Sears' Lampert Rails But Eventually Makes a Retail Point

(MoneyWatch)  In his annual letter to Sears Holding investors and employees, Edward Lampert once again comes across more as a hedged fund manager than the chairman of a retail business, but he eventually makes an important point about the company's prospects.

Much of Lampert's missive is a scold of the federal government's financial crisis management. Of course, that has an impact on Sears, but it doesn't convey a lot of information about how the company is going to survive the consequences. Lampert complains that government intervention resulted in a loss of investor confidence in banks and insurance companies. He might have realized that, by devoting the first third of his letter to an analysis of financial industry developments, he wasn't doing a lot to boost the confidence of Sears Holding investors and employees who wonder about the conflict of interest issues inherent when the head of the ESL Investments hedge fund runs a business in which it is invested.

However, when he discusses the economy's impact on consumer credit at the close of the letter, he touches on an area that affects Sears directly in terms of purchase financing. Among Sears' most important assets are its well-regarded private labels, Kenmore and Craftsman. But many consumers need credit to buy the major appliances that Kenmore provides and to finance pricer tool purchases from the Craftsman line. Scarce credit can impact other important Sears businesses including fitness, electronics and lawn and garden because consumers can delay or scale back purchases if they lack cash. Of all Sears labels, DieHard may be the only one that feels a positive effect from the recession as consumers hold cars longer or purchase used because of credit shortfalls.

Overall, though, the situation bodes ill for Sears stores prospects over the next year. The company has banked more heavily on its private labels, which probably constitute its best foundation for a turn around. As current economic conditions make them less attainable for consumers, recent Sears initiatives, including its corporate reorganization, won't generate the hoped for return and the company will continue to slide.

On the bright side, Sears is taking some interesting steps to do what Deloitte economist Carl Steidtmann recommended when he spoke to the National Retail Federation convention in January. He told retailers that financial industry consolidation would hurt credit availability from traditional sources for several years and that retailers would have to take up the slack and act as their own banks.

Recently, Sears Holding revived layaway, first at Kmart and then at Sears. Lampert noted in his letter that layaway contributed additional sales for Sears and Kmart and helped to "deepen our relationships with our customers by providing unique services and solutions to address the financial challenges they are currently facing." One of which challenges is curtailment of credit as banks have been taking back charge cards or making them more costly to use.

Sears also has launched ServiceLive.com, an online marketplace where homeowners and businesses can name a price for contractor services and repairs, and, in so doing, get projects done within their means and without having to seek out new, perhaps nonexistent, credit sources.