If you thought the merger between Sears and Kmart to form Sears Holdings (NASDAQ:SHLD) was mainly about selling off real estate, think again. The real estate definitely remains a margin of safety, but today's announcement shows that Sears Holdings is also trying to create value by improving operations.
I scan the retail headlines every morning as part of my Foolish duties. Today, I saw a press release touting the availability of Sears' popular Craftsman brand of tools in Kmart stores across the country. After testing the idea at 120 Kmart stores, the execs at Sears Holdings decided the time was right to go nationwide.
Why this is a big deal? For one thing, it should boost sales; the tools will be available at more than 2,500 locations now, up from about 900. But I think it also supports the claim that Sears Holdings Chairman Edward Lampert aims to create value by making the most of the stores and brand names he purchased. Here are three reasons why:
1. Retail is about merchandising.
Getting the right products in the stores is one major key to success. Good merchandising repeatedly lures my family to Target (NYSE:TGT) and Best Buy (NYSE:BBY). Their stores tend to have what we want, at the prices we're willing to pay. That's why they get our business. Putting Craftsman tools in Kmart stores is a good step forward.
2. Sears is doing things differently.
The old Sears would never have relinquished control of its flagship brand. I have a whole bunch of Craftsman tools in my garage. Now, if I need another one (I just bought a new house, so that's very likely), I don't have to drive all the way up to the nearest mall. I can go to my more conveniently located Kmart store.
3. The changes have only begun.
If it can happen with Sears' biggest brand, it can happen with other product lines. The Craftsman expansion paves the way for more experimentation, and helps Sears Holdings foster a culture focused on creating value. You have to take some chances to find out what works. That's one thing Wal-Mart (NYSE:WMT) does very well, especially since it has the information systems to drive data-based decision-making.
Meanwhile, Sears Holdings' board recently upped the authorization for share repurchases. Given Lampert's investing prowess and value-oriented philosophy, I think it's safe to assume that he still considers the shares undervalued. I'm betting that his opinion is based less on Sears Holdings' real estate, and more on his opinion of future operations.
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Fool retail sector head David Meier has learned much about investing from Eddie Lampert. He does not own shares in any of the companies mentioned. You can see his profile here. The Fool's disclosure policy doesn't need any tinkering.
