How Sears Can Save Itself: Buy (and Sell) American

Sears does not need to failOn Tuesday, Sears Holdings (SHLD) shocked the world with news that it would close as many as 120 of its iconic Sears and Kmart stores. The reason: As the rest of the retail industry enjoyed a modestly successful holiday sales season, Sears, well, fell on its face.

According to the National Retail Federation, sales for American retailers are expected to increase 3.8% this holiday season. Meanwhile, Sears posted a 5.2% decline in same-store sales for the eight weeks ending Dec. 25. That's a combined nine-point loss to the overall industry.

Despite weak sales, Sears is still one of the largest broad-line retailers in the United States. Though it trails Costco (COST), Walmart (WMT), and Target (TGT), Sears is big enough that its underperformance may have even dragged down the overall industry number. Back out Sears' anemic results, and retail as a whole probably would have grown even more.

Sears Graph

Icons in Decline

Ever since hedge fund honcho Eddie Lampert bought Sears and merged it into his already-owned Kmart back in 2005, the combined Sears-Kmart chain has been a business in decline. Same-store sales numbers have dropped consistently since the retailers linked arms.

Explanations for the decline vary. Professional analysts will tell you Sears' problem is that it doesn't invest enough in store upkeep. If your average chain store spends $6 to $8 a year per square foot of retail space, then Sears' lackluster maintenance budget of $1.90 guarantees that its stores will be dingy, dark, and generally lacking in Christmas cheer.

Other industry watchers blame CEO Lampert, who famously dismisses investor obsession over "same-store sales," and tells folks to focus instead on how he grows the firm's earnings before interest, taxes, depreciation, and amortization. (Note to Eddie: We have been watching... as your EBITDA dropped from $3.6 billion in 2007 to a projected $400 million this year.)
Simply put, Sears is broke. But can it be fixed?

Can Sears have a comeback?

A Store in Search of a Reason

At the risk of copyright infringement, allow me to say, "Yes, it can." But first, Sears needs to give some serious thought as to why it exists. I mean, consider the competition. We already know that...
  • Walmart means "Always low prices."
  • Target is Walmart... but with style.
  • Costco is a treasure hunt.
  • Kohl's (KSS) and J.C. Penney (JCP) have carved out niches where they're cheaper than Nordstrom (JWN), but more upscale than Target.
But where does Sears fit in this pecking order? If you ask me, Sears is three things:
  • Sears is Craftsman tools – high-quality wares, priced reasonably.
  • Sears is also Kenmore appliances, a way to buy a Whirlpool washing machine (Whirlpool is one of the companies making the machines behind Sears' private label) at a better price.
  • And of course, Sears also has a softer side, as represented by its Lands' End clothing line.
At least, that's what Sears was "once upon a time."

The Skimpy Side of Sears

Lately it seems as if Sears' decline can be ascribed to its lowest-common-denominator approach to retailing: Skimp on the things customers want (attractive stores, quality merchandise). Instead give them what they hate (dirty stores, with cheap wares lining the shelves).

Is this any way to run a retailer? Couldn't Sears do better?

It can, and the solution to Sears' sagging sales lies in playing to the company's strengths -- and giving customers what they want: a return to American exceptionalism.

The Solution That Could Save Sears

Made in the USAOnce upon a time, America had a manufacturing base. We made things -- quality, affordable merchandise -- and we sold these things in our stores. But at some point, the drive to grow corporate "EBITDA" gave rise to a perverse business model: Outsource our manufacturing (and our jobs) to Third World countries, then import their goods and resell them on American shelves.

Clearly, this isn't working for Sears anymore. Sears is selling the same stuff as the other guy, but not always at better prices. Consequently, it's losing the battle for customer dollars.

But what if Sears tried something different? What if, for example, Sears promised to stock its stores at least 51% with "Made in the USA" merchandise?

How do you think Sears can save itself?
Brand identity, logo, and statement changes1 (16.7%)
American products1 (16.7%)
Store revitalization1 (16.7%)
Same-store sales1 (16.7%)
All of the above1 (16.7%)
Not sure1 (16.7%)
It wouldn't cost as much as it used to -- not with wage inflation driving up the cost of Chinese goods. It would entitle Sears to advertise itself as the one store selling "majority Made in the USA" merchandise. It would win the company a major PR coup ... and may even be enough to save the chain.

Sound off: How do you think Sears can save itself?

Motley Fool contributor Rich Smith does not own shares of, nor is he short, any companies named above, but The Motley Fool owns shares of Costco Wholesale and Walmart Stores. Motley Fool newsletter services have recommended buying shares of Costco Wholesale and Walmart Stores, as well as creating a diagonal call position in Walmart Stores.

