Sears Holdings: It's All About Brands, Not Stores

Why does Wall St. want Sears Holdings (SHLD) Eddie Lampert to buy more stores? Doesn't he have enough already? Aren't they always saying that mergers never work? If that is true, why are shareholders wanting a big one and why are they disappointed he is trying to buy a small specialty retailer?

Two news item shed light into what Lampert is doing, and no, it does not include the purchase of Circuit City (CC), Home Depot (HD) or even the oft speculated about Macy's (M) .

First: The New Retail Concept In Georgia (this location was a former Kmart).

Next, Another Brand:

Sears Holdings take a 13% stake in Restoration Hardware and is looking at acquiring entire operation.

Now, if you are going to build a nationwide operation of these stores, what do you need? BRANDS. Lampert already has about 3,5000 locations is both the US and Canada. Why would he need to buy another retailer and adopt more locations?

Think about it. What is the most expensive thing a growing retailer experiences? Building new locations. Just ask Target (TGT), they are begging Lampert to sell them hundreds of his prime locations because it is cheaper than building them. More space is not what Lampert needs.

What is Lampert going to do? Smaller acquisition of brands that he can then plug into the new concept. Worst case scenario with the Restoration Hardware deal if it goes through, they close up its "back of the house" operations and sell the products through the Land's End catalog and stores and it is still a winner for him. One good thing about a successful mail order business, no matter who owns it, it makes money. Land's End, who has years of success here can only make it better.

So, if we go with the Brands thesis, what do we look for? Women. Sears has men with Craftsmen and Kenmore. How about going after Victoria's Secret or Bath & BodyWorks from the struggling Limited Brands (LTD)? Either would bring women into Sears for their products and traffic is what Lampert needs and has been shedding assets.

Alternatively, buy the whole company currently valued at $6.5 billion and then sell off the unwanted pieces to help pay for it. Maybe for just over a billion dollars he could go for Carter's (CTI) and create a top notch children's "store in a store". Any mother knows Carter's makes some of the best children's clothing out there.

Either way, next week's earnings announcement will be a fun one.

Comments

[pieomike]

I agree with your line of thinking. I remember looking at the Sears furniture section a while ago and Im not sure of the brand they carry but it is like the quality of furniture you would find at WMT. Having a specialty retailer like RSTO will help bring a lot of those catalog shoppers into the stores for convience. Dont have what you want? Order it at the store and have it delivered or pick it up at your local Sears. I think the store inside a store concept will work well and picking up more specialty brands is key. If you can get one person in the store for a certain type of specialty item, they will most likely browse the rest of the store and buy other things while they are there. Each brand brings a different demographic of buyer and exposes them to other brands they may not have went to Sears to buy in the first place.