SHLDQ - Sears Holdings Corp

[Luke 532]

I suspect that it is two different arms of Blackstone. The hedge fund arm and the private equity arm.

 

In any case, I hope ESL sells off Sears Auto & Sears Canada soon.

 

Oh I completely agree.  But I would imagine the separate divisions might be sharing info and/or strategy for possibly pursuing some/all of SHLD's auto.

[moody202]

Anybody else read the July 18th edition of The Kiplinger Letter?  The piece discussing car shopping in malls is interesting, especially given Lampert's recent meeting with Mulally.

 

Ford has a very strong dealer body, will be very hard for them to go against them and put cars in Sears stores. Just look at what Tesla is going through and they don't even have dealers of their own!

[adesigar]

Personal anecdote

 

Im a SHLD bull. I have a large portion of my Stock holdings in SHLD (25%-30%). My Bull case is a Jockey with Real Estate downside protection. Ive been inside stores to look around see the changes etc. I have never shopped at Sears/Kmart either instore or online. Online I usually shop at Amazon 41 orders in the last 6 months. Love Amazon, got Prime, use Kindle and Kindle Fire etc etc etc.

 

1. I was looking to buy a Wii U for the kids (including its-a-me). Sears had a special deal where they gave $40 (40,000) points with purchase of Wii U. Sears had it for the same price as Walmart, cheaper than Target by a couple of dollars, Amazon only had 3rd party sellers and it was more expensive at Amazon. So I went with Sears got the $40 in points.

 

2. Im looking to buy a baby playmat and nursery decorations. I would never have looked at Sears before but since I had points, I looked at Sears. Playmat was cheaper than Amazon, Nursery decorations were same price. Bought at Sears, have more points.

 

3. Then wanted to get Headphones. Usually I would go straight to Amazon but since I have points I again compare with Amazon. Select 2 headphones to buy, both are cheaper at Sears. Another sale for Sears over Amazon.

 

4. Based on browsing and purchase I get and email for Wii U games and Wii U games preorder. Im interested and Kmart has better prices than WMT or AMZN on the preorder and will match WMT prices (which match Amazon) for current games. Because of points Kmart works out cheaper so im planning to buy from Kmart instead of AMZN, WMT or GameStop.

 

So because of 1 purchase im now a recurring SHLD customer. I also had a good experience with Customer Service and they had fast Delivery. I doubt SHLD made any money my purchases, maybe they broke even.  But after this I will definitely be checking out SHLD prices before buying. Maybe there is something to the retail and Shop Your Way story after all.

 

 

[peridotcapital]

Personal anecdote

 

Im a SHLD bull. I have a large portion of my Stock holdings in SHLD (25%-30%). My Bull case is a Jockey with Real Estate downside protection. Ive been inside stores to look around see the changes etc. I have never shopped at Sears/Kmart either instore or online. Online I usually shop at Amazon 41 orders in the last 6 months. Love Amazon, got Prime, use Kindle and Kindle Fire etc etc etc.

 

1. I was looking to buy a Wii U for the kids (including its-a-me). Sears had a special deal where they gave $40 (40,000) points with purchase of Wii U. Sears had it for the same price as Walmart, cheaper than Target by a couple of dollars, Amazon only had 3rd party sellers and it was more expensive at Amazon. So I went with Sears got the $40 in points.

 

2. Im looking to buy a baby playmat and nursery decorations. I would never have looked at Sears before but since I had points, I looked at Sears. Playmat was cheaper than Amazon, Nursery decorations were same price. Bought at Sears, have more points.

 

3. Then wanted to get Headphones. Usually I would go straight to Amazon but since I have points I again compare with Amazon. Select 2 headphones to buy, both are cheaper at Sears. Another sale for Sears over Amazon.

 

4. Based on browsing and purchase I get and email for Wii U games and Wii U games preorder. Im interested and Kmart has better prices than WMT or AMZN on the preorder and will match WMT prices (which match Amazon) for current games. Because of points Kmart works out cheaper so im planning to buy from Kmart instead of AMZN, WMT or GameStop.

 

So because of 1 purchase im now a recurring SHLD customer. I also had a good experience with Customer Service and they had fast Delivery. I doubt SHLD made any money my purchases, maybe they broke even.  But after this I will definitely be checking out SHLD prices before buying. Maybe there is something to the retail and Shop Your Way story after all.

