Sears' desperate Hail Mary plan

The struggling retailer wants to allow competitors to sell its most valuable brands. Smart move or disaster in the making?

By Kim Peterson Oct 17, 2011 1:33PM
Sears (SHLD) is in bad shape. Sales are down, profit is nonexistent, and stores are closing. Even the chairman has described the company's finances as unacceptable.

But is Sears' latest move a stroke of genius or the final nail in the coffin?

The company doesn't have much going for it, but what it does have are its brands. Craftsman tools. DieHard batteries. Kenmore appliances. People know and trust them. They are some of Sears' most valuable assets.

Now Sears wants to hand those assets over to competitors. The company is hiring a firm to help license the brands, Bloomberg reports.

That's a little different from the current relationship Sears has with Ace hardware and Costco (COST). Sears sells its own products there and shares the profits with those partners, Bloomberg reports.

But the proposed new model is a licensing setup whereby Sears would simply charge a fee for the use of its names on products.

Which prompts a question: As more of Sears' brands get into other stores, why would anyone even visit Sears at all? And what in the world is Sears' end game?

One analyst discusses Sears' weak businesses in the following video.

Post continues below.
The new licensing deal "will have a short-term benefit, but long-term it will be a disaster," one retail consultant told Fortune. "Sears is in total collapse -- earnings, sales, everything is tanking -- so they embark on this strategy with their brands that fundamentally goes against what every retailer in the United States is doing, what every retailer is trying to accomplish, which is to differentiate themselves from their competitors."

Sears doesn't see it that way. The company says the move will only increase the value of its brands.

Maybe Sears' thinking goes a little more like this: People love our brands but they hate our stores. If we take our brands to the people, maybe we can boost short-term revenue and create more loyalty in the process.

"You could make the case that the Sears experience is going to be amplified elsewhere," the publisher of The Licensing Letter told Bloomberg. "If you can exploit your trademarks in a wider context, you may be building your business long term."

It's a gamble, no doubt. But Sears is desperate. Revenue dropped to $43.3 billion last year from $50.7 billion in 2008, Fortune reports. For the quarter that ended July 30, same-store sales fell 1.2% from the year-ago period. Sales at Kmart, which Sears also owns, were flat. The quarterly loss for shareholders was $1.37 a share.

The biggest question in this latest move is about the long-term effect. Will the added licensing revenues help Sears limp along? Or is this yet another disaster in the making?

Sears' share price has been on a remarkable climb over the past month, however, so maybe investors are optimistic. But the company has plumped up that share price over the years with a long series of buybacks, so it's hard to tell how much of Sears' climb is truly attributable to investor enthusiasm.

Tags: COST
103Comments
Oct 17, 2011 2:57PM
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It is such a shame to see this company going down the drain.  I worked there for 13 years and even then the upper elite in management was not in touch with what was going on.  The average size for women in the U.S. has been 14 for several years, but Sears has not taken advantage of the limited supply for larger women.  In fact that have cut back and don't even carry anything but casual clothes and those can't compare with the more attractive items in misses and petites.  Another example of them being unaware of what the public likes and and dislikes was signing a contract with the Kardasians.  Just before the announcement that they would be handling the line, MSN quoted a survey indicating the majority of folks are sick of hearing about them and I myself wouldn't spend any money to support them.  Wake up and find out what people want.  Let the board of directors take cuts until the company goes back up, quit giving the encentives to the directors (They are already on too many boards to care)

Listen to your customers and your employees.  There are reasons no one goes there any more.

Oct 17, 2011 2:01PM
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Sears has had the worst executives since I can remember.
Oct 17, 2011 2:50PM
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Sears, like a lot of older companies, has lost it's way. They forgot who their customer was and tried to compete in the department store wars. The old store did well because they gave their customer base what they wanted. From refrigerators and stoves to wonderful tools and clothes for their market. Those were the days when management was taught to build a company. Now there is a vast problem in that management only knows how to do takeovers and sell offs. You'll see more of this.
Oct 17, 2011 2:13PM
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For years I have considered Sears as nothing more than another way into the mall.  I have been the victim of horrendous service when making a major purchase and a store manager actually told me that if I didn't like it I should leave. I did. Never went back.

