Once a retail giant, Sears Holdings is growing smaller and leaner these days. The company is a leading retailer of appliances and tools, as well as lawn and garden, fitness, and automotive repair equipment. With 1,400 retail stores across the US, Sears Holdings operates through subsidiaries Sears, Roebuck and Co. and Kmart, offering proprietary Sears brands including Kenmore and DieHard. Beyond retail, Sears Holdings is the largest provider of home installation and product repair services in the US. In response to plummeting sales in a tough retail climate, Sears Holdings has been forced to sell off assets and close or spin off hundreds of stores in recent years. In 2017 the company sold its Craftsman tool brand to Stanley Black & Decker for $900 million.
Sears Holdings operates two segments: Sears Domestic, which boasts 670 full-line stores that generated about 60% of Sears Holdings' total sales in fiscal 2016 (ended January 30, 2016); and Kmart, which had 735 Kmart stores that contributed another 40% to Sears Holdings' total sales.
By product, the retailer generated 43% of its total sales from hardline merchandise (electronics, appliances, tools, etc.) and another 25% from apparel and soft home items. About 15% of sales came from food and drug sales, while service (installation and repair) made up another 9% of total sales during the year.
Outside of retail, Sears Holdings has a real estate business unit called Sears Holdings Real Estate, one of the largest corporate real estate organizations in the world. It offers for sale or lease closed Kmart and Sears stores. It also leases empty space inside and outside of the stores.
Sears Holdings subsidiary Sears, Roebuck and Co. has Sears-branded and affiliated stores in all 50 US states and Puerto Rico. Subsidiary Kmart boasts Kmart-branded stores in 49 states, Guam, Puerto Rico, and the US Virgin Islands.
Sales and Marketing
The retailer has been decreasing its advertising spend over the past few years as sales have declined. It spent $850 million on advertising in fiscal 2016, down from $1.1 billion and $1.5 billion for 2015, and 2014, respectively.
Declining store sales and mounting losses have plagued Sears Holdings for the past several years as the popularity of e-commerce and fierce competition from other big box retailers has been growing.
In fiscal 2016, Sears Holdings' net revenues decreased by 19% due to a drop in revenues from all segments (and a drop of $2.1 billion associated with Sears Canada, which was de-consolidated in October 2014).
Kmart's revenues declined due to having fewer stores in operation, which accounted for approximately $1.1 billion of the decline and a drop e in comparable store sales driven by declines in the consumer electronics, apparel, grocery and household and drugstore categories.
The revenues from Sears Domestic segment decreased due to a drop in comparable store sales of 11.1%, which accounted for $1.2 billion of the decline, and the effect of having fewer full-line stores in operation, which accounted for $433 million of the decline.
The company's net loss decreased by 33% in fiscal 2016, mainly due to a decline in selling and administrative expenses, related to decreases in payroll and advertising expenses and the absence of expenses of $603 million from Sears Canada and $77 million from the Lands' End business, which Sears Holding spun off in 2014. Other factors included an income tax benefit in 2015, related to indefinite-life assets associated with the property sold in the transaction with Seritage.
In fiscal 2016, Sears Holdings' operating cash inflows increased by 56% due to changes in working capital as a result of an increase in inventory balances compared to the significant decrease in inventory balances a year earlier.
Sears Holdings outlined three main objectives in 2015 to ensure its long-term success: restoring profitability; focusing on its best members (most loyal customers), best stores, and best categories (home appliances, home services, and fitness equipment); and enhance its financial flexibility through sales of store assets and investor fundraising.
The retailer has been trying to adapt to the rapid consumer change from brick-and-mortar stores toward e-commerce in recent years. The likes of Amazon and Wal-Mart have ruthlessly eaten into Sears' market share as internet shopping expands. In 2015, the company continued shifting from being product-centric to becoming "member-centric," catering to members' needs "wherever, whenever, and however they want to shop," as stated in the February 2015 Chairman's letter. The member-centric model is built on two platforms: Shop Your Way, the loyalty membership platform; and Integrated Retail, the technology platform that connects its "ecosystem" of retail channels to member "touchpoints" (i.e. online and through mobile apps).
The plans also include significant cost-saving efforts: it is aiming for $1.25 billion in savings each year. Facing years of losses, Sears Holdings has been forced to close hundreds of stores (from 2,000 in 2013 to 1,400 in 2016), cut thousands of jobs, and sell assets to turn its business around. In 2017 the company sold its iconic Craftsman tool brand, which it had owned since 1927, to Stanley Black & Decker for $900 million. The deal generated much-needed cash for the company and helps Sears continue to operate through 2017. In 2017, Sears announced 400 jobs would be cut from its corporate headquarters.
In recent years the company has made similar efforts to keep the doors open. In 2015 it sold 235 properties to Seritage Growth Properties (REIT properties) along with Sears Holdings' 50% interest in a number of joint venture properties. Sears Holdings received aggregate gross proceeds from the Seritage transaction of $2.7 billion. The previous year the company sold off most of its stake in its struggling Sears Canada business, spun off its Lands' End retail business, and considered doing the same for its Sears Auto Center business.
The pairing of Sears and Kmart was intended to leverage the strengths of both chains by making their products, brands (Kenmore, Craftsman, DieHard), and services (including auto and appliance repair) available through more locations and distribution channels. That strategy failed to increase in sales for either retailer.
The company is focused on two core strategies, Shop Your Way membership and Integrated Retail. Shop Your Way evolved from being store-based in 2009 to being a desktop and Mobile experience. All this is part of the company's effort to transform into a member-centric retailer. The company has increased the number of brands and expanded its network to include more partners.
Through its integrated retail strategy, the company is using it existing brick-and-mortar infrastructure while integrating it with mobile experiences. The company introduced Meet with an Expert a service that helps online shoppers considering larger item purchases in Home Appliances, Mattresses or Lawn & Garden connect with in-store experts.
Sears Holdings was created in 2005 as a result of the $11.9 billion mega-merger of Sears and struggling Kmart masterminded by chairman and CEO Edward Lampert.