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To all retail business owners and managers whose stores are losing sales after decades of success, GO BACK to what made you successful in the first place. As for Sears, Sears no longer honors its lifetime warranty on Craftsman tools. WHY do you think people bought Craftsman tools in the first place? The lifetime warranty is what sold Craftsman tools. Sears former great service is what sold Kenmore appliances. Your commitment to your customer is what made you STAND above the rest. You abandoned your core principles. Your managers, and associates treat customers with disdain. If you don't go back to your core principles, you'll wind up in the dust heap with Montgomery Wards. Among the young generation is the top choice for shopping. I ask young people why they would buy items sight unseen, two major answers, lower price and no hassle returns, are you listening Sears? THAT is what made you, return to your former core principles and save your business. Your first item of business would be to compensate your managers better to attract and keep good people. For you CEO's out there, you hire a store manager to run your store because you can not be there to run it yourself. So you need people as GOOD as you are. So don't try to save labor there, if you do, you will lose sales revenue. I don't have to tell successful business owners this, they already know it. It's you Johnny come lately's that have no blood, sweat , tears or money invested in the business.

December 12 2012 at 9:05 AM Report abuse rate up rate down Reply

This is very interesting thing I noticed that Sears trying to impress customer by using iPad to ring order and check out and get lead. They asked so many questions, it took much longer time than they were ringing an order on the register? I thought high tech will help them work quickly and more efficient, that is not true at all. I almost out of my patient and my mind to tell the sale person I have to leave. Why it taking so long to ring a simple thing, I brought many appliances in the past 15 years in Sears. This iPad new system thing really slow down the process; I told the manager and sale person this is not right to keep customer waiting longer than using the register to ring a purchase! Why Sears not upgrade they register and computer network and phone. Why Sears made Apple rich to invest the money in the wrong area. I would rather see Sears put the money for their store upgrade display area, phone, lighting, and some other fixture to improve the store appearance. Put more sale or advisting to attract and impress customer to shop and spend money in Sears rather than waste the money to give the sale people a iPad? As I can see, when they're ringing order, the system not very friendly at all. I like high tech but I can't see how my older sister or brother or uncle will have the patient to wait. Also, not everyone really have email address. I don't like to buy big ticket items such as appliances or TV or lawn and graden stuff online. I like to go to the store; see it and touch it and talk to a sale person. Which Sears really do have very professional sale person who knew what they are talking about. I spoke to some sale person about why they have to use the ipad to ring sale. I am suprise to hear that Sears trys to use the iPad to replace the register please iPad is not the right tool for retail. Especially for appliances customer need one on one attention and expertise from the sale person. When they are so focus to use the iPad becuase they don't want to make mistake. But they can't have eye contact with customer. There is not right, I don't understand why Sears invest money that won't help to bring more business into the retail store. Customer do not like to wait and do not need iPad to impress them and it won't help customer making purchasing decision because Sears sale people carrring or using a iPad please. We want good price and product and good service. If Sears understand what customer want please don't waste your company money on iPad to make Apple rich. Spend your company money wisely on ads and promtion for the product and service. Customer will appreciate this much more. Stop buying and using iPad at the store. Put the money to bring customer into the store to spend money to buy appliance. Hope someone from the top management hear this.

April 01 2012 at 12:03 AM Report abuse rate up rate down Reply

Sears failed because Lampert doesn't know how to manage retail business. Hired no retail experience management. Pushing all the good employees and mangers away out to the door and treat them like dirt. So bad to see a #1 appliance retail chain store sinking and failing like this. Sad..Lampert forget about who is the boss. Sears customers who love to shop generation by generation at Sears. They are loyal and spend good money to buy Kenmore appliances important those customer like me who spend more money on the service protection plan becuase we believe Sears behind the product and service. Well seem to me not like those time any more. You can't get any service appointment for 8-10 business days. Customer need to spend 1-3 hours on the phone to get help but no one seem care on the phone. When you went to the retail store, talked to the sale assiocate and mange they do care they try to take care and listen what the customer want but not what you expected. The manger said sorry the company policy is the item in your house customer need to call the 1-800# customer service there will take care of the issue. OMG as I can see the retail manager not even have power to take care the customer issue. Of course, some of the sale people who work in Sears for a long time. They knew how to treat their loyal customer for the right way. I gave them credit for being nice and friendly. On the other hand, feel bad for Sears retail manager and sale people they all have no power to do thing right. As I can see they are struggling so badly, the employees are very stress out because customer don't trust and buy thing from Sears any more. They want to help but they can't! What can I say, you don't want my business and not treat me good. I just go some place else to buy. I don't have to buy Kenmore. I can get other brand which Sears Kenmore appliance made by other company. The management need to wake up and listen what the employee and customer want to make a better place to shop and work to re-build Sears reputation. I would not like to see Sears close.

