Should Sears sell its exclusive brands everywhere? ~ Brand Mix

Friday, March 14, 2008

Should Sears sell its exclusive brands everywhere?

Edward Lampert, Chairman of Sears Holdings, is thinking about whether to start selling Sears' proprietary brands such as Diehard, Craftsman and Kenmore through other retail outlets. In his annual letter to shareholders he floated this idea, something that's been discussed for years but always rejected because of the anticipated impact on sales at Sears stores.

This time around it looks like it really might happen. Sears just reorganized and created a new business unit dedicated solely to these brands. And, last year, in a highly innovative financial move, Sears created $1.8 billion of securities based on their strength and brand equity.

This is certainly a "zag" when everyone else is zigging. Most retailers have been working hard in recent years to introduce proprietary brands or at least spruce up their Private Label offerings. Their thinking has been that they need to differentiate what's sold in their stores to increase store loyalty and make sure it's not all about price.

So, is Lampert crazy or smart?

Smart:
1) Sears needs the revenue: Its 4th quarter earnings report showed a 48% fall in profits from accelerating sales declines. No doubt that selling these strong brands in other outlets would increase sales.
2) These brands are not living up to their potential: Craftsman, Kenmore and DieHard are all stronger brands than Sears itself (Source: Brand Asset Valuator) and they are held back by their limited distribution. Lampert points out in his letter that Diehard has great consumer recognition but "lags dramatically" in market share.
3) Selling these brands outside Sears could give them a dose of healthy competition: Sheltered within the walls of Sears, it's likely that these brands, strong as they are, are not fully optimized. Exposing them to open competition could force them to be both more innovative and more efficient.
4) Sears itself would have to shape up: Sears would no longer be able to depend on these brands for a good part of its sales and revenue. It would have to radically improve to survive.

Crazy:
1) It could kill the Sears stores: This is the reason it has never been done before. These strong brands are magnets for store traffic pulling consumers in who otherwise would have no reason to go.
2) It would weaken the Sears brand: These strong, exclusive brands help differentiate Sears from its competitors.
3) Selling to other retailers is not a core competency: Sears has no experience selling products outside of its stores. It would need to find people comfortable sitting in, for example, the Bentonville sales cell block pitching its products. The boot would very much be on the other foot.
4) Potential margin decline: To gain distribution and be competitive in side-by-side shopping, there could be price pressure that would result in a margin decline.

I started writing this post with the intention of being strongly against this idea of selling the brands outside Sears. But, now I'm done with my list, I'm not so sure. It certainly could be a killer for the Sears stores themselves but maybe it would be just the jolt they need to shape up. Meanwhile, these strong product brands would certainly have the chance to become true national powerhouses.

Now, I don't know. What do you think?

Links:
1) Letter to shareholders: Edward Lampert, Sears Holdings
2) Sears considers selling signature brands in other venues: Chicago Tribune
3) The New Alchemy at Sears: BusinessWeek
4) Brand Asset Valuator: Description

2 comments:

Chris Wilson said...

Martin,

Sears is a company that always seems to struggle keeping their focus. They have these great brands under their belt, but insist on watering them down by selling everything under the sun as well. I feel this is a big reason that the Sears brand isn't as strong as it could be. Consumers don't know what they stand for anymore.

Selling the Craftsman, Kenmore and DieHard brands in other outlets will give the brands a chance to live up to their potential, but I believe it may be the last nail in the coffin for Sears.

These are the brands that are holding Sears together. Even if the brands are watered down by Sears' "everything under the sun approach," they are still some of the key brands consumers think of when they think Sears. You take that away and what is Sears left with?

I would take a different approach. Instead of thinking they need to expand and reach a bigger audience in more outlets, why not cut back? Get rid of the softer side of Sears. Who really wants to buy their bathroom towels, lingerie, and power tools all in the same place? They would be giving their big brands room to grow, and clarifying what Sears is all about.

Martin Bishop said...

I think the key is whether selling these brands in other outlets is just an opportunistic move. If it is, it's likely to fail and kill off the Sears stores. If there's a strategic vision, perhaps not.

Certainly, a viable alternative is the one you outline - try and make Sears itself more distinctive and stand for something, built around the power of these brands.

 
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