ATLANTA (Reuters) – Sears Holdings Corpis looking for a new CEO and revamping its operations management, butmany more changes will be required for the operator of Kmart and Sears,Roebuck stores to avoid retail oblivion.
The changes include rethinking the way apparel is marketed and soldand focusing more on the hardline goods, like tools and appliances,that made the Sears brand a household name.
The retailer, controlled by hedge fund manager Edward Lampert, hasannounced two big changes since warning in mid-January that it expectedto post a third consecutive quarterly decline in profit. ChiefExecutive Awylin Lewis was ousted last week, shortly after Searsunveiled a plan to separate its operations into five types of businessunits.
Those changes have aided the stock. Sears Holdings shares haverebounded 25 percent in the last two weeks to the $106 range from ayear low of $84.72 reached after the profit warning. But the stock isstill down 45 percent from a high of $195.18 in April 2007.
"A change in management gives a temporary reprieve," said JamesGregory, chief executive of CoreBrand, a firm that helps companiescraft and express corporate brands. "But if they do not makesignificant changes that will improve the long-term performance of thecompany, it will become obvious very quickly."
Sears is struggling to draw shoppers amid competition with chains such as J.C. Penney Co in clothing and Wal-Mart Stores Inc in general merchandise. Home Depot Inc and Lowe’s Cos have chipped away at Sears’ dominant market share in appliances.
TOUGH CHOICES
The task that Lampert faces isn’t easy, said Love Goel, chairman andCEO of Growth Ventures Group, a Minnesota retail investment firm.
But he said Lampert deserves credit for making tough calls, such asmoving to separate Sears Holdings’ operations and focusing on profits,even if at the expense of sales, since Kmart and Sears merged in 2005.
"Strategically, he’s made some brilliant choices," Goel said. "Hisbiggest challenge has been finding quality talent to execute on theseopportunities."
Getting quality talent — especially at the CEO and merchandisinglevels — will be crucial to putting Sears on the right track, otherssaid.
"Unless they can get somebody who wants the challenge (as CEO),Sears may end up with second-rate people," said Erik Gordon, associatedean of the business school at Stevens Institute of Technology inHoboken, New Jersey.
Goel said Sears might find its next CEO outside the retail arena,where he says there is a paucity of the kind of specific talent neededto manage the turn-around.
"You have to literally go outside to find someone from … a best-practices company," such as Apple Inc or Google Inc, Goel said. "You have to talk to dozens of people."
Gordon, the business school dean, said Sears should closeunderperforming stores and needs to turn away from apparel and go backto its core strengths — hardline goods such as tools, appliances andelectronics.
"I would give more space to the stuff that sells," Gordon said."They need to focus on building market share in an area where theystill have credibility."
Goel stopped short of saying Sears should exit apparel but did allowthat the company needs to sell clothing in a different way, such as byrelying more on online efforts to drive traffic.
He also said the ideal Sears store may likely be a smaller outletthan the current mall-based stores, with Sears’ proprietary Kenmoreappliances or Craftsman tools being the main goods sold.
"The current size of those stores, assortment of those stores … does not work in the present environment," Goel said.
Under the reorganization, Sears plans to separate into five types ofbusiness units: operating businesses, support, brands, online and realestate.
"We’re really unsure as to what’s going on there," said Tiffany Co, a retail analyst with Fitch Ratings.
Co suggested there could be lessons for Sears from rivals such as Kohl’s Corp and J.C. Penney, "two companies that actually have a merchandisingstrategy that seems to be much clearer and a focused senior managementteam." Co added that those competitors are also building new stores andoverhauling old ones.
"Sears is not moving along any of those lines, and we think thoseare the steps it needs to take to improve the top line," Co said.
Sears Holdings shares were down $1.76, or 1.6 percent, to $106.55 in Nasdaq trading on Monday.
(Editing by Gerald E. McCormick)
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