 

You nailed it at the end. They didn't make money on your purchases. As Eddie has stated before, they have a profit problem, not a sales problem. Let's assume they stabilize comps based on SYW in the not-too-distant future (amazingly, the last time Kmart and Sears had flat or positive comps in the same quarter was Q1 2010). The main reason you made those purchases was price. SHLD can't profitably compete on price with WMT, TGT, or AMZN. They are smaller and have less pricing power from suppliers. As the business continues to shrink, their wholesale pricing terms will only get worse. They need margin improvement, not transaction improvement. If they try to compete with WMT, AMZN, and TGT on price they will lose. It's why KMRT went bankrupt and why one of the first things Eddie did after they emerged was raise prices on their WMT-price-matched loss leaders (like DVDs), because they could not afford it.

 

I really don't see a path to retail success. The most likely "best case" scenario for the bulls, in my view, is that Eddie can get the retail side to free cash flow breakeven. That would allow the vast real estate monetization to continue and equity holders would start to benefit more from it, since that leasing income will not go right out the other end of the company. Then you will be able to see intrinsic value stabilize and start to go up because the slow managed retail business liquidation will fully cover annual interest expense, pension costs, and capital expenditures.

[Luke 532]

Study Finds Physical Stores Paramount in Driving Retail Sales Across All Channels

http://nreionline.com/retail/study-finds-physical-stores-paramount-driving-retail-sales-across-all-channels?NL=RET-01&Issue=RET-01_20140724_RET-01_405&YM_RID=larson777@gmail.com&YM_MID=1478418&sfvc4enews=42&cl=article_1

 

 

[BTShine]

Personal anecdote

 

Im a SHLD bull. I have a large portion of my Stock holdings in SHLD (25%-30%). My Bull case is a Jockey with Real Estate downside protection. Ive been inside stores to look around see the changes etc. I have never shopped at Sears/Kmart either instore or online. Online I usually shop at Amazon 41 orders in the last 6 months. Love Amazon, got Prime, use Kindle and Kindle Fire etc etc etc.

 

1. I was looking to buy a Wii U for the kids (including its-a-me). Sears had a special deal where they gave $40 (40,000) points with purchase of Wii U. Sears had it for the same price as Walmart, cheaper than Target by a couple of dollars, Amazon only had 3rd party sellers and it was more expensive at Amazon. So I went with Sears got the $40 in points.

 

2. Im looking to buy a baby playmat and nursery decorations. I would never have looked at Sears before but since I had points, I looked at Sears. Playmat was cheaper than Amazon, Nursery decorations were same price. Bought at Sears, have more points.

 

3. Then wanted to get Headphones. Usually I would go straight to Amazon but since I have points I again compare with Amazon. Select 2 headphones to buy, both are cheaper at Sears. Another sale for Sears over Amazon.

 

4. Based on browsing and purchase I get and email for Wii U games and Wii U games preorder. Im interested and Kmart has better prices than WMT or AMZN on the preorder and will match WMT prices (which match Amazon) for current games. Because of points Kmart works out cheaper so im planning to buy from Kmart instead of AMZN, WMT or GameStop.

 

So because of 1 purchase im now a recurring SHLD customer. I also had a good experience with Customer Service and they had fast Delivery. I doubt SHLD made any money my purchases, maybe they broke even.  But after this I will definitely be checking out SHLD prices before buying. Maybe there is something to the retail and Shop Your Way story after all.

 

You nailed it at the end. They didn't make money on your purchases. As Eddie has stated before, they have a profit problem, not a sales problem. Let's assume they stabilize comps based on SYW in the not-too-distant future (amazingly, the last time Kmart and Sears had flat or positive comps in the same quarter was Q1 2010). The main reason you made those purchases was price. SHLD can't profitably compete on price with WMT, TGT, or AMZN. They are smaller and have less pricing power from suppliers. As the business continues to shrink, their wholesale pricing terms will only get worse. They need margin improvement, not transaction improvement. If they try to compete with WMT, AMZN, and TGT on price they will lose. It's why KMRT went bankrupt and why one of the first things Eddie did after they emerged was raise prices on their WMT-price-matched loss leaders (like DVDs), because they could not afford it.

 

I really don't see a path to retail success. The most likely "best case" scenario for the bulls, in my view, is that Eddie can get the retail side to free cash flow breakeven. That would allow the vast real estate monetization to continue and equity holders would start to benefit more from it, since that leasing income will not go right out the other end of the company. Then you will be able to see intrinsic value stabilize and start to go up because the slow managed retail business liquidation will fully cover annual interest expense, pension costs, and capital expenditures.

