A new Web initiative will enlarge Sears' vigorous online marketing plan
by Camila Russo -  - Medill Reports
March 4, 2010

Need a plumber? Screen their bids to fix your faucets at servicelife.com. House cleaning tips? Ask an expert at managemylife.com. In a hurry? Use the Sears2Go app on your smart phone. Matchmaker? Yes! Sears even has one of these services, of sorts: to find the camera or television that is just right for you.

It's hard to keep up with all of the Web initiatives that Hoffman Estates-based Sears Holdings Corp. has launched during the past year, and it's not finished. More will be introduced into the virtual marketplace during the next few weeks, one of the company’s Web developers says.

“I can’t share numbers but we are engaged to do more of these products, so that should be an indicator that they have been successful,” said Dror Liwer, a principal at New York marketing firm Zemoga. “So if we would have had this conversation in two weeks, you would have seen these new products already online." Liwer, who developed Sears’ Matchmaker Web sites, said he could not give more details.

Sears’ efforts are paying off, at least in Web traffic. It was ranked third in search visits in a report issued in December by Internet Retailer, a trade Web site. Trailing behind, competitors Wal-Mart Stores Inc., Target Corp. and Lowe’s Cos. Inc. ranked 14, 20 and 76, respectively.

Web traffic has been translating into sales. The company’s e-commerce has increased by double digits during the past two years, Sears’ officials said to journalists recently. The company wouldn't provide current numbers, but recent gains have come on top of the 6 percent of total sales in 2008 reported by Internet Retailer. This is more than Wal-Mart's $1.7 billion in e-commerce computed by Internet Retailer.

Industry experts say Sears’ efforts are commendable, but are skeptical that this strategy will contribute importantly to improving the company’s overall results. In its fiscal year ended Jan. 30 Sears earned $235 million, or $1.99 per diluted share, a four-fold increase from $53 million, or 42 cents per diluted share, a year earlier. But sales dipped 5.8 percent to $44 billion from $46.7 billion.

“Sears’ Web initiatives have potential. It is good that they are making an effort to innovate and reach a broader audience through the Internet,” said Mara Devitt, a partner in retail consulting firm McMillan Doolittle, in Chicago. “But these projects are not cohesively thought out. It looks like they are dipping their toe in e-commerce, trying to see what things work and which don’t. It remains to be seen if this translates into actual growth.”

Ben Fleener, president at marketing firm Dynamics LLC, in Lexington, Mass, said, “It is good that they are trying new things, instead of plodding along. Sears hasn’t just tried to beef up their Sears.com; they have also launched other sites in a multiple Web strategy. But they have got to drive more traffic in the stores.”

Wall Street is equally dubious. The eight analysts following Sears’ stock are split evenly between “hold” and “sell” ratings, with no “buy” recommendations. Also, they predict a loss of 17.5 cents per diluted share this year, according to Bloomberg LP.

These forecasts come even after the company’s most profitable quarter in three years. It more than doubled its fourth quarter profit to $430 million, or $3.74 per diluted share, from $190 million, or $1.99 per diluted share, in the year-earlier quarter.

“We were not impressed by Sears’ fourth quarter profits,” said Kimberly Picciola, analyst with Morningstar Inc. in Chicago. “It had a modest margin expansion due to well managed inventory levels and cost-cutting efforts, but sales at its full-line stores were down 6.1 percent.” Picciola also said the 1.7 percent sales increase at Sears’ subsidiary Kmart was not enough to raise her “underperform” rating.

It was the second consecutive quarter that Sears' discount chain Kmart improved its same-store sales, benefiting from holiday toy and home goods sales. General merchandise offered by Kmart is selling better during the recession than the big-ticket items in Sears’ stores.

Nevertheless, James Dion, president of Chicago retail consulting firm Dion Co., expressed a blunt view of the Sears subsidiary. “I have three words for Kmart: Dead man walking.” Dion said most of Sears’ profits come from selling its assets and that Kmart’s sales are not enough to help the company. “They are only delaying the inevitable: going out of business.”

Some analysts say Sears’ recognized brands, such as Kenmore, Craftsman and DieHard, offer hope. Fleener of Dynamics LLC said Sears’ main opportunity for growth is to “leverage its strong brand names, such as Kenmore and Craftsman. The challenge there is to get new costumers to buy those traditional products.”

But Dion disagrees with the company’s recent decision to allow its Craftsman and DieHard brands to be sold by other stores. “By franchising its brands, Sears gets smaller margins and the customer doesn’t even need to come into the store to get those products anymore. [Sears Chairman Ed Lampert] is selling the company piecemeal,” Dion said.

Sears announced in February it reached a trademark license agreement with Schumacher Electric Corp. that will enable DieHard-branded power accessories to be sold by retailers in the U.S., Puerto Rico and Mexico. The company also signed a deal with Ace Hardware Corp. to sell Craftsman tools at 100 Ace stores starting in May.

Besides its brands, customers interviewed said Sears’ prices were the main reason they shopped with the “blue crew”. “I come to Sears because of its prices,” said Amy Nolan while shopping for a vacuum cleaner at the full-line store on State Street. “I would recommend having more of a variety though; sometimes I can’t find what I’m looking for.”
This is one of the main weaknesses Devitt of McMillan Doolittle sees in Sears, “The company has not invested enough in renovating its stores, in training its personnel and getting an attractive product mix.”

Sears closed 62 stores during fiscal 2009 and is planning to close 21 more this spring. “Most of those stores have underperformed for some time and, despite focused efforts to improve them, we felt that we could no longer afford to wait for those stores to turn around,” said Chairman Lampert in his latest letter to shareholders. “Like any retailer, we would expect that our store portfolio will require continuous evaluation and transformation as we strive to have every store contribute to the creation of future value.” Sears Holdings Corp. operates more than 3,900 stores in the U.S. and Canada.

While some stores are closed, Lampert says the company will continue to focus on its e-commerce business. “We have chosen to invest primarily in areas of our business that we believe will yield long-term growth and attractive returns. These areas include our online businesses,” Lampert said in his letter. “We have made substantial investments in our online platform and in the in-store and mobile technology that enables multichannel experiences under our ShopYourWay banner.”

Industry experts say Web initiatives are attractive to retailers because of the comparatively small investment required and the wide audiences that can be reached. According to business informaton firm eMarketer, e-commerce currently represents close to 4 percent of total retail sales, but will reach about 10 percent by 2013.

Liwer, the marketing consultant, whose firm has also worked in online campaigns for Radio Shack Corp., Panasonic Corp. and others, says Sears wants to simplify customers’ buying process. “There is a blue crew member that guides the user through a process that is not about attributes or technical terms, it’s about lifestyle. We ask how they are going to use the camera, not about megapixels or LCD size.”

With these goals in mind, the Matchmaker sites were launched at the beginning of January to help consumers choose cameras and televisions. Liwer implied that Sears’ new Web initiatives will extend the Matchmaker. “Clearly this works for many complex products that users are scratching their heads wondering how to make a decision, so I can tell you that this is the line we are working on right now and you can expect to see more of those coming soon.”