Can Sears Holdings Afford to Drop Ivanka Trump?

By Rich Duprey Markets Fool.com

An increasing number of retailers have announced their intention to drop Ivanka Trump's merchandise line. From Nordstrom (NYSE: JWN) and Belk to Neiman-Marcus and Burlington, there's a growing movement for retailers to distance themselves from the Trump brand.

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Although the coincidence of the announcements suggests there is a political motive behind the move because of a purported "GrabYourWallet" movement that gained momentum following Donald Trump's election last November, a group that advocates boycotting Ivanka's products,retailers maintain it's simply a business decisionthey've made, andthey're no longer offering the merchandise because it isn't selling.

If that's the case, then it's reasonable thatSears Holdings (NASDAQ: SHLD) would also join the conga line of companies dumping Trump wares, because despite the bit of life that was recently breathed into its stock following chairman and CEO Eddie Lampert revealing his reorganization plan for the retailer, Sears can't afford to anger any of its remaining customers.

Image source: IvankaTrump.com.

Blue state blues

According to The Wall Street Journal, sales of Ivanka Trump's fashion line at Nordstrom fell 32% last year, picking up steam as the election year advanced, with footwear and apparel plunging more than 70% in the last three weeks of October. However, brand representatives have countered that overall sales actually rose 21% year over year.

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Nordstrom issued a statement saying it makes "buying decisions based on performance," and the Trump line wasn't up to snuff. Soon after, the other retailers also rushed out similarly worded statements, with Neiman-Marcus saying its decisions are "based on productivity," Belk saying it reviews the "assortment and the performance" of its brands, and Burlington saying it makes "buying decisions based on performance."

Those statements weresimilar to the one eventually offered by Sears, which said the reason iteliminated 31 Trump Home items from its online website was"part of the company's initiative to optimize its online product assortment, we constantly refine that assortment to focus on our most profitable items."

Know your customer

Nordstrom might be able to get away with dropping Trump's merchandise because its customers tend to be wealthier, its stores are located in more urban areas, and they are in states with a presumably more liberal political bent.

The retailer notes it derives a significant portion of its revenues from stores on both coasts of the country, but particularly from the blue state of California, where it had 78 Nordstrom and Nordstrom Rack stores located at the start of 2016, or 24% of its locations. That's more than triple the number it has in the red state of Texas, where there were 24 stores, or purple Florida, where it had 23.

Sears, despite many of its stores also being located in urban areas, might not be so fortunate. While California also had the most Sears and Kmart stores last year, they represented less than 10% of the total.Moreover, Sears arguably has a more blue-collar, working-class customer base, meaning if it were to take a political position like this, the decision might not sit as well with its customers.

Focus on profitability

Still, the reason why this is not that strategy, and why it's probably a smart move, is because, despite the headlines, Sears hasn't really distanced itself from Trump's merchandise as claimed -- or at least not to the extent other retailers have.

Sears and Kmart never carried Trump products in their stores; they were always only available online. While Sears did remove 31 items from its websites, saying it did so "to focus on our most profitable items," consumers can still find hundreds of Trump products on its site through third-party sellers.

By saying as it did, "All of these products are offered by our marketplace sellers and not directly by Sears or Kmart,"it may look as though it's trying to have its cake and eat it, too, to avoid any activist campaign against it --"Hey! It's not us, it's these other guys selling the stuff!" Butt's also true that anyof its customers who do want to purchase Trump items can still come to its websites and find them.

This is why the removal of the Trump line from Sears' websites was undoubtedly a financial one, not a political statement. It's still able to offer the merchandise to customers who want tobuy it it without the cost of having to carry it itself.

Sears Holdings is in dire straits, and regardless of its plan to generate $1 billion in savings over the next few years, the retailer definitely needs to focus on the most profitable products on its shelves, which isexactlythe rationale it's given for the move. Although it may seem that for a retailer hemorrhaging sales, it can't afford to drop Ivanka Trump's merchandise, in reality, it really can't afford not to.

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Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Nordstrom. The Motley Fool has a disclosure policy.