March 31 2012 at 11:24 PM Report abuse rate up rate down Reply

After working for Sears for 28 years I can tell you one of the main reasons for the decline of Sears is how they treat thier employees. Most of the appliance section is commision based and with Sears trying to get people to use the internet to purchase items with more attractive sales it is hurting thier in store sales and thier own employees. When I went back into the store I worked at I get that doom and gloom feeling and it is not a fun place to shop. Sears needs to think about what worked for them in the past to help them move forward. Sears has always had competition and I do not fully beleive the Walmarts and Home Depots of today are the only reason Sears is lagging behind. When Eddie bought Sears all he wanted to do streamline the stores, cut jobs in key areas and get better deals on garbage pick up. Didn't he think customers want a good product at a great price or good customer service but instead he looked for ways to cut everything and he did not think about the customer. If Sears wants to survive they need to get back to updating thier stores and sell items people want at a good price.Thier advertising department needs to get in gear to show a new side of Sears.I would love to see a commerical from Sears shwoing thier rich history and how in today's world Sears is still here for you offering items people want and sales professionals who really want to help you.Stop relying on service contracts to off set your declining sales and try to compete for a change with your competitors. I am in the market for a 55 inch TV and even I am not going to purchase it at Sears mainly because the price of thier extended warranties are too high and the competition is offering the same items at better prices with sales people who know thier stuff!!

January 28 2012 at 10:53 AM Report abuse rate up rate down Reply

Sears biggest problem isn't it's merchandise and stores, it's it customer service, I've never done work for a more unorganized chain before, the online people are just ridicules. Ask a sears employee what the store id number is ask if they know any other stores id number, if you buy a product thats not craftsman call the manufactorer because sears will probably tell you the same thing although it might take you an hour to get this information from a sears employee. If sears wants to improve how about paying your employees better so you can keep the good ones. Chop the the district managers and ceo's salary give it to your store employees and you'd be amazed at the turn around sears makes.

January 26 2012 at 3:32 PM Report abuse rate up rate down Reply

Sears needs to sell what it makes money on and get rid of products that it cannot compete on. Then they can grow their business from there! Painful but profitable.

January 26 2012 at 1:55 PM Report abuse rate up rate down Reply

Almost two years ago there was a conversation on a similar site with conversations about Sears. I mentioned at the time that Sears should lean toward USA made items, and lean heavily on the Craftsman, and Kenmore names. Over forty years ago I worked for Sears, and the were proud of their name brands, and combined with their "Revolving Charge Account" they were doing well. They were very late to let go of their own cards exclusively, and to accept the then new credit cards, that evryone was getting, and the decline started. Then along came the Walmart machine. When Sam was alive he used the USA made merchandise (when possible), but it got to where there wasn't much made in the US, and they had to fall in line with everyone else as well. I believe most Craftsman items are American made, and at one time so was Kenmore. I was booed off the site by folks telling me, in no uncertain terms that Sears had to sell the same things their competition was selling to stay in business. Well, I think we've seen how that's working! I hated it when Wards succumed to the same thing that Sears is doing now. It's too late for them, but I would hate to see Sears go the same route. I'm sure there are disbelievers now, as then, but there are some new up and comming stores that sell only American made goods, and they are doing well. They are small for now, but growing fast. It's time to jump on the badwagon while they still can.

January 26 2012 at 10:55 AM Report abuse rate up rate down Reply

Twenty years ago I wrote a college paper for my daughter titled "How to Save Sears", so this has been a struggling business for a very long time. Your idea for them to Sell American is perfectly timed to tap into the current sentiment. The question is: will the Wall Street guys with the banker mentality who think money and financing is the answer to everything recognize the opportunity.

January 26 2012 at 9:47 AM Report abuse rate up rate down Reply

Oakland County Business Association Inc Michigan

Save Sears and Kmart! We have the plan.
Oakland County Business Association Inc Michigan

We have developed a totally unique, creative, imaginative, visionary Advertising, Marketing, Merchandising program that will drive millions of customers back to Sears and Kmart stores.

At one time, one of every two houses in America had a Kenmore appliance. Now it is far less.

Customer service at Sears and Kmart is totally non existent. On December 10, 2011, I went into Sears in Waterford Michigan. Six associates walked by me. Not one of the employees smiled, greeted me or asked if I needed help. At the check out counter, several people waited and there was no one to ring them up.

To quote Tom Cruise in the 1988 Academy Award winning movie: Rainman. "Kmart Sucks". That is the generall consensus of American shoppers that vote with their dollars and when they shop.

Recently, Kmart began marketing kitchen products under the Chef Gordon Ramsay name. Sears began exclusive marketing of Kardashian Kollection clothing and accessories. These marketing programs are the best new promotions either company has begun in well over 20 years. This past spring and summer, Sears advertised they beat Home Depot and Lowes for lawn equipment. This was also a great marketing program. However, sales and profits continue to slide at Kmart and Sears.

