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Why Kmart Is Rebounding but Customers Avoid Sears

Two venerable retail chains, both owned by the same company, Sears Holdings Corp. (SHLD). But Sears saw a stunning drop of more than 8 percent in its sales at its U.S. established stores, the company recently said -- a troubling piece of news coming right before the key holiday season. At sister company Kmart, on the other hand, sales were nearly flat.

Sears Holdings tried to blame unseasonably warm weather -- but of course that affects Kmart equally. So what's the real difference? Here are six reasons why Kmart is holding its own while Sears is struggling:

  • Nowhere to go but up for Kmart. Kmart has floundered so long that just stabilizing and seeing a tiny uptick in sales seems exciting. Kmart has a core blue-collar audience that seem to be sticking with the retailer now.
  • Different niche. Kmart is more downmarket than Sears. It basically competes head-on with Walmart (WMT) in terms of price and merchandise mix, and at this point most of its surviving stores serve neighborhoods without a nearby Walmart. By contrast, Sears goes head-to-head with multiple strong players including Macy's (M), Target (TGT) and Kohl's (KSS).
  • Problems at Sears Canada. Geographic diversification isn't helping Sears. Results in Canada were similar to those of Sears in the U.S. Analyst Keith Howlett at Desjardins Securities told The Globe and Mail competitors are "feasting" on Sears and taking away customers category by category, with little outlook for a turnaround. The assessment could apply to Sears as a whole.
  • Apparel struggles at Sears. This chain has tried mightily to get hipper in apparel, but keeps bungling its efforts, while rival JCPenney (JCP) just launched a hip online menswear store, Clad, and recently scored exclusives with Liz Claiborne.
  • Overreliance on the appliance dept. Sears' emphasis on big-ticket items such as kitchen appliances is hurting it as the downturn continues, the company said. Appliances that are selling have to be discounted and sell for less. Kmart doesn't carry these items, so its lower-priced merchandise is still moving.
  • Can't compete in consumer electronics. Sears also saw consumer electronics take a dive. It's simply been left in the dust by Best Buy (BBY) and online giants such as (AMZN) on this front.
In Canada, the Globe story speculated that the need to find more efficiency for Sears might drive a merger with a major competitor up north, such as Hudson's Bay. It could be a similar story after the holidays for Sears here at home, if the chain can't find a way to bring shoppers back.

Photo via Flickr user justj0000lie