3 Things Sears’ Eddie Lampert Doesn’t Get About Retail

by James Brumley | May 6, 2013 2:16 pm

3 Things Sears’ Eddie Lampert Doesn’t Get About Retail

After 24 straight quarters of declining (year-over-year) sales and nearly a $1 billion loss last year, few would disagree that Sears Holdings‘ (NASDAQ:SHLD[1]) needs help.

That’s why at the company’s annual shareholder meeting last week, hedge fund manager and now-Sears-CEO Eddie Lampert took center stage in an effort to keep shareholders enthused about the company’s — and his — future.

For the most part, Lampert was successful at doing just that. Before SHLD owners start to breathe easy that Lampert isn’t going to lead Sears down the same dead-end path Ron Johnson took JCPenney (NYSE:JCP[2]) down, however, there are a few dangerous assumptions Lampert has made that he may want to reconsider.

See, despite that fact that Eddie Lampert isn’t making the exact same mistakes Ron Johnson did at JCP, he’s still committing the same three, overarching cardinal sins that Johnson committed:

  1. Telling the customer what they should want rather than responding to what they actually want,
  2. Presuming customers are store-loyal, and
  3. Assuming customers who come to the store only care about the merchandise.

A few specific examples of these missteps quickly come to mind.

‘Shop Your Way’

One of the centerpieces of the new and improved Sears is the so-called “Shop Your Way” program. This is essentially a rewards program — free to join — designed to keep people coming back. Members will also get the occasional offer non-members won’t have access to.

It’s definitely a smart move for Sears. However, Lampert and his entourage seem to have an alarming amount of faith in the program. Company spokesperson Chris Brathwaite was quoted as saying (though Lampert has affirmed it repeatedly) “Sears and Kmart are still very important, but Shop Your Way is at the core of what we’re doing, driving more than 50% of our revenue.”

Sounds good, but there’s a big difference between “this program is driving 50% of our revenue” and “50% of our revenue comes from shoppers who happen to be Shop Your Way members.” Until the program itself measurably increases sales the retailer wouldn’t have otherwise achieved — and so far it hasn’t — the rewards program does little more than garner a little publicity. The fact is, when it comes down to it, that Shop Your Way program doesn’t prevent anyone from going to Lowe’s (NYSE:LOW[3]), JCPenney or Macy’s (NYSE:M[4]) if a particular deal is better there.

Appearance

It shouldn’t matter, but it does — what your store looks like (outside of the merchandise) can make or break a sale. So can a lack of service personnel.

Lampert’s not a big fan of spending on store remodels and updates, allocating only about 1% of the company’s revenue for that purpose. That’s well below the industry norm between 3% and 4% … and it shows. Many of the stores are well worn and dated on top of being understaffed.

So what? After all, if you’re there to buy a pair of shoes or a lawnmower, what do dusty mannequins and a lack of staff really matter?

A lot, actually. In a 2011 poll, 80% of consumers have acknowledged they’ve visited a retail establishment once and found a reason to never return. The most common reason was poor customer service. The second biggest reason was being unable to find certain merchandise, while dirty stores were the third-most common reason. That reality is in sharp contrast to the mentality that Lampert was touting last week by making a point of saying “We are becoming a company focused less on products and less on stores and much more on members.”

Yikes. It’s the exact wrong focal point.

‘Member Assist’

Lampert loves mobile technology, and has made no bones about it. He was actually one of the earliest adopters of in-store QR codes that allow a shopper to learn more about an item — or about how to buy it — just by scanning a bar code right there in the aisle. The latest interactive technology, however, may take the approach too far while simultaneously putting a strain on already-overworked store employees.

It’s called “Member Assist,” and gives potential customers the ability chat (presumably via their mobile phones) about merchandise with the appropriate sales associates at a particular store location.

On the surface it’s a stroke of genius. Think about it for a little while though. If a consumer is tech savvy enough to chat online or by phone — and willing to make a buy/sell decision that way — would Sears be the top choice as a provider? Maybe, but not necessarily.

And, as it turns out, some consumers still actually go to the mall on the hunt for nothing in particular, and simply like to browse stores to see what’s there. They’re not likely to start up a digital conversation with a sales associate who is probably no more than a couple hundred feet away.

Oh, and when you’ve only got one or two sales associates covering a few thousand square feet of sales floor on a busy Saturday with customers lining up and the phone ringing off the hook, the customers at the other end of the chat aren’t going to get the kind of help Lampert seems to think they are.

The Last Word

Shop Your Way and Member Assist aren’t bad starts. Problem is, they’re the full extent of Lampert’s turnaround plan. He’ll need more.

In the meantime, the seemingly unimportant things that really do matter continue to deteriorate. Looks like Sears is following in JCPenney’s footsteps of not really understanding its customers.

As of this writing, James Brumley does not have a position in any of the afore-mentioned securities. 

Endnotes:
  1. SHLD: http://studio-5.financialcontent.com/investplace/quote?Symbol=SHLD
  2. JCP: http://studio-5.financialcontent.com/investplace/quote?Symbol=JCP
  3. LOW: http://studio-5.financialcontent.com/investplace/quote?Symbol=LOW
  4. M: http://studio-5.financialcontent.com/investplace/quote?Symbol=M

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