Black-and-blue-light special: Kmart, Sears hit hard

The stock has lost nearly half its value from its April high, customers seem unhappy with service and store selection, and the future isn't looking much brighter.

Sears Holdings shld, which owns Sears, Kmart and Lands' End, launched a search for a new CEO Monday after announcing that Aylwin Lewis would leave the company as of Feb. 2. W. Bruce Johnson, executive vice president of supply chain and operations, has his work cut out for him as interim CEO.

Chairman Edward Lampert, who runs the hedge fund ESL Investments, acquired Kmart in 2003, Sears Roebuck in 2005 and merged the two that year. Last week, he announced that same-store sales had fallen 3.5% for the nine-week period that ended Jan. 5. The company also said then that it was overhauling its organizational structure.

Lampert blamed the economy and increased competition — which has hit most retailers hard — even though rival discounter Wal-Mart wmt saw sales increase in the same period. He also warned that his company would likely post fourth-quarter earnings that are well below Wall Street forecasts and could be down nearly 60%.

As sales have sunk, Lampert has been criticized for a lack of investment in the stores, particularly Kmart.

Unhappiness with Kmart

"Our local Kmart is unappealing — not very clean, has poor customer service, poor quality, disorganized displays of products," says Joanne Fowler of Fort Ann, N.Y. "They are the closest department store of their type, but I avoid shopping there, traveling farther to get a better experience."

Cheryl Schultz of Pewaukee, Wis., says she avoids Kmart "at all costs." She echoed several members of USA TODAY's shopper panel by lamenting both the stores' appearance and customer service.

Sears spokesman Christian Brathwaite says the company is "absolutely focused on providing our customers with an improved customer experience" at both Kmart and Sears stores.

Ken Nisch, chairman of retail strategy and design firm JGA, said in an interview that if some of the billions Sears has spent buying back stock was "spent on the consumer experience and a value strategy, the erosion could have been forestalled, if not reversed."

Whoever gets the permanent CEO job will "have to be viewed as a leader, not as second or third player in the organization," Nisch says. He says the challenge will be to gain a "guarantee of autonomy."

Efforts to improve the company's stores have been spotty, though more evident to consumers at Sears than at Kmart. The addition of Lands' End shops in about 20% of Sears stores has enhanced the stores' appeal. Brathwaite notes that both stores are adding new brands that are both "aspirational and inspirational."

Indeed, Fowler "loves" the new Lands' End shop at Sears and finds the atmosphere and selection improved at her Sears store.

The 74 off-mall Sears Grand stores, which feature food, appliances and items found at both Sears and Kmart, Brathwaite acknowledges, have "not met the company's expectations." He notes, though, that the stores are more profitable, and the company thinks the concept is still valid.

Signs of a deteriorating economy aren't making the company's prospects appear any brighter. BIGresearch's consumer surveys show that Sears and Kmart customers are older and more often retired than other shoppers, even at Wal-Mart. "They're (often) on fixed incomes," says BIGresearch President Gary Drenik.

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