Sears Holdings Corporation: A Company Analysis

Company Analysis: Sears Holding Corporation Abstract

Sears Holdings Corporation (SHC) is the fourth largest broadline retailer in the United States and Canada, with approximately 3,900 full-line and specialty retail stores. It was the country's largest retail company until the early nineties.

Currently, SHC is a leading retailer in home appliances, tools, lawn and garden equipment, home electronics, and automotive repair and maintenance. After merging with Kmart in 2005, SHC also exclusively offers Martha Stewart Everyday products in the U.S.

Sears Holdings Corporation, which includes Sears, Roebuck and Co.

and Kmart Corporation, has implemented substantial changes to enhance profitability and surpass competitors. Previously, Sears was a favored option for various items such as home goods, clothing, fitness equipment, and auto repairs. However, other companies like Wal-Mart, Target, Lowes, and JC Penny gradually gained a larger portion of the market. In order to transform itself, Sears is committed to maintaining its focus on both primary and secondary target markets.

The Sears Holding Corporation, formed in 2005 by merging Kmart Holding Corporation and Sears Roebuck Co.

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, is a multinational corporation that buys products in the United States, Canada, Mexico, and Puerto Rico. It is currently the fourth largest retailer in the United States with over 3900 locations (http://www.searsholdings.com/). The corporation offers a wide range of marketable goods including tools, clothing, appliances, sporting goods, electronics, home maintenance and repair items, and automotive products from various retailers.

The headquarters of Sears Holding Corporation is situated in Hoffmann Estates, Illinois. Its consolidated subsidiaries include Sears Roebuck and Co., Lands' End Inc., LRFG LLC, Sears Brands LLC, Sears Canada Inc., Sears Financial Holdings Corporation ,Sears Reinsurance Company Ltd., Kmart Holding Corporation ,Kmart Management Corporation ,Kmart Corporation ,and the Sears Holdings Management Corporation (http://www.secinfo.com/dVut2.v3ap.5.htm#1stPage).

A brief history of the company shows that it was originally established as the Sears Roebuck Corporation in 1893 by Richard Warren Sears and Alvah C. Roebuck.

Sears started out as a jeweler specializing in selling watches, but they gained recognition for their inventive sales method known as the Sears Catalog. This catalog featured pictures, prices, and an easy ordering system. The catalog proved to be a powerful marketing technique that enabled customers to purchase items at regular prices, handle their finances, and have confidence in the product's quality due to its visual appeal and marketability. Ultimately, this strategy played a significant role in Sears' success.

During the early 1900's to the 1980's, Sears held a dominant position in America's consumer market, experiencing significant growth in the 40's and 50's. However, starting in the 90's and continuing into the 2000's, competition from other major companies and concerns over employee wages led to a decline in Sears' attractiveness to consumers. In 2005, it merged with Kmart (http://en.wikipedia.org/wiki/Sears), which was established by Sebastian S. Kresge in 1962.

Kmart, a relatively successful corporation, utilized marketing strategies such as "Blue Light Specials" to attract customers and promote discounted products. However, Kmart faced challenges in consumer marketing and failed to incorporate computer technologies for supply chain management, leading to bankruptcy in early 2002 (source: http://en.wikipedia.org/wiki/Kmart). The merger between Kmart and Sears proved mutually beneficial for their respective advancement goals.

Sears made a substantial investment in creating Sears Grand stores and larger off-store malls. They also acquired several closing Kmart locations. The goal of this merger was to accelerate Sears' growth, increase productivity, and save the struggling Kmart Corporation. As a result, merging the two companies was a wise decision by executives that would improve the marketability of both brands. Moreover, shareholders had the potential to earn significant profits from this partnership.

Shareholders may incur financial losses if the individual companies fail to consistently boost their revenue before merging. Nonetheless, the merger of both corporations would enhance investment returns and support the growth of Sears Holding Corporation. This augmented return on investment would result in greater investments in the company, thus contributing to its overall expansion. Furthermore, the distinct brands owned by both companies would have an easier time reaching their target demographic groups.