 

Got a customer survey from Sears Chicago headquarters, returned it with details on how badly I was treated on two separate occasions. Never heard a word of follow-up. No wonder they're ready to tank.

Oct 17, 2011 2:29PM
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Sad.  Sears used to be such a great place.  The smell.  The air conditioning.  The Allstate agent under the escalator.  The portrait photographer.  You could buy boots, or a boat.  Very exciting, with friendly and knowledgeable salespeople.  Alas.
Oct 17, 2011 4:28PM
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Brick and mortar stores are becoming a thing of the past. I have an account with Sears. Last May I purchased a 27 ton Craftsman log splitter. Made sense to buy one since I heat my home with a wood burning stove. Great product with a Briggs and Stratton motor. MADE IN AMERICA folks.  Never struggles when splitting knots in red oak logs. All of us need to pick where we spend our money. I stay out of WalChina. Keeping our money HERE.....
Oct 17, 2011 2:43PM
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reidmct1...I agree.  I used to love to go to Sears for all the reasons you mentioned and for the candy counter.  Now, however, after you've run around the store long enough to drive you crazy ... and IF you can find an employee to help you, the employee doesn't know anything about the products or services and tells you to go find someone else...and the hunt begins again.  Last time I was in Sears it took me 45 minutes to find and buy a coffee mug. 

Our Sears store is in terrible shape and the displays look like the "Dollar Store" having a sale.

Lack of service, lack of interest, lack of updating, lack of effective leadership are all contributing to Sears decline.  Just pay the current CEO his multi-millions for running the Company into the ground and get someone in charge who actually cares about fixing the problem.

Oct 17, 2011 2:13PM
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Ultimately, it will end up devaluing the brands when they start slapping the craftsman, Diehard, and kenmore on crap products. Craftsman has already lost value in power tools because they have companies like Ryobi build their tools and you get junk as a result.  Their hand tools only have value due to the lifetime warranty.

 

All it will take is for quality to go down and Sears will lose everything they have left.

Oct 17, 2011 5:49PM
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Think about how many Sears stores there are.  Now consider how many of them are more than 50 years old ... And Sears puts nearly nothing back into infrastructure, hence Atari-class point-of-sale systems and leaky roofs.  

In the past 5 years they've gone to hiring part-time employees only so new hires have no health benefits or retirement plan.  Their appliance salesmen are commissioned on a draw-against-commiss​ion basis and Sears has cut their commissions from 8% to 3% while also encouraging customers to shop online.  This puts commission salespeople in the position of showing consumers the features and benefits of products on the showroom floor and then receiving zero compensation if the consumer purchases on line.

So while the Kenmore and Craftsman brands have remained strong, Sears has lost something to the bottom ... employee pride and loyalty.  Sears repair technicians are the best in the business.  Sears sales staff is knowledgeable and conscientious, genuinely wanting to provide good customer service.

But the cancer of our times is within the blood and bone of Sears as well... the cancer of wanting more and giving less.  
Oct 17, 2011 6:53PM
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CORECTION!!!

People trust AMERICAN MADE Craftsman tools. Sears has almost completely RUINED the Craftsman brand by making the decision to manufacture (most) Craftsman tools in China.

 

There is a ferrocious trade in the USED market (craigslist, garage sales, etc.) for American made craftsman. Most of the new American made craftsman have now been priced so high, folks will now pay the little bit extra for Snap-On, or some of the other botique tools that are American made.

 

Most Die Hard vehicle batteries are made in Mexico and whenever you have an issue with them, dealing with Sears is such a pain in the ****, it is almost worth buying a new battery. At any rate, there was a time, when about half of the battereies i saw in vehicles were Die Hard. Today, over half of the batteries I see are COSTCO or Sams Club. With Costco or Sams, they have the no questions asked change out policy.

 

I cant comment on the Kenmore brand, about thirty years ago, my parents (who once would ONLY purchase Kenmore) told me to never buy Kenmore because the quality/durability fell through the floor, yet the prices went through the roof.

 

Sears did this to theirself. If they want the customers to come back, make some drastic changes. And they can start by getting rid of all of the chinese CRAP. 

