Sears' "Unrecognizable" Future Could Be Fashion Outlets and the Internet

Last Updated May 7, 2010 6:10 AM EDT

Sometimes it's hard to divine what direction Sears Holdings (SHLD) puppetmaster Eddie Lampert is trying to take his struggling department stores Sears and Kmart. But a string of recent announcements, when viewed together, reveal a possible future path: Close all the full-line stores and just sell through the Internet and small outlet stores.

Evidence of this theory:

  • The real-estate play. It's been speculated since Lampert first smooshed the two struggling department-store brands into one company that the goal here is to become the next mega-conglomerate in the style of Berkshire Hathaway (BRK.A) by liquidating Sears' real estate and using the money to fund acquisitions. Recently, the company seemed to take a step in that direction by creating an online marketplace for liquidating Sears and Kmart stores. The site's name seems to indicate a new company division: SHC Real Estate. There's already 67 closed stores listed for sale.
  • The 'unrecognizable' speech. At Sears Holdings' annual meeting, Lampert crowed about the company's new initiatives in merchandise and services, saying, "Five years from now, I believe this company, to some people, will be unrecognizable compared to what the company was 20, 30, or 40 years ago." Well, if the department stores disappeared and Sears became primarily an online brand, that would be pretty unrecognizable, wouldn't it? And there's precedent for a major brand name going Internet-only -- check out CircuitCity.com, which was bought out of bankruptcy and reborn as a virtual store.
  • Lampert's love of the Internet. Speaking of the Web, Lampert is high on Sears Holdings' efforts online. They're the biggest department-store Web site in terms of traffic, and Sears.com has grown to 6 percent of sales. The company is extending its online presence with a product-Matchmaker service and mobile apps for buying from your phone.
  • Sears' first fashion outlet store. The final piece of the puzzle fell into place quietly at the end of last month: Sears opened its first-ever fashion outlet store, in a Georgia outlet mall. Now, the company has had a chain of appliance and furniture outlet stores for ages, but apparel? There is no mid- to low-priced department store with fashion outlets -- that's the province of upscale retailers (think Nordstrom Rack). Which raises the question of where Sears is going with this... if not to pioneer a new, smaller store format that might save the company a fortune on real estate and replace the current department-store model. Sears could leverage its current apparel relationships to make an outlet chain work, and feed closeouts from the Internet to the stores.
Put all these developments together and a picture forms: Lampert may have a vision of a cheaper way to run this company that would liberate billions he could spend elsewhere.

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  • Carol Tice

    Carol Tice is a longtime business reporter whose work has appeared in Entrepreneur, The Seattle Times, and Nation's Restaurant News, among others. Online sites she's written for include Allbusiness.com and Yahoo!Hotjobs. She blogs about the business of writing at Make a Living Writing.