The Sears Holding Corporation, including the real estate holdings of individual Kmart and Sears stores, has the potential to utilize these assets to increase sales of their combined products among various consumer segments. Reports suggest that this strategic action could generate an extra $200 million in yearly revenue. Additionally, merging the two companies would lead to savings of approximately $300 million per year on maintenance costs. In total, this projected net growth of $500 million annually represents a significant expansion rate (http://en.wikipedia.org/wiki/Sears_Holdings_Corporation).

As previously mentioned, the Sears Holding Company has successfully expanded its global presence across the North American continent, from Mexico to Canada. This expansion has greatly contributed to making Sears Holdings Corporation a formidable player in the United States market. Despite being the eighth largest company in the US, the company's growth potential is hindered by a lack of consistent leadership and the frequent turnover of executives. Consequently, Sears Holdings Corporation faces challenges in implementing new and effective strategies that can yield tangible results.

Employee stability and satisfaction in a large company is an ongoing concern, particularly when mergers occur as job security is often uncertain. Additionally, executive personnel may have to move to new positions at different companies due to the merger, and strategies that were effective for running a single company may not be applicable to a joint company with multiple variables involved. These initial decisions for managing the joint company might lead to disagreements and potentially hinder revenue growth on an annual basis.

While conducting market tests and implementing sales strategies, as well as ensuring profitability to appease investors, the company's ultimate success is dependent on innovation and investment. SHC faces tough competition from retail giants like Wal-Mart and Target, along with mid-tier rivals such as Macy's, J.C. Penny, and Kohl's. Recently, SHC has introduced a new organizational structure and operating model that enables effective management of its different business lines. This provides autonomy and focus to each business unit's management teams.

This 5 unit structure allows each organization to concentrate on their core capabilities and categories. These categories include support, operating business, brands, online, operating business, and real estate. The support units offer administrative and operational support to marketing, store operations, customer strategy, and finance. Each unit has its own leader and advisory group comprised of Sears Holding executives. Granting autonomy to each unit benefits the business as it enables them to focus on managing and generating profits for their unit and the entire company (Reuters 2008).

Sears Holdings Corporation (SHC) is making changes to better compete and increase profits. Their main focus is homeowners aged 25-55, with a household income between $25,000 and $60,000. Homeowners are the primary customers at Sears stores, especially in the hard lines department. To attract this demographic, Sears provides home improvement solutions such as home appliances, entertainment centers, home décor items, and fitness equipment.

The main focus of Sears is home appliances and lawn and garden tools, which appeals to its customers. Sears is known for this. The secondary market targeted by SHC mainly consists of the younger generation. In order to compete with its rivals, Sears has been introducing brands and clothing items in the soft lines department. This group primarily includes school age children (ages 4-18). Sears provides products such as the kids advantage program, which allows parents to buy shoes for their children and exchange them for a new pair in the future.

Sears partnered with LL Cool J and MTV in the previous year to introduce the LL Cool J brand to teenagers, particularly focusing on young African American and Latino teens. In terms of their hard lines division, Sears encounters strong competition from major hardware retail players like Lowes and Home Depot. These competitors provide a broader range of home improvement products and consistently achieve higher profits than SHC. Additionally, in the soft lines department, Sears competes with JC Penny, Macy's, Target, and Wal-Mart.

Macy's and JC Penney have increased their market share by offering branded apparel from Liz Claiborne, Baby Phat, and Anne Kline. In contrast to SHC, both companies have seen higher revenue in recent quarters. Wal-Mart (currently ranked No. 1) and Target are also strong competitors for SHC. During the tough economic period, these two retail giants performed better than Sears. Wal-Mart provides a diverse range of products at highly affordable prices, while Target emphasizes quality apparel at comparable price points.

The company's revenues in FY2009 decreased by 7.8% to $46,700 million, while operating profit declined by 83.8% to $251 million compared to 2008. Net profit also saw a decline of 93.6% to $53 million from FY2008 due to lower gross margin and higher impairment charges.

To view the stock market chart for SHC, please visit http://www.reuters.com/finance/stocks/chart?symbol=SHLD.OQ. This chart illustrates the company's performance in the stock market since the merger in 2005.

