Perrenial value trap Sears Holdings(SHLD) is the subject of an excellent article at Bloomberg Businessweek. After Eddie Lampert’s initial success buying Kmart bonds in bankruptcy, hoped were high that through its merger with Sears, he would be able to monetize undervalued real estate and invest the proceeds elsewhere. Aside from some muddling with credit default swaps several years ago, the only thing that Sears has bought has been its own stock, by the bucketful.
In the meantime, repeated attempts to revive profits at the retailer have been unsuccessful, with sales and profits falling each year as each new CEO’s strategy has failed. With the difficulties in the real estate market beginning in 2008, monetizing valuable real estate no longer seems a short term possibility. At long last, the company, under new CEO Lou D’Ambrosio, has embarked on a more ambitious and radical plan. D’Ambrosio has invested heavily in the company’s online offering which has shown impressive growth and is among the largest ecommerce sites. He has begun selling key Sears brands such as Die Hard, Kenmore and Craftsman in non-Sears stores. He has begun subletting real estate in stores to retailers such as Forever 21.
D’Ambrosio has also begun a major shift in the Sears strategy, moving away from larger stores and focusing on adding small footprint franchisees. To help with focus, the company announced plans to spin off Orchard Hardware Supply. While results won’t be seen overnight, this may be the last chance to stem the decline, and surely radical moves such as these are necessary. There is much to like in the new focus and direction; they may well move this from value trap to value realized.
Disclosure: The author owns shares in SHLD