Where Kmart Is Beating Its Competition

Despite all the bad news and negative press, Sears Holdings (NASDAQ: SHLD  ) is at least doing one thing right. Whoever is in charge of advertising for its Kmart brand should be considered for a raise. Without recent advertising strength, the Sears situation would be even more dismal. According to YouGov BrandIndex, Sears' ads have led to the company outperforming the sector for ad awareness over the past year. On the other hand, this doesn't necessarily lead to improved sales. Let's take a closer look.

Kmart outperforms its peers
BrandIndex rates a company's performance by giving it a score between 100 and negative 100. Of course, you want to see a company on the positive side.

For ad awareness, Kmart's score has ranged between +28 and +42 over the past year, with the company currently retaining a score near its peak. Kmart's ad awareness range over the past year is higher than the range for retailers in what BrandIndex calls the "big holiday chain sector" -- comprised of "18 of the most popular national retail chains as perceived by adults age 18 and over" -- which has delivered a scoring range of +18 to +28. 

The strong Kmart performance for ad awareness has a lot to do with its viral "Ship My Pants" ad, which now has more than 20 million views. If you have yet to see it, then it might be worth your time:

All the above is the good news. Unfortunately, there is also bad news.

Kmart underperforms its peers
While ad awareness is important, it's not as important as value perception. If a retailer scores high for value perception, it indicates that more consumers will shop at its stores. This is especially the case today, when consumers are looking for value around every corner. And they won't stop looking until they find the value they seek.

For the past year, Kmart's value perception score has ranged between +4 and +14. At the time of this writing, Kmart is at +6. These numbers are on the positive side, which is a pleasant surprise. However, this range is still below that of its peers. For the past year, retailers in the big holiday chain sector have a scoring range between +14 and +16.

According to BrandIndex, back in November, Brian Sozzi, an equity analyst for Belus Capital Advisors, visited four Kmart stores in New York City and posted pictures that went viral. These pictures revealed empty shelves, disorganization, and dust. Though these pictures didn't impact Kmart's value perception score earlier in the year, they certainly didn't help late in the year.

Kmart and its parent company Sears still have a long way to go for a successful turnaround. You likely already know about declining sales and losses, but it all has to begin with value perception in today's consumer environment.

At this point in the article, you might be thinking: "Tell me something I don't already know. I'm not going to invest in Sears at this point in time." I understand, and you won't be left hanging.

Investing in value perception
According to BrandIndex, the brands with the top score increases over the past month for value perception are Gap (NYSE: GPS  ) and Banana Republic. This is convenient, considering Gap owns Banana Republic. Since value perception is a good indicator of potential future sales increases, this means that investors might want to consider taking a closer look at Gap.

There's another way to play recent value perception scores, but it's not as direct. One of the biggest scoring decreases for value perception over the past month belongs to Saks Fifth Avenue, which is owned by Hudson Bay. This is a potential negative for Hudson Bay, but it's a potential positive for its competitors, such as Nordstrom (NYSE: JWN  ) and Bloomingdale's, which is owned by Macy's (NYSE: M  ) . When a company falters, it opens the door for market share gains for its peers.

If you happen to be pondering an investment in Gap, Nordstrom, or Macy's, first consider that they're all trading at fair valuations: 14, 16, and 15 times earnings, respectively. And they all pay dividends, currently yielding 2.10%, 2%, and 1.90%. Furthermore, they have all managed to show top-line growth in a challenging consumer environment over the past year:

GPS Revenue (TTM) Chart

GPS Revenue (TTM) data by YCharts.

The Foolish takeaway
While I would trust the numbers above, keep in mind that there are many other factors to consider prior to making investment decisions. These results should be looked at as good starting points for Gap, Nordstrom, and Macy's. Furthermore, these numbers aren't an overall positive for Sears, but if Kmart continues to pump out viral ads, then there might be a glimmer of hope after all. However, it's still a long shot. 

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Read/Post Comments (5) | Recommend This Article (3)

Comments from our Foolish Readers

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  • Report this Comment On January 04, 2014, at 7:59 AM, MSFInvestments wrote:

    Nice article. It appears that Sears' retail is improving.

    That along with their other holdings will transform them to a Sears "Cash Cow" Holdings. is just one of 30 subsidiaries.


  • Report this Comment On January 05, 2014, at 9:47 AM, scottis59 wrote:

    I have worked part-time for a Sears in the Lawn and Garden dept and my wife for 5 years in appliances. One of the reasons we have both stayed is Sears as a company and our store at least has a focus on customer service and keeping our store looking good. All these so called experts seem to search out poorly performing stores, something you could find with most any major retailer and use those to represent the whole company. Sure Eddie Lampert may not have a clue, but somebody is trying to return good, friendly, knowledgeable customer service. I'm required to be constantly studying to stay up to date with new products as well as training in customer service. Problem is most younger workers, and this is anywhere, have minimal skills in providing customer service and very poor work habits. They also lack, and you can thank texting and e-mailing, the ability to communicate effectively.

  • Report this Comment On January 05, 2014, at 4:45 PM, lady wrote:

    I like KMart and I shop often at Sears. I truly don't understand why they get such negative press.

  • Report this Comment On January 06, 2014, at 2:12 AM, redoctober90 wrote:

    Well, I'm 27 and in grad school, and I sell shoes at Sears. I will say despite the negative press that our store is quite busy despite the sparse staffing and out of stock items that are frequent (it appears the stringent management of items has sold out a lot of the stuff that is hot - Ugg clones, winter boots, athletic shoes.)

    Be very alert to the company's "Ship Your Pants" promotion, aka what is called "Store2Home". It is going to be a very integral part of Sears' and Kmart's future in my opinion. Many stores will do 6-10 of these transactions daily, and the nice thing is that unlike online-only stores, you can just bring the merchandise (at least the stuff Sears and Kmart carries) to the store for a full refund, plus there's no charge for shipping. Can't tell you how much that has helped at least our department.

    Sears, if not also Kmart, rewards its best staff, even part timers, with good hours and treats them nicely. Usually, the complaints come from those who give minimal effort, take all sorts of days off, and don't give a hoot about metrics. If you work hard and put forth effort, there are plenty of hours, even overtime double pay, for you. :)

  • Report this Comment On January 06, 2014, at 1:11 PM, Smartguy123456 wrote:

    His name is Mark Andeer. He is VP of Creative and joined Kmart from OfficeMax. He was the genius behind ELF Yourself.

    He is doing some really great work at Kmart.

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Dan Moskowitz

Dan Moskowitz spends the majority of his time researching stocks. He believes that fundamentals, and logic pertaining to industry trends, win out over the long haul.

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9/2/2015 3:59 PM
SHLD $26.69 Down +0.00 +0.00%
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