HOFFMAN ESTATES, ILL. – Weak majap comps at the No. 2 appliance retailer, and changes in its CE business model, contributed to a $303 million loss for Sears Holdings during its fiscal first quarter, ended May 2. The loss narrowed from a year-ago loss of $402 million.
Chairman/CEO Edward Lampert attributed the improvement to higher margins and reduced overhead, which were partly achieved by shifting more of the burden of CE category management onto Sears’ vendors.
“We are altering our business model in [CE] to one that requires less working capital and operating expenses by leveraging partners to continue to meet the needs of our members,” said Rob Schriesheim, executive VP and chief financial officer. “The change in business model has negatively impacted our comparable store sales in this category; however, it has resulted in improved profitability, which is our primary focus.”
Sears is also “sizing” CE to “better fit member needs,” the retailer said, which contributed to lower sales but higher margins and increased profitability.
Indeed, CE accounted for about 2 percentage points of the company’s domestic comp declines for the quarter, which totaled 10.9 percent. At Kmart, reduced CE sales offset rising majap comps, resulting in a 7 percent comp decline, while at Sears, decreases in both CE and the core majap category contributed to a 14.5 percent comp decline.
Schriesheim said the company is “intent on reinforcing our position as the No. 1 appliance retailer in the U.S.,” and worked to buoy the business in the first quarter by expanding the assortment at Kmart and online; by introducing new high-capacity Kenmore laundry products; and by making continued investments in digital signage to enhance the in-store shopping experience.
Sears is ranked No. 2, behind Lowe’s, on TWICE’s Top 50 Major Appliance Retailers Report (see p. 13.).
Looking ahead, Sears sees an opportunity in better-leveraging its industry-leading service and installation arm, which completed more than 12 million calls last year. Despite the volume, “We believe that there is an opportunity for us to improve our service levels and response times to better serve our members,” Schriesheim said. “We are devoting significant resources to ensure that we have the right people, processes and technology in place to deliver these improvements.”
Net sales for the quarter fell 25 percent to $5.9 billion due to store closures, the uncoupling of the Sears Canada and Lands’ End businesses, and the declining comps, the company said.