Tuesday, September 22, 2009

Reports of Sears’ death slightly exaggerated (for now)

Not many people are seeing the softer side of Sears these days, or the harder side for that matter. Tech Ticker reports that Jeff Matthews of hedge fund RAM Partners says the much anticipated Sears turnaround story may never happen because Sears Holding Corp. Chairman Edward Lampert doesn’t know how to run retail. Barron’s recently ran a story pointing out Sears’ many problems -- sagging sales, shabby stores, inattentive service, uncompetitive pricing – and suggesting the company’s stock price could fall another 50%. Beyond frightening. Credit Suisse analyst Gary Balter wrote an earnings note titled, “Put A Fork In It.”

Are the naysayers right? Is Sears done?

Sears has certainly gotten close to the max in cutting costs – there have been reports of only one sales associate per floor. In a world with where national big box stores provide competitively priced appliances on the one hand, and local dealers lavish personal attention and customer service on the other, Sears needs to be competitive on some dimension to survive, since there’s no net over the abyss of the middle.

Sears could focus on a smart reinvention its stores. The company still has some fabulously reputable brands, like Kenmore, DieHard, Craftsman, and Land’s End. Sears has actually made a number of good decisions lately – a plan to start selling toys and to offer a Christmas Club card, where consumers add value beforehand and get a 3% bonus on the funds. This has some old-fashioned, Big Book Catalog-style appeal. On the 21st century front, Sears’ MyGofer experiment, which merges online shopping and the ability to pick items up at a brick and mortar location, might allow Sears to unlock some value of all those Sears and Kmart stores. (But note to Sears: if you’re going to position yourself as a serious Internet player, make sure pranksters can’t rewrite your content and punk the living daylights out of you.)

It’s always hard to see around corners, but it’s an interesting question to ponder: what would a successful Sears look like in five years?
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Tuesday, September 15, 2009

Shhh… Abercrombie is Cutting Prices

Last night at the mall, we saw what it looks like when retailers who don’t want to discount do the dirty deed in hushed tones. Just a few feet inside the lease line at an Abercrombie & Fitch store, we saw fleece tops at 50% off—a whacked price put onto a tasteful little sign no bigger than a postcard. We saw this throughout the store, motivating price points on merchandise clearly meant for the upcoming fall/winter season. This A&F store even had a sign at the entry announcing a back-to-school sale (odd, since prime back-to-school shopping season is behind us). Deep discounts? On current season merchandise? Is this really “we will not become promotional” A&F? Since the onset of the recession, shoppers have flocked to low-price retailers like T.J. Maxx and Ross. Nearly every clothing chain has aggressively discounted to try to win over penny-pinching shoppers. But in the face of all this discounting, A&F has stubbornly held onto its loftier price structure to protect its “aspirational” brand.

Last week, A&F announced that its sales dove a frightening 29 percent in August – the eleventh straight month of double digit sales declines for the retailer. Sure, times are tough and the teen (and parent) clothing budget has been squeezed, but rival Aeropostale, with its less expensive, but still fashionable, apparel managed to increase sales a very respectable 9%. A&F has finally, reluctantly, quietly capitulated to shoppers’ demand for a deal (while still clinging hopefully to the idea of an aspirational brand). “It (discounting) is not the primary vehicle nor will it be the primary vehicle for driving business, but it is part of the balance at this point… but it is not the driving force of this business. The driving force is fashion, quality, aspiration, and will continue to be so,” Chief Executive Officer Michael Jeffries said on an Aug. 14 conference call.

A&F may have done its job of creating a high-priced brand image a little too well. Despite a current move to more price cutting, the company’s success ultimately depends on the willingness of teens to drop $50 on “Perfect Butt” sweatpants once the economy rebounds. Still, now that teens have learned that for the same $50 they can get a pair of sweats and jeans at Aeropostale and still have money in their pocket for a couple of tickets to a movie, it may not be so simple to get them to return. Habituation is a tough monkey to overcome.
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