On paper, the merger between Kmart and Sears looked almost fool-proof. Investors were confident that hedge fund manager Eddie Lampert had the midas touch, and that Sears’ real estate holdings were worth more than $150 on their own. Sears’ well-regarded brands would be paired with Kmart’s convenient locations—and everyone would make tons of money.
Now it’s looking more and more like both Sears and Kmart are doomed. Customers are “staying away from Sears stores in droves,” says the New York Times. The stores themselves, rather than serving as a marriage between great brands and good prices, are (to be perfectly frank), ugly overpriced sh*tholes.
From the NYT:
The Sears Essentials strategy, now called Sears Grand, offers a case in point. This was a plan by Mr. Lampert to compete with the new breed of smaller strip shopping centers, anchored by stores like Best Buy, Home Depot and Target. Sears stores, found mostly in enclosed malls, were losing prized customers to the smaller centers. But by converting Kmart stores, which were near the smaller centers, into Sears Essentials, the company hoped to lure shoppers back to buy Kenmore washers, Craftsman tools and Diehard car batteries.
“I have always believed that Kmart customers had the inclination to buy more valuable products at Kmart if presented with the right value offerings,” Mr. Lampert wrote in a letter to shareholders in late 2005.
But Sears Essentials flopped. It was not because Kmart shoppers rejected Sears products, but because the experiment seemed to consist only of tossing Kenmore stoves and Craftsman hammers into an old Kmart store, rather than creating a vibrant new shopping experience.
The former Kmart in Parsippany, N.J., is typical. Three years ago, it was converted into a Sears Essentials store. By all accounts, the store could have been a success; it sits in a bustling suburban shopping center, surrounded by popular retailers like a ShopRite grocery store and a Bed Bath and Beyond.
But beyond introducing new brands, Sears invested little money in the store. In November, a visitor found mismatched floor tiles in the lobby, Reagan-era beige shelves in the food aisles and a ragged brown carpet in the clothing department.
Near a customer service desk, a broken pipe dripped water from the ceiling into a garbage pail. Workers said the pail, intended as a quick fix, had been in place for two weeks while they awaited repairs. They also said business in the store was terrible.
Burt Flickinger, a longtime retail consultant, said: “Eddie has cut costs and raised prices for two years. But shoppers are not stupid. They figure it out and shop someplace else.”
A Sears spokesman disputed that the stores were down at the heels but acknowledged that the company must work to “improve the customer experience.” He said the company has improved the profitability of the Sears Grand stores and still considers the original concept valid.
The article goes on to speculate what Lampert’s exit strategy might be, considering that most of the value of Sears is in its real estate… and perhaps you’ve heard that the real estate market isn’t exactly hot right now.
The NYT doesn’t mention other causes for concern besides slumping sales. For example, Sears’ recent privacy dust-ups suggest that they’re not especially concerned with protecting their customer’s personal information—a mistake that can come with a costly lesson. Just ask TJX. And then there’s the repair devision, about which Consumerist receives endless complaints and no resolutions.
As one analyst mentioned in the Times article put it: “We just can’t avoid the cliché ‘rearranging the deck chairs on the Titanic’ when considering the proposed new operating structure for Sears.”