Sears Holdings Corporation (SHC) has been facing consistent struggles since the merger. In 2007, SHLD stock reached $190, but currently it is valued at $78 due to the ongoing economic crisis. Only 11% of the revenue generated by SHC comes from Sears Canada, while the majority of revenue is generated domestically. Sears domestic accounts for 55% of the revenue, while Kmart accounts for 34%, as shown in the Pie chart below. For more information, visit this link: http://www.wikinvest.com/stock/Sears_Holdings_(SHLD).

SWOT Analysts have considered the hard-lines department as one of Sears' strengths and a significant contributor to its revenue for decades.

Sears highlights the reliability of its owned brands like Craftsman, Kenmore, and other home improvement tools and equipment. These products are widely respected across the country. Sears also excels in its soft-lines department with well-known brands such as Lands' End and Diehard that enjoy national recognition. Moreover, Sears is dedicated to serving both its community and customers. The company aims for customer service excellence, resulting in a loyal customer base developed over time. Additionally, Sears actively engages in community service initiatives and provides support to those who require assistance.

Sears demonstrates its dedication through its participation in community programs like Heroes at Home and Extreme Makeover Home Edition. However, this commitment has also made the company vulnerable to consumers. Regrettably, despite having a significant customer base, Sears has failed to adjust to the evolving market conditions, leading to a decrease in sales volume. The company has disconnected from both consumers and competitors in sectors such as clothing and specific divisions within its hard-lines products. This lack of emphasis on retail services can be attributed to Sears' excessive diversification (Prentice-Hall, 2003).

Most retail stores today do not meet the needs of consumers. Sears' clothing line is outdated and does not align with fashion trends. The retail stores themselves are old and worn out, and they do not attract customers. The current CEO has been interim for 18 months, indicating issues with management and leadership (Gorenstein 2009). The merger of K-mart in 2005 was seen as a solution to revamp the company, offering a wider range of products and a larger customer base. However, SHC has experienced several quarterly losses, with the most recent being $94 million (SHC 2009).

Sears can boost sales in the soft-lines department by obtaining and utilizing popular brands such as Liz Cleburne and Nine West. They already possess successful brands like LL Cool J and Joe Boxers in the male department. Concerning the Hard-line department, Sears can offer reasonably priced and durable products with a comparable guarantee to Craftsman tools, despite its present prosperity. Overall, introducing inventory that appeals to consumers will generate income and enhance Sears' competitiveness.

Sears, like any other business, faces competition from various rivals. Currently, Sears is challenged by retail giants such as Wal-Mart and Target, as well as department stores like Macys and JC Penny. It is important to note that these businesses were much younger than Sears in the past. Additionally, the rise of discount stores has resulted in declining sales for certain departments. To avoid losing customers, it is crucial for Sears to rejuvenate its stores by providing products that connect with its customer base.

The economic downturn has adversely affected SHC, resulting in substantial financial losses. To rectify this situation, SHC must adopt strategies to cut costs and boost profits or revenue. Sears places great importance on supply chain management, especially in terms of restocking inventory promptly. The company provides three primary product categories: seasonal items like lawn mowers and snow blowers, perennial best sellers, and fast-moving products that necessitate swift replenishment. In contrast to numerous rivals, SHC annually delivers six million home appliances and home improvement products directly to customers' residences.

To optimize efficiency, SHC implements Cross-docking, a distribution method involving unloading inbound products at distribution centers, sorting them by destination, and loading them onto delivery trucks. Consequently, the goods are not stored in warehouses but simply transferred across ducts. By doing so, the company reduces its inventory days. Additionally, SHC organizes its inventory across four regional warehouses to facilitate next-day delivery to customers and rapid store supply replenishment. To address the issues faced by Sears, the following recommendations should be considered: appoint a permanent CEO at the helm for long-term decision making.

An environmental analysis would assist Sears in understanding its current position in the market and providing guidance to where it should aim to be. This analysis would reveal the identity of their target customers, their needs, and how Sears can gain a competitive edge in attracting more customers. It is well known that the soft-lines department's brands and styles must constantly evolve to meet customer preferences. Therefore, SHC should allocate additional funds towards renovating each department store, enhancing accessibility, and increasing consumer appeal. Considering the fact that SHC has become disconnected from its customer base, decentralization should be taken into account.

By catering to consumers in each region, specialty stores will be able to increase their customer base and revenue. (About Sears Holding Corporation, 2009)

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