3 More Things Eddie Lampert Just Doesn’t Get About Running Sears

Sears isn't fixed yet, and it never will be under Lampert's rule

3 More Things Eddie Lampert Just Doesn’t Get About Running Sears

You’ve got to give Eddie Lampert — the hedge fund manager who’s also currently acting as the CEO of Sears Holdings (SHLD) — at least a little credit. Even with his company falling apart all around him, he’s still got enough confidence and swagger to accentuate the positive and chalk up the negative to something beyond his control.

Case in point: Lampert would be willing to spend more on the stores themselves … if only it weren’t for those pesky pension checks the company was forced to write every month to the folks who’ve earned those retirement benefits.

Judging by his comments after last quarter’s earnings, Lampert still doesn’t “get it.” He’s still talking about marketing metrics, real estate values and expenses; rarely do the words “merchandise” and “customers” come up in the post-earnings banter. But when it’s all said and done, the only thing that will save the company now is selling more merchandise to more customers. Everything else will fall into line after that.

The question is, after eight years of Eddie Lampert controlling ownership of the company and eight months as CEO, is Sears Holdings one iota closer to getting the right merchandise to the customer at the right price?

Probably not, for three very specific reasons:

#1: Technology Isn’t Always Helpful

Two years ago, Sears Holdings equipped the sales associates of nearly 450 Kmart and Sears stores with iPads as a measure to, as a company spokesperson put it, “enhance the relationship between customers and associates and improve the overall shopping experience … We wanted to make it a more personal experience.”

The intent is reasonable. Heck, the intent is admirable. But, if the technology doesn’t actually work, the net effect is miserable.

The buzz is, Sears’ iPads don’t always communicate effectively with the checkout system, and sometimes they don’t communicate at all when simply trying to retrieve information for a customer, making for long periods of awkward silence between a salesperson and a customer. As any veteran floor-salesman can attest, nothing gives a buyer a chance to back out of a potential sale like a little time to think about it.

#2: Customers Are Nowhere Near as Loyal as You Think

For the second quarter in a row, the company touted the success of its Shop Your Way membership-rewards program. This time around, 65% of Sears’ revenue was driven by the loyalty program’s members, up from 50% last quarter.

Eddie Lampert said of the Shop Your Way effort, “While the increase in Shop Your Way promotional activity and member redemptions resulted in a meaningful increase in our costs, it demonstrates that our members are deepening their engagement with our program, which will allow us to further accelerate our transformation.”

On the surface, it’s encouraging … but it’s a little misguided.

There’s a significant difference between “65% of our sales were driven by Shop Your Way members” and the closer-to-reality “65% of our sales came from customers that happen to be Shop Your Way members.” Incentive programs only help if they actually increase sales, and Q2′s top line of $8.87 billion made the 26th consecutive quarterly decline in sales. Lampert even recognized in his comments about the success of the program that it had proven costly.

But if he takes those costly discounts away, he might find that the only loyalty consumers have is to their own wallets.

#3: Multiple Factions + Limited Resources = Big Fat Mess

Many consumers who’ve shopped at Sears recently know why they don’t want to bother shopping their again — nearly every aspect of the experience is miserable. But there’s a bigger underlying reason the average consumer can’t see that’s ultimately destroying Sears Holdings.

It’s not one company, but rather, more than 30 separately run divisions that all have to go to Papa Lampert to ask for permission (and often money) before taking any initiative.

Though unusual, it could almost work were it not for the fact that Lampert still doesn’t really understand how department store retailing works. Ideas like loss-leaders don’t fly with him, and ideas like collaboration and cooperation don’t fly with the 30-plus division chiefs who are paid a bonus based only on the profitability of their particular division. Just for perspective on how dysfunctional this inter-company rivalry is, at one point, divisions were forced to bid against one another for spots in the company’s advertising circulars.

Although some of the infighting has been reined in, much of the mentality remains because most of that business structure remains.

Bottom Line

It’s cliche, but true nonetheless — for a company, everything starts at the top. Eddie Lampert may well be a master of engineering deals, but he remains a fish out of water at the helm of a department store chain. Tablet-toting salespeople, unaligned divisions and profit-bleeding rewards programs just don’t get the job done when it comes to retail shoppers. It’s (still) all about the merchandise, the price, and the experience.

Until Lampert is willing to acknowledge that’s his weak spot, Sears’ struggle will continue.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/2013/08/eddie-lampert-sears-holding-shld/.

©2014 InvestorPlace Media, LLC

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