Sears Holdings (SHLD) has raised billions of dollars in the last year by spinning off some of its best assets, leasing out space in stores in prime locations, and selling many of its best stores into a new investment vehicle.
To some, that might sound like a fire sale by a retailer grappling with a long decline. But to CEO and top shareholder Eddie Lampert, these moves are giving Sears the ammo it needs to move even farther away from what the hedge fund titan in a blog post on Wednesday described as a passé bricks-and-mortar approach to retail, to becoming a store that makes much more extensive use of technology and data to sell in a more targeted way to its customers.
“Sears and Kmart have already moved beyond the old and sorely outdated traditional store network models. Every day, we are building richer, deeper relationships with our members,” Lampert said in the blog, posted ahead of Sears Holdings’ annual shareholders meeting. He pointed to Sears’ e-commerce power and Shop Your Way loyalty program as key tools for the company.
“By raising such substantial capital in 2014 and 2015, we’ll now be able to accelerate our company’s transformation.” (Lampert controls nearly half of Sears through his investment vehicle ESL and his direct holdings.)
Sears has been a pioneer on the digital front, offering in-store pickup for online orders years before the competition. And the Shop Your Way loyalty program it is banking on for its future is behind a growing percentage of its sales — last year, some 74% of its revenue came via the program, up from 69% a year earlier.
But the fact remains, even after hundreds of closings, the company still operates 717 Sears department stores and 979 Kmart stores, meaning it must get more people to come into its physical locations. And it is facing tough competition from everyone, from J.C. Penney (JCP) and Macy’s (M) for apparel and kitchenware, to Best Buy (BBY) and Home Depot (HD) for electronics and appliances. Sears’ sales performance in recent years suggests many shoppers have moved on, making it a fair question as to whether excellent retail tech will be enough to keep Sears in the game.
Last year, Sears generated $2.4 billion with moves such as the spinoff of its Lands End apparel business, and selling off most of its Sears Canada stake. This year, it expects to raise $2.5 billion from the creation of a real estate investment trust, Seritage Growth Properties, which contains many of its best stores. Last month, it raised $400 million from joint ventures with major mall developers Macerich (MAC), Simon Properties (SPG), and General Growth Properties (GGP).
“As important as it is to have a good plan and adapt to changing circumstances, you also need to find the resources to effect the transformation,” Lampert wrote.
In February, Sears reported its 11th straight quarterly loss, as comparable sales fell 7% at Sears and 2% at Kmart, bringing total losses in the last four fiscal years to $7 billion. So it’s easy to see why Lampert would be in a hurry to carry out this transformation.