We have sent certified letters to Edward S Lampert, Chairman Of The Board, Sears Holdings Corporation and also to Lou D'Ambrosio, Chief Executive Officer. In addition, we sent first class letters to many top executives of Sears Holdings Corporation.

Advanced Creative 2012 Advertising Marketing Merchandising programs will get customers into the stores and spending millions of dollars.

Remember Montgomery Wards, Hudson's, Marshall Fields, Korvettes and many other defunt department stores?

We can save Sears and Kmart! Mr Lampert, Mr D'Ambrosio and Mr Boire call us, we want to help.

These Advertising, Marketing, Merchandising programs we have been working on will guarantee a significant increase in sales and profits, while reducing shrink.

Every person going to a Sears or Kmart will be greeted by an employee and offered assistance, and rung up quickly.

All investors and stockholders of Sears Holdings Corporation, contact the company and tell them to implement our Advanced Creative Advertising, Marketing and Merchandising programs now. By summer 2012 sales will increase substantially.

Investors and stockholders will lose their investment if Sears and Kmart close or file bankruptcy.

Save Sears and Kmart! We can do it!

Michael Spector
Advanced Creative

Oakland County Business Association, Inc Michigan
Box 222 Walled Lake, MI 48390
(248) 396-0396

January 08 2012 at 11:18 AM Report abuse rate up rate down Reply

Our refrigerator broke over Thanksgiving so yahoo! we knew we'd get a good deal on one during the holiday season and headed straight for Sears. They had the exact machine we wanted for a good price but with the new energy-saving appliances all computer driven, you really do need that warranty. But the 3-year warranty was $498 - half the cost of the fridge so for the first time in our appliance-buying history, we decided to shop around. We bought the same machine at HHGregg for $200 less but more importantly, the same warranty, that would be serviced by the same provider Sears would use, was only $142. My friend works at Best Buy and said that Sears is gouging people with warranty prices. There's a lot more that's killing their stores than crummy, cheap clothes and low-end products now - this warranty issue to me is a sign of customer disloyalty.

January 07 2012 at 11:22 AM Report abuse rate up rate down Reply
1 reply to bartman's comment

HHGregg is a good dealer - but their appliance warranties are far from the same as Sears offerings. Beyond that, NO Sears would not use the same provider for coverage. Sears employs something like 10,000 technicians in their service department in the US. They work for Sears.

Some warranty differnces: When the product is replaced if it cannot be repaired, the plan ends. You must purchase a new warranty on the new product from HHGreg for the new refrigerator. Sears will carry the plan for 3 years or 5 years 100% of the way, even with ten new refrigerators.

A really interesting one: If parts are unavailable and can't be obtained to repair the machine, Sears will replace it. With HHGreg, you get this directly from their terms and conditions:
"Should themanufacturer of Your product go
out of business or the
manufacturer no longer provide
product support and all parts
sources have been exhausted
during the coverage period of the
Plan, the Obligor and the
Administrator shall be excused
from performance hereunder and
you shall receive a full refund on
the purchase price paid by you
for the Service Plan less claims
So you get the $142 you paid back, but you still have a broken fridge. Sucks for you basically.

Sears covers cosmetics for up to 3 years - None with HHGreg.

Sears will give you rental reimbursment if they can't fix the product quick enough, not HHGreg.

Sears will allow you to cancel the policy within 1 year with no deduction for service received, HHGreg gives you this:
"Full refund within 30 days of
purchase, less any claims paid.
After 30 days pro-rated refund,
less administrative fee of $10 or
10%, whichever is less, less
any claims paid"

Sears allows transfers to new owners, HHGreg is not clear on their policy in this.

Sears will give you 25% off the filters for that fridge, HHGreg, notta.

Sears does preventative maintanence once per year, they change the oil, if you will. Free. Hopefully they catch problems before they become an issue. Not with HHGreg.

Sears will renew the plan at the customers choice, beyond 3 or 5 years. HHGreg "May, at our discretion, renew this policy."

My favorite thing about the Sears plan, although it is admittedly more expensive, is that there is no paperwork needed. If you lose it, they store it in their service system and no hassle to look it up. HHGreg isn't clear on their policy for this, but if they are like Home Depot, Best Buy, or Lowes on this, they will require every scrap of paper for the original purchase and repair for their no lemon guarantee.

I do wish you all the best in your warranty and refrigerator. At any rate, I do agree, these things have way too many electronics and break way too easily any more. Consumer Reports says 37% will be repaired within three years!

Hope you are now informed.

May 26 2012 at 10:43 PM Report abuse rate up rate down Reply