales in the apparel, footwear, and toys categories. Sales at Sears were affected by slow growth in the power lawn and garden, tools, and consumer electronics segments. Same-store sales at Kmart fell 1.4% and fell 2.8% at Sears domestic stores.
Q3 2010 (ended October 30, 2010)[14]
Sears reported a third quarter net loss of $218 million compared to a net loss of $127 million in the prior year quarter. The company suffered from declining sales at Sears domestic stores, especially in the appliances and clothing categories. K-Mart stores performed slightly better, but still added to the declining profits. The company expects added pressure this holiday season from rivals Target (TGT) and Wal-Mart (WMT).
The company's net revenue fell 5% to $9.68 billion. Same-store sales fell 4.8% company-wide. A majority of this decline came from an 8.2% decline at Sears stores. Same-store sales fell 0.7% at K-Mart.
This was the fifth straight quarter that the company reported a quarterly loss.
Trends and Forces
Using Technology to Meet Customers' Needs
In October 2010, Sears announced the launch of AdYourWay, a shopping tool that caters to the needs of each individual customer. The tool "gets to know" the customer by analyzing product selection and then displays personalized content and customized recommendations. For example, a customer can "follow" an item and receive notifications when it is on sale. As David Friedman, senior vice president and president of marketing, puts it "AdYourWay is a unique shopping tool that puts control back into the hands of our customers, allowing them to manage and organize both the products and the offers that interest them.[15]
AdYourWay marks a growing trend where retailers are using technology to better serve their customers. For example, Nordstrom (JWN) puts RFID chips on all of its items so that online customers can see exactly what is in each store and so that the store has better inventory management. As a result of this technological improvement, Nordstrom was able to better withstand the negative effects of the sluggish economy compared to its competitors. AdYourWay provides customers with an enhanced and more efficient shopping experience, which the company hopes to turn into more revenue.
Department Store Migration to Off-Mall Locations
Before the 2004 merger, Sears stores were primarily located in malls and Kmart stores were located in off-mall locations. However, at the end of 2008, over two thirds of Sears Holdings stores were located in off-malls locations. SHLD is actively expanding into the off-mall trend in order to increase sales and stay ahead of competitors. For example, Kohl's (KSS) is a leader in the off-mall trend, operating 938 of its 1004 stores in off-mall locations at the end of 2008.[16] J.C. Penney (JCP) operated 1,093 stores at the end of FY08, only 91 of which were off-mall,[17] but, JCP is trying to catch up to companies such as Kohl's, as 31 of their 35 new stores in 2008 were off-mall. In 2009, 16 out of the 17 new stores JCP plans to build will be off-mall.[18] Even though Sears is ahead of most of its competitors with regards to this trend, the company still lags behind big-box retailer Wal-Mart (WMT), which operates most of its over 3000 stores in off-mall locations.
Since the 2000's began, consumers have shifted their shopping habits to strip-malls and shopping centers rather than traditional malls[16]Department stores are traditionally attached to malls, but have begun moving out into shopping centers and other "off-mall" locations to follow the changing customer's shopping patterns. Off-mall stores are cheaper to operate than traditional mall-based department stores, due to smaller real estate costs and less in-store employees, and offer consumers convenience by serving as a one stop shop. Sears is positioned to gain from this trend as more than half of its stores are in off-mall locations.
Growing Sears' Exclusive and Private Brands
Department stores are increasingly seeking to distinguish themselves and earn higher profit margins by offering exclusive brands and private label brands. Exclusive brands are brands marketed under the wholesaler's name that are sold only in a particular chain; one exclusive brand at Sears is the Craftsman line that can only be purchased online or at Sears stores. Private label brands are produced by wholesalers, but sold under the brand name of the retailer. Exclusive brands such as Kenmore and Craftsman, can help draw customers into Sears stores, as the products can only be found at Sears. [19]
Competition
Sears Holdings is the third largest general merchandise retailer in the world (in terms of net sales) behind big box retailers Wal-Mart (WMT) and Target (TGT), whose enormous scale allows each to extract value in their inventory purchases and pass these savings on to consumers. SHLD's competitors in the mid-tier department store industry include Macy's Inc. (M), J.C. Penney (JCP), and Kohl's (KSS).
Wal-Mart (WMT): is the world's third largest company[1] with 7,873 stores worldwide. Because of its mammoth size and buying power, Wal-Mart can buy its products at rock-bottom prices, exchanging high purchase volumes for low cost while passing the savings onto its customers.[20]
Target (TGT): operates 1,682 stores in 48 states. Target offers a range of general merchandise in a similar store format to Wal-Mart but targets a higher income demographic than that of Wal-Mart.[21]
Macy's Inc. (M): is a mall-based department store chain and carries extensive offerings from Polo Ralph Lauren (RL), Calvin Klein, Kenneth Cole Productions (KCP) and other fashion brands. Macy's is far smaller than Sears in terms of sales ($24.9 billion in FY08) and number of stores (847 at end of FY08).[22] The company targets a higher income demographic than Sears.
J.C. Penney (JCP): is similar to Macy's but operates in off-mall locations as well. The company significantly smaller than Sears, with far greater 2008 sales and stores than Sears ($18.5 billion; 1,093).[23] J.C. Penney's prices are comparable to Macy's but JCP carries less prominent brand name merchandise but still targets a higher income demographic than Sears.
Kohl's (KSS): appeals to middle-class consumers with discounted branded and private label clothing and home goods, and its $16.4 billion of sales in 2008 place it well behind Sears. The company operates over 1,000 stores most of which are in off-mall locations.[24]
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