Sears Holdings CEO Says Kmart Is Not Going Anywhere

By Markets

Kmart has been closing locations, but its CEO says it will not be shutting down. Image source: Sears Holdings.

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There was a time when Sears dominated the retail space in the United States.

The company had a massively successful catalog and a number of house brands that had a reputation for quality. Sears may never have been a sexy or trendy place to shop, but it was a steady pillar of many communities, anchoring malls while giving middle-class people a reasonable place to shop.

Those days, however, have long since passed. The company's catalog shut down in 1993, made irrelevant first by the growth ofWal-Martand now seemingly ridiculous in an internet-driven world. In fact, the early 1990s may have been the beginning of what has been a long slide for the chain.

Sears has been struggling to find a business model that works in a world dominated by rivals including Wal-Mart and merged with Kmart in 2004, creating Sears Holdings (NASDAQ: SHLD), and it has been steadily losing money while getting smaller.

In April, itreleased plans to close 68 Kmart locations and 10 Sears stores that had been losing money. That followed over 100 locations split between the two brands that closed in 2015 and around 200 that shuttered the year before.

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It's a trend that, coupled with ongoing losses and the company having to borrow money from a hedge fund controlled by CEO Eddie Lampert, makes it reasonable to consider whether Sears and Kmart may be on their way out. Most specifically, many shoppers have seen Kmarts closing around the country, leading to questions about whether that brand has a future.

Lampert says it does and he has posted an impassioned message attempting to reassure consumers as the critical 2016 holiday season approaches.

What the CEO is saying

In a post on Sears Holdings' blog, Lampert laid out some of his strategy to revive both brands, pointing to a new partnership with Shop Your Way (an online shopping service owned by the company), Sears Auto Centers, and Uber as an example of how the company is being transformed. He also specifically addressed the rumors that Kmart would soon be shut down, calling them "frequent false and exaggerated claims."

"Recent reports have suggested that Kmart will cease its operations. I can tell you that there are no plans and there have never been any plans to close the Kmart format," he wrote. "In fact, we've been working hard to make Kmart a more fun, engaging place to shop, powered by our integrated retail innovations and Shop Your Way. To report or suggest otherwise is irresponsible and is likely intended to do harm to our company to the benefit of those who seek to gain advantage from posting these inaccurate reports."

Lampert noted that Kmart still has over 700 locations, with a "significant number" of them already achieving profitability. He explained that the company's goal is to improve the performance of unprofitable stores, but he did acknowledge that any locations that could not be improved would be closed.

"... we have been clear that we are intent on improving the performance of our unprofitable stores and, if we cannot, we will close them. Actions to improve our store productivity, including reducing inventory stored in the stockrooms, are designed to make our stores easier to operate and to eliminate unproductive inventory and processes," he wrote. "Decisions to close stores are never easy, but we recognize that the way people are shopping is changing significantly. This is why we have made major investments in our online and mobile platforms and this is why our focus on serving members through Shop Your Way is so important."

Not done yet

While there have been numerous media reports suggesting that Sears Holdings will close Kmart or shut down entirely,it's worth noting that the company still has considerable assets. That includes a large amount of real estate as well as house brands including Craftsman Tools, Kenmore appliance, and DieHard car products.

"We have a process under way to create value by positioning our Kenmore, Craftsman and DieHard businesses as well as our Sears Home Services business to benefit from broader distribution and partnerships that will allow them to grow beyond Sears Holdings," Lampert wrote. "We also possess a significant portfolio of real estate assets with an opportunity to create value through improving our retail productivity and by monetizing them in a variety of ways."

The CEO was clear that the company would be aggressive in closing locations where it can't make money, but he also made it clear the chain expects to continue to operate, even if its focus shifts.

"We expect to end up with a large chain of stores, some owned and some leased, but with a company focused on serving members broadly through Shop Your Way rather than exclusively or predominantly through our stores," he wrote. "Our stores remain extremely important to our future, but as part of an overall focus on serving our Shop Your Way members."

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Daniel Kline has no position in any stocks mentioned. He buys pants at Sears, but rarely goes there and cannot remember the last time he entered a Kmart. The Motley Fool owns shares of and recommends AMZN. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.