Traditional retail chains are struggling as the industry rapidly shifts focus from single- to multi-channel operations.
Sears Holdings, parent to Sears and Kmart, is no exception. It has been a tough run for the company of late as it reported its ninth consecutive unprofitable quarter on Thursday.
Transformation may be what the retailer needs -- and that's what CEO Eddie Lampert promised investors in an earnings call discussing the company's second quarter results.
Acknowledging “unacceptable” second quarter earnings, Lambert said the company is moving "from a traditional retail operating model to a member-centric operating model."
“While retailers continue to be impacted by the same external factors, we are moving aggressively to address what we can control,” Lampert noted. Some of these negative external factors include a harsh winter blamed by many retailers for poor sales and a “retail funk” where consumers have been uneasy to spend even in an improving economy.
The move to a member-centric operating model comes after the retailer saw members of its Shop Your Way loyalty program drive 73% of eligible sales in the quarter. Online and multi-channel sales were up 18% for the quarter and 22% for the first half of 2014.
Lampert said the company's performance will improve by increasing engagement with its Shop Your Way program and integrated retail.
“The success of these two platforms is allowing us to maintain relationships with our members as we rationalize our store footprint and place an increased focus on supporting our better performing stores,” Lampert said. Sears Holdings in May announced that it will likely close a minimum of 130 stores this year, but Lampert indicated that the company will still maintain a large mall presence.
Other facets of Sears' transformation include a reduction of inventory through store closings and the hiring of new leaders to “change [Sears’] culture to be more accountable and focused on driving performance,” according to Lampert.
The decreasing lease obligations and smaller inventory stems from store closings and the spinoff of the Lands’ End brand in April. This spinoff, along with an unsuccessful expansion into Canada, accounted for 30% and 16% of the company’s decline, respectively.
Looking forward, Sears Holdings will also continue to mull over a possible unloading of Sears Auto Centers and a sale of its 51% interest in Sears Canada, according to CFO Rob Schriesheim.
The transition to Sears' new member-centric operating model will place an increased focus on new technology. Sears is pushing a number of successful new integrations being tested in select stores to all of its locations, including a ShopSears app, digital signs and In Vehicle Pickup, a successful service that will be expanded to 115 Kmart stores. Many stores are finding success in these mobile initiatives, which have been shown to result in higher customer engagement and loyalty.
“We believe we have a substantial opportunity to compete successfully in the changing retail landscape by proactively transforming our business to meet the new realities of the industry,” Lampert concluded.
