The Great Dismantling appears to be entering its final stages as Sears Holdings Corp. (NASDAQOTH:SHLDQ) contemplates ways to possibly get rid of its last remaining noteworthy brands. CEO Eddie Lampert has shed almost everything of value from the retailer, so its plan to evaluate ways the Kenmore, Craftsman, and DieHard brands can live beyond the confines of Sears and Kmart stores is not surprising.
A bleak picture getting bleaker
Sears turned in yet another dismal earnings report last month, with revenue falling 8% on a 6.1% drop in comparable-store sales. As a result, operating losses for the quarter doubled to $368 million, or $4.41 per share, with the retailer attributing the worsening financial picture to poor performance in home appliances, apparel, consumer electronics, footwear, and Sears Auto Centers. Oh, is that all?
In the quarterly press release, Sears said it will "aggressively evaluate" a host of potential alternatives for Kenmore, Craftsman, DieHard, and the Sears Home Services business.
If Lampert gets rid of Kenmore, Craftsman, and DieHard -- or KCD, as it refers to them -- would there be any reason for anyone to bother shopping at Sears or Kmart anymore?
The plan may not be to just sell or spinoff the brands as it has done with Land's End, Orchard Supply, and Sears Hometown & Outlet Stores, though that remains a distinct possibility. Rather it seems the first option may be to make them available to consumers through other outlets, where people are already shopping. After all, Sears notes its "iconic" brands are beloved by U.S. consumers and it might "realize significant growth by further expanding the presence of these brands outside of Sears and Kmart."
Making the best of a bad situation
And it's probably not wrong about that. Although Lampert has caused considerable harm to the value and reputation of the retailer by presiding over the dismantling of its operations over the years, the KCD brands do still hold some cachet with consumers, although they, too, are greatly diminished.
For example, more than a decade ago, Kenmore held the top spot in appliances with an estimated 27% share of the market. Sears itself was the go-to retailer for appliances, selling an estimated 37% of all white goods sold. But under Lampert's watch, Kenmore's share has withered to 12.7%, putting it third behind General Electric (NYSE:GE) and Whirlpool Corp. (NYSE:WHR), according to the Stevenson Company's TraQline, which did not do the earlier estimates. DieHard had but a 6% share in car batteries in mid-2015, down from over 7% four years earlier. Craftsman is perhaps doing best, drawing 28.5% of consumer dollars, but that's also down from around 33% in that same time frame. Getting the brands into other retail outlets might save their reputations before they're completely destroyed.
By doing so, Sears and its investors may still reap some of the benefits, though Lands' End is a telling reminder of what happened when an otherwise sturdy brand remained too long under Lampert's tutelage. The retailer continues to see its sales fall, which mostly is a result of its continued association with and presence in Sears stores.
Last quarter, Lands' End reported revenues were down almost 9% as its retail segment plunged 10.4% primarily because of falling sales at its remaining store-in-store boutiques at Sears. Still, it also suffered a greater than 8% drop in online and catalog sales. When Sears acquired Lands' End in 2002, it paid $1.9 billion; now on its own since 2014, it has a market value of only $518 million. It may be too late for KCD as well, no matter which way it goes.
Whirlpool reported in its own first-quarter earnings results at the end of April, revealing that its sales in North America were up 5% (excluding currency impacts). GE agreed to sell its appliance business to Chinese white-goods maker Haier for $5.4 billion, but it still enjoyed an 8% increase in first-quarter appliance sales.
Maybe it should have stuck to the plan
This isn't the first time Sears has explored the potential of KCD spinoffs. For example, it began selling Craftsman tools at Costco in 2011 and at Ace Hardware in 2010. It also arranged to sell DieHard batteries at mass-merchandise retailer Meijer as well as at Ace.
While Sears has been reluctant to expand distribution of its brands too far beyond the confines of its stores, for fear of eating into their sales, apparently it realizes it's become a do-or-die situation. Consumers aren't shopping at Sears or Kmart anyway, so it may as well try to reap some of the benefit from their shopping habits.
It looks like the end is nigh
It's looks like Sears Holdings is slowly swirling around the drain, a zombie retailer that refuses to believe it is dead. Lampert's neglect of his stores in favor of trying to transform the retailer into an e-commerce leader has only hastened its demise. It couldn't compete against bricks-and-mortar retailers, but thought it had the chops to take on Amazon.com.
Maybe Sears' future is really one of being a brand licensor, which allows someone else to do the hard work of selling its products while it gets paid for the brand names. Whatever it is, though, it's clear it won't be as a retailer: Separating the relative exclusivity of Kenmore, Craftsman, and DieHard from Sears Holdings will mean there is nothing of value left at its stores, for consumers or investors, that they can't find elsewhere.