Oct 17, 2011 2:43PM
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We've had a local Sears store for years: very outdated, poor store selection, and always seems so "messy" walking in.  No one ever knows how to get replacement parts there: usually get a kid who works there for minimum wage.  Four times trying to get the right mower blades, twice for the storage drawer for the fridge, and waited weeks for the Craftsman tool that broke. Their service is terrible at the store, and everything has to be ordered at best. It took 4 weeks to get my washer and dryer replaced when our house was hit by lightning. We have a 1985 Craftsman riding tractor that's never let us down, and a 2000 that's about to go to the junk yard because of all the trouble we have with it. They just don't make things like they used to...

Oct 17, 2011 2:51PM
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their poor service has killed them, they need new mgmt in a hurry.  I would hate to see this old company go away but I have thought for a long time that they are headed the same direction as montgomery ward.  jc penney is next.
Oct 17, 2011 6:42PM
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As a current sears employee, i would say Chinook23 hit the nail right on the head. Corporate has neglected their name, employees, property, and reputation far too long and now does not have any money to do anything about it! All of our essential store equipment  is aging & fails frequently causing the almost half of the problems that go on in our stores. Our point of sale systems are slow, unreliable, and outdated. Besides being understaffed, and having outdated equipment; sears is more concerned about up-selling various card programs at check out to even care about customer service and how to keep customers coming back into their stores. 
Oct 17, 2011 2:53PM
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Sears hasn't been Sears since it was taken over by K-Mart in 1985. 
Oct 17, 2011 2:21PM
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My biggest concern is how the quality of those brands would be affected,  For decades, Craftsman has had the reputation of being the name in hand tools.  That used to mean a lot, and still should.  If it is leased to some third party that would ship manufacture to a cheap foundry and make second-tier quality,  the brand would be cast aside for other brands such a Lowe's Kobalt tools.

The same would hold for lawn equipment.  If manufacture is sent to a cheaper source, quality will suffer.  That holds true for Kenmore and Die-hard. 

If Sears didn't absolutely demand the same quality level as current, it could be a real shot in the foot.

Oct 17, 2011 3:27PM
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Walmart has destroyed all these people, they just can't compete with Walmart anymore.

 

Walmart has become very large worldwide so they have huge buying power,which they will never have, you go to any Walmart and they are always filled with people,Kmart,Sears and Target not so much, don't really see how any of them survive to be honest.

 

I do think Sears has a good thing with their Craftsman Tools and they should try and save that.

Oct 17, 2011 6:31PM
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As much as it saddens me to see a huge brand of Americana failing, Sears is a dead company walking.  They can't compete with Walamrt and Target on price, they can't compete with high-end stores like Macy's, Bloomingdale's, Nordstrom, and Neiman Marcus on quality and glamour, they increasingly cannot compete with specialty stores like Home Depot, Lowe's, and Best Buy, and there's no way they can compete with Amazon.  People under the age of 50 may find it hard to believe, but Sears was once the Walmart of its time, yet changing lifestyle habits reduced it to irrelevance.
Oct 17, 2011 6:52PM
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tHE ONE THING HURTING ALL BUSINESSES,IS THAT EVERYTHING YOU PURCHASE NOW IS MADE IN CHINA OR JAPAN,MEXICO,. WE NEED OUR PRODUCTS TO BE MADE IN THE U.S.A. WITH ALL THESE OTHER COUNTRIES MADE OUR PRODUCTS,THEY ARE MADE CHEAPLY. THERE IS NO QUALITY IN THE PRODUCTS ANYMORE.  EVERYTHING WE PURCHASE IS POOR QUALITY. THATS THE REASON WE ARE GOING DOWN HILL. WE NEED TO START PRODUCING BETTER PRODUCTS!
Oct 17, 2011 2:34PM
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Grew up with Sears. My Dad would always buy out of the catalog and when my brother, sister and I were old enough he would make us place orders on the phone. Sears is prettty outdated, although I have bought appliances from there. Haven't shopped at Sears in a coon's age. Like the appliances not much else. I think it's a dinosaur that's heyday is long gone.
Oct 17, 2011 4:33PM
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When I need appliances, tools, and gardening supplies; I think of SEARS.  I don't shop their for their cloths.  I feel their cloths are out dated and/or limited.  The store in my area doesn't have the small appliances or bed and bath items.  My recommendation is to down size what doesn't work (cloths) and focus on what does work (appliances and tools).
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