Is the Modern Department Store Dead? Sears gives us good reason to think so

Sears has a branding problem, again. Even our very primitive in-class market research tells us so. No one could really identify what the Sears brand stands for, is it a discounter? Is it premium? Are the products any good? No one really knows, at least in our age group.

Sears has tried to “revitalize their brand” more times than I can count. Maybe the problem is that Sears really doesn’t focus on doing what it does very well, which is building strong brands. Although I personally am not extremely loyal to any of the brands Sears offers, it turns out that people do go to Sears to specifically purchase Kenmore appliances, Craftsman tools, DieHard batteries, and Weatherbeater paint, at least in the US. If Sears ever wants to see the ‘Sears’ brand ‘revitalized’ they need to start by making their exclusive brands traffic drivers. We’ve seen many private labels (Loblaw’s - President’s Choice) actually drive traffic to the retailer, thus establishing a pretty unique competitive advantage. So maybe Sears should invest a little more into the branding of these ‘exclusive’ labels, instead of separating them into separate business units, as new owner Edward Lampert intends to do. Brandingstrategyinsider.com has this to say about this new restructuring:

I'm not sure what that means, but to me, it looks like big trouble if their big-name brands, such as Kenmore and Craftsman, can cut deals with other retailers. It could spell the end of the Sears brand as we've known it for all these years.
The only problem with these great brands, and something we pointed out in class, very few consumers want to go to a mall to buy tools or appliances. Department stores that are everything to everyone are dying in this new age when consumers can use the internet to purchase pretty much anything in a matter of minutes from the comfort of their own home. So how can Sears ever hope to survive? They need to move out of malls. Sears Holding Corporation also owns Kmart, another struggling retailer. The upside is that these Kmart locations are mostly standalone outlets, which is just the type of real estate Sears needs to expand to “off-mall” outlets and close some of the underperforming mall locations. Mall construction (in North America) is not exactly growing right now, and even though malls might hate to lose their ‘anchor’ stores, they could potentially replace this space with stores that are more profitable. Already Sears has announced plans to renovate 400 standalone Kmart stores into a new format called Sears Essentials. The Sears Essentials stores will combine Kmart's strengths in food, drug store merchandise and cosmetics, pharmacy, and garden centers with Sears' more valuable brand and its expertise in appliances (Kenmore) and hardware (Craftsman). Each store costs $3.5 million to renovate, and Sears had an EBITDA (free cash) of $3.6 billion across their 3,800 stores in North America. This means (VERY roughly) that each store generated $964,000 in free cash, and these renovations could pay back in ~3.63 years. These “off-mall” outlets could be the only thing that could allow Sears to compete with more competitive retailers, but only if ‘Sears Essentials’ stores offer a unique experience with brands that drive customer traffic, and a focused message to consumers so they’re not confused about what these stores offer. While Sears still has a chance to compete with Target and Wal-Mart, we will probably look back at Sears as a case study of the downfall of traditional mall department stores.

• http://www.brandingstrategyinsider.com/2008/02/sunset-for-sear.html
• http://www.signaturestrategies.com/brand_managment/helping-to-salvage-the-sears-brand/#more-102
• http://www.mitchglaser.com/journal/2005/11/is-sears-stumbling.html
• http://www.suntimes.com/business/blogentries/index.html?bbPostId=Cz290B4vVAv5JCzBS41378pZ3nBDWDDSvl8N8KBBco9bphS2Vn&bbParentWidgetId=B9SEXdhTrKjs1CLxDiTQ8rY
• http://www.brandweek.com/bw/news/spotlight/article_display.jsp?vnu_content_id=1003725938
• http://biz.yahoo.com/prnews/080228/aqth056.html?.v=37