Sears Holdings Corporation (Nasdaq: SHLD)

Sears Holdings Corporation (Nasdaq: SHLD), the parent company of Kmart Holding Corporation and Sears, Roebuck and Co., operates three segments: Kmart, Sears Domestic and Sears Canada. It is a broadline retailer with over 4000 full-line and specialty stores in the United States and Canada.

Take a look at its revenue in the recent years; I can see the financial status of this company is deteriorating to an extreme extent.

Take a look at the stock performance of this once glorious/famous company; the long-term investors are very upset now.

So what’s going on with this crippled giant retailer?

Firstly, I want to take a look at what is being said or defensed by the managing executives themselves?

“The retail industry is highly competitive and as such, Holdings faces significant challenges, including the current macroeconomic environment, as many of our product categories are impacted by the housing market and availability of credit to our customers. The retail industry is also rapidly evolving as retail is increasingly impacted by new technologies and social media. We believe that this evolution provides us with significant growth opportunities, if we are able to transform our portfolio of businesses by leveraging our existing store network with emerging technologies to develop lasting relationships with our customers. Over the past 12 months, we have worked hard to improve our stores, while also taking steps to reposition ourselves for retail in the 21st century.” – it seems that the management team is aware of the urgency to reposition Sears to avoid being erased in the intense competitive world.

But, being aware of the situation is not equal to figuring out the tactic to tackle the problem. What did they do to overcome the impaired condition?

They launched shop your way rewards program late in 2009, intending to transition itself from servicing customers to building relationships with members. They made online and mobile properties by improving website performance, multichannel capabilities, innovative mobile apps, developed social capabilities, campaigns on sites like Facebook and Twitter, intending to build on early learning to make social shopping more central to overall experiences.

Is this the right strategy? Where is the core competitive advantage of Sears?

I took a look at its peer – Kohl’s Corporation (KSS), who performed much better (sales grow at 4.2% per year verse industry’s -1.3% rate) than Sears to understand the different strategy adopted by their managements.

To my astonishment, the management considers style, quality and price to be the most significant competitive factors in the industry. Merchandise mix, service and convenience are also key competitive factors. The actions they mainly did are installing electronic signs and roll out in-store kiosks in stores. The kiosks allow customers to order items which are not available in the store and have them delivered to their home with no shipping costs.

My conclusion, the two management teams both try to be flexible and catch up with the market trend. However, Sears is too advanced to jump into internet/social media pool, which they don’t have any advantage, while Khol focused on enhancing their actual store experience with home delivery service which plays out their core advantage.

Recently, the firm is in such short of cash, and CIT announced to stop financing Sear’s suppliers, Sears is in big trouble, especially, this firm is at the same time shorted by the hedge funds, that their 6.625% Notes due 2018 traded at 76 with a yield of almost 12% now. It is very likely that Sears will file Chapter 11.

However, Edward S. Lampert, who controls under 60% of Sear’s shares recently added another $130 million of Sears stocks to his personal holdings, which signal the market that he has tremendous confidence of reversing Sears.

But how? They are running out of time, competition is fierce, chances are slim!

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