Wednesday, November 21, 2007

Sears Holdings: It's About Brands, Not Stores

Why does Wall St. want Sears Holdings (SHLD) Eddie Lampert to buy more stores, doesn't he have enough already? Aren't they always saying that mergers never work? If that is true, why are shareholders wanting a big one and why are they disappointed he is trying to buy a small specialty retailer.

Two news item shed light into what Lampert is doing and no it does not include the purchase of Circuit City (CC), Home Depot (HD) or even the oft speculated about Macy's (M) .

First: The New Retail Concept In Georgia (this location was a former Kmart).

"Sears will come to life by offering customers a "store-of-shops," and a fresh design layout with different flooring, fixtures, and displays. Marquee brand names now found in the new Sears include Sony, Hanes, Workwear - by Craftsman, Carhartt, Timberland and Diehard apparel, Levi's, and Nordic Track. The store will also feature expanded Home Electronics and Home Appliance showrooms, organized around favorite manufacturers, that will also help customers choose the right look, feel and function with other brands Sears carries.

A newly remodeled hardware department will feature innovative and interactive Garage Organization, Mechanics and Carpentry shops to help customers find the right item quickly and efficiently.

Five central internet workstations located throughout the sales floor will provide free high-speed Web access to enable both the customers and associates to quickly access the internet, verify prices, shop online and contact store personnel if help is needed.

The store will also carry a wide range of convenience items previously available at the former Kmart location including full pharmacy services, health and beauty, cosmetics and greeting cards.

This new format will help customers create the look they want and find the gifts they need all in one convenient location. Shoppers will find the quality brands they have come to know and love like Diehard, Craftsman, Ty Pennington, and Kenmore plus extended assortments of national brands from Nordic Track, Schwinn, Reebok and more. Customers can also shop for great fashions with the first 23,000 sq. foot mega Lands' End shop that brings the legendary brand to life with items for women, men, kids, baby and home. Now families can touch and feel the quality and see the details of Lands' End products. A special monogramming service is also available to easily personalize just about any Lands' End item that will take a stitch. There's even free shipping on any catalog or order placed from the store."

Another Brand:

Sears Holdings take a 13% stake in Restoration Hardware and is looking at acquiring entire operation.

Now, if you are going to build a nationwide operation of these stores, what do you need? BRANDS. Lampert already has about 3,5000 locations is both the US and Canada. Why would he need to buy another retailer and adopt more locations?

Think about it. What is the most expensive thing a growing retailer experiences? Building new locations. Just ask Target, they are begging Lampert to sell them hundreds of his prime locations because it is cheaper than building them. More space is not what Lampert needs.

What is Lampert going to do? Smaller acquisition of brands that he can then plug into the new concept. Worse case scenario with the Restoration Hardware deal if it goes through, they close up its "back of the house" operations and sell the products through the Land's End catalog and stores and it is still a winner for him. One good thing about a successful mail order business, no matter who owns it, it makes money. Land's End, who has years or success here can only make it better.

So, if we go with the Brands thesis, what do we look for? Women. Sears has men with Craftsmen and Kenmore. How about going after Victoria's Secret or Bath & Body
Works from the struggling Limited Brands (LTD). Either would bring women into Sears for their products and traffic is what Lampert needs and has been shedding assets. Or, buy the whole company currently valued at $6.5 billion and then sell off the unwanted pieces to help pay for it. Maybe for just over a billion dollars he could go for Carter's (CTI) and create a top notch children's "store in a store". Any mother knows Carter's makes some of the best children's clothing out there.

Either way, next week's earnings announcement will be a fun one.

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