Appliances used to be a mainstay of Sears, but now the retailer lags far behind the competition. Image source: Getty Images.
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Does Eddie Lampert want to do for Sears Hometown & Outlet Stores (NASDAQ: SHOS) what he's done for the retailer's one-time parent Sears Holdings (NASDAQ: SHLD)? Let's hope not, but the proposal the billionaire investor has for the smaller Sears clone, which was spun out in 2012, isn't going to help anyone.
A deal with the devil
In a filing with the SEC last week, Lampert disclosed he held talks with Sears Hometown about having the retailer partner with Sears' remaining well-known brands Kenmore, Craftsman, and DieHard, in exchange for Lampert taking a larger position in the company. He already owns more than 57% of the company, a stake he started increasing earlier this year, so it's not clear what he hopes to achieve by enlarging his position even further. Maybe he views Sears Hometown as his next retail experiment should Sears and Kmart collapse.
Sears Hometown has not done well since it was spun off from Sears. Its stock once traded north of $55 a share, but now goes for about a tenth of that value. Much like its former parent, Sears Hometown can't attract customers.
Revenues in the third quarter tumbled 10% as Hometown segment comparable sales fell 2% and outlet comps plunged 11% from the year-ago period. The retailer said the problem was threefold:
- It recorded tens of millions of dollars in non-cash valuation allowances on its deferred tax assets.
- Customers shopped at online competitor websites.
- The home-appliance market remained "hyper-competitive," and comps fell 5.5% in the quarter.
Late may be worse than never
Perhaps the most remarkable of the three was Sears Hometown's admission it didn't even have a website consumers could purchase items from until the just-passed third quarter. While it seems amazing in today's retail environment that a company wouldn't have a transactional website available, Sears Hometown isn't as unique as you might think. After all, it was only relatively recently that home-goods retailer Bed Bath & Beyond began investing heavily in e-commerce to make up for its longtime lack of a viable platform.
Yet that company's response, throwing money at the problem, is similar to the investment Lampert belatedly made in Sears' digital efforts as he tried to transform the retailer into a smaller, leaner, more digitally savvy company after years of benign neglect. That both Sears and Sears Hometown were woefully late to the game is telling, and both may be too late to save.
Image source: Getty Images.
Which is why Lampert's plan to sell more Kenmore, Craftsman, and DieHard products -- or KCD, as Sears calls them -- at Sears Hometown, as well as providing Sears Home Services business, isn't going to do anyone any good. While once these were premier brand names in their respective categories, the glow from their halos has long since tarnished.
Throwing ideas at the whiteboard
Earlier this year Sears Holdings said it would "aggressively evaluate" a host of potential alternatives for KCD and the services business, by exploring the possibility of expanding their availability to consumers beyond the confines of Sears and Kmart stores. Possibly spinning off or selling the brands has been broached as well. Sears Holdings subsequently hit on the idea of brand extensions, like Kenmore TVs, or making everything in the home or garage interconnected and part of the Internet of Things.
Yet while selling a Kenmore dishwasher at Home Depot or Lowe's might have moved the needle for the brands (and for Sears), selling them at a dying Sears offshoot chain doesn't do anything for either. People aren't shopping at Sears Hometown as it is, and those that do likely shop at Sears too, meaning they've already chosen not to purchase the company's appliances, tools, and car batteries despite plenty of opportunities to do so.
If by taking an even larger position in Sears Hometown & Outlet Stores Lampert wants to effect changes similar to what he's achieved at Sears Holdings, it's likely we'll see the demise of both businesses sooner rather than later.
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