Sears banks on its brands as it seeks to reverse sales decline
Sears Holdings Corp. is turning to its house of brands to buttress its shrinking retail operation as the money-losing retailer struggles to stem a five-year sales decline.
The DieHard, Craftsman and Kenmore brands have been around almost as long as Sears, and now they’re being pushed to the fore. Deals are in place to sell DieHard and Craftsman through other retailers, while executives have begun to look at ways to make money from the Kenmore brand without damaging Sears’ core appliance business.
The Hoffman Estates, Ill., operator of Sears and Kmart is looking to hire an outside licensing agency to put Sears’ proprietary brand names on products it doesn’t already sell. A request for bids began circulating to interested parties in August, according to a source familiar with the process.
At the same time, Sears has considered selling ancillary Kenmore appliance products, such as vacuums and humidifiers, through Costco Wholesale Corp., as well as putting the Kenmore name on products it doesn’t already sell, such as wind turbines and solar panels, according to another source familiar with the plans.
Any agreement, either to sell Kenmore products or license the name, would mark the first time in Kenmore’s 84-year-history that a retailer other than Sears or Kmart would carry the famous appliance brand.
“These are great brands that really are the jewels in the crown in Sears,” said Michael Stone, chief executive of the Beanstalk Group, a New York-based brand licensing agency owned by Omnicom Group. “Most retailers would kill to have brands like that to bring people into the stores. Maybe someday these brands will be all that is left of Sears.”
The prospect of Kenmore appearing on Costco shelves, or elsewhere, follows a flurry of groundbreaking deals in the past two months — one in August to sell Craftsman tools at Costco and another in September to sell DieHard car batteries to Meijer. In the months leading up to Labor Day, Sears also expanded a pilot, started last year, to sell Craftsman tools at Ace Hardware stores.
The steps to sell Sears’ proprietary brands to rival retailers — 1,624 individual stores so far — comes as Sears is inviting rival retailers into its own stores. Sears is marketing its entire real estate portfolio online at SHCRealty.com.
The company is seeking outsiders to lease space inside about 3,700 stores and auto centers. Another 61 shuttered stores are for sale or lease.
“It’s far more lucrative for Sears to sell the brands in Sears stores, but getting the traffic is the challenge,” said John Gerzema, executive chairman of BrandAsset Consulting in New York. “It’s like their own stores are becoming mini shopping malls while they’re getting their famous brands outside the stores. It’s a really interesting experiment.”
Sears executives have bandied about the idea of selling Sears’ in-house DieHard, Craftsman and Kenmore brands outside of the company for decades; they never followed through with the proposition for fear it would hurt traffic at Sears stores. But times have changed.
Sears, once America’s biggest retailer, has been losing market share for years to Wal-Mart, Target, Home Depot, Lowe’s and Kohl’s, among others. And this year, as many retailers have bounced back from the Great Recession, Sears is still struggling.
Sears lost money in its first two quarters of this year, reflecting falling sales and markdowns. Its cash on hand fell to $658 million in the quarter ended July 30 from $1.2 billion a year earlier. Total borrowings rose to $3.6 billion in the quarter from $3.2 billion in the same period last year.
Sears’ position as the nation’s biggest seller of appliances (Kenmore and other brands combined) has also eroded over the past decade as big-box home improvement stores populated the landscape.
Sears stores held a 30.4% share of the appliance retail market for the year ended Sept. 30, based on revenue sales, according to Louisville, Ky.-based Stevenson TraQline’s quarterly market survey, released Friday. That figure is down from the four previous years. At its peak Sears’ share was about 40%.
A recent Consumer Reports report found that as a major appliance retailer, Sears stores rank near the bottom of the pack, but it’s a different story for the brands. They rate highly in both Consumer Report lab tests and reader surveys.
The Kenmore Intuition is the consumer publication’s top-rated vacuum. And it recommends a wide range of Kenmore and Craftsman products, including six refrigerators, four dishwashers, three ranges, eight dryers, five washing machines, four gas grills, five lawn mowers, two cordless drills, one leaf blower and one snowblower.
Sears is saying little about its plans for its brands. The company declined to make an executive available to discuss its brand strategy.
Larry Costello, a spokesman, said in a written statement that Sears “will work to grow our market share of certain branded products that currently have limited penetration but high potential.” He added: “In particular, we will target those products and categories where shopping and purchase decisions are driven by convenience, impulse or necessity.”
Sears declined to comment on its relationship with Costco and its search for a licensing agency, aside from saying, “We have no immediate plans to sell Kenmore appliances outside of the family of Sears retail formats.”
Officials at Costco, based in Issaquah, Wash., declined to comment on its relationship with Sears.
Giving rival retailers access to exclusive in-house brands goes against the grain of what most big retail chains are doing these days. Retailers from Macy’s to Wal-Mart are investing money in developing their own labels in an effort to stand out from competitors, attract more shoppers to their stores and boost profits by cutting out the middleman.
But Sears isn’t a typical retailer. It is a holding company of assets controlled and run by hedge fund guru Edward Lampert, whose expertise is financial engineering, not merchandising.
Three years ago, Lampert formed a separate business unit around the Kenmore, Craftsman and DieHard brands and hired former Procter & Gamble executive Guenther Trieb to run it. Trieb left the chief brand post to be replaced by former Lehman Brothers executive Scott Freidheim in February. Freidheim resigned in August, and now Sears is searching for a third executive to run the unit.
Sears’ challenges hardly end with choosing a chief brands officer. However far it goes with this strategy, the company still must grapple with what to do with its thousands of stores.
“Strong brands like these should be driving shoppers to their stores where they can buy other merchandise,” said Steven Platt, director of Platt Retail Institute, an industry think tank. “Now, with other retailers carrying the brands, the store becomes even more irrelevant.”