 

In the future it might not take that full $40 in SYW points to win his business.  It might only take $20 in points next time.  That could create margin.

 

Also, SHLD might be able to grow revenue via profitless sales.  Amazon doesn't make much profit, but is deemed to be very valuable in the marketplace due to their large and growing revenues.  I think Eddie is now more willing to use loss-leaders at Sears/Kmart because they have ShopYourWay points to keep customers engaged with the company.  SYWR Points create a sticky relationship with customers....they send out an email that reminds you of the points you have, and sometimes notifying customers how the points are due to expire, which prompts customers to shop at Sears/Kmart.  Note how a newspaper flyer, billboard or TV commercial weren't needed to get this sale.  Those costs will be reduced going forward.

 

 

 

 

[BTShine]

Study Finds Physical Stores Paramount in Driving Retail Sales Across All Channels

http://nreionline.com/retail/study-finds-physical-stores-paramount-driving-retail-sales-across-all-channels?NL=RET-01&Issue=RET-01_20140724_RET-01_405&YM_RID=larson777@gmail.com&YM_MID=1478418&sfvc4enews=42&cl=article_1

 

 

Very interesting article, Luke!

 

I'm not sold on the idea that malls will disappear and the internet will take over all retail sales.

[adesigar]

Personal anecdote

 

Im a SHLD bull. I have a large portion of my Stock holdings in SHLD (25%-30%). My Bull case is a Jockey with Real Estate downside protection. Ive been inside stores to look around see the changes etc. I have never shopped at Sears/Kmart either instore or online. Online I usually shop at Amazon 41 orders in the last 6 months. Love Amazon, got Prime, use Kindle and Kindle Fire etc etc etc.

 

1. I was looking to buy a Wii U for the kids (including its-a-me). Sears had a special deal where they gave $40 (40,000) points with purchase of Wii U. Sears had it for the same price as Walmart, cheaper than Target by a couple of dollars, Amazon only had 3rd party sellers and it was more expensive at Amazon. So I went with Sears got the $40 in points.

 

2. Im looking to buy a baby playmat and nursery decorations. I would never have looked at Sears before but since I had points, I looked at Sears. Playmat was cheaper than Amazon, Nursery decorations were same price. Bought at Sears, have more points.

 

3. Then wanted to get Headphones. Usually I would go straight to Amazon but since I have points I again compare with Amazon. Select 2 headphones to buy, both are cheaper at Sears. Another sale for Sears over Amazon.

 

4. Based on browsing and purchase I get and email for Wii U games and Wii U games preorder. Im interested and Kmart has better prices than WMT or AMZN on the preorder and will match WMT prices (which match Amazon) for current games. Because of points Kmart works out cheaper so im planning to buy from Kmart instead of AMZN, WMT or GameStop.

 

So because of 1 purchase im now a recurring SHLD customer. I also had a good experience with Customer Service and they had fast Delivery. I doubt SHLD made any money my purchases, maybe they broke even.  But after this I will definitely be checking out SHLD prices before buying. Maybe there is something to the retail and Shop Your Way story after all.

 

You nailed it at the end. They didn't make money on your purchases. As Eddie has stated before, they have a profit problem, not a sales problem. Let's assume they stabilize comps based on SYW in the not-too-distant future (amazingly, the last time Kmart and Sears had flat or positive comps in the same quarter was Q1 2010). The main reason you made those purchases was price. SHLD can't profitably compete on price with WMT, TGT, or AMZN. They are smaller and have less pricing power from suppliers. As the business continues to shrink, their wholesale pricing terms will only get worse. They need margin improvement, not transaction improvement. If they try to compete with WMT, AMZN, and TGT on price they will lose. It's why KMRT went bankrupt and why one of the first things Eddie did after they emerged was raise prices on their WMT-price-matched loss leaders (like DVDs), because they could not afford it.

 

I really don't see a path to retail success. The most likely "best case" scenario for the bulls, in my view, is that Eddie can get the retail side to free cash flow breakeven. That would allow the vast real estate monetization to continue and equity holders would start to benefit more from it, since that leasing income will not go right out the other end of the company. Then you will be able to see intrinsic value stabilize and start to go up because the slow managed retail business liquidation will fully cover annual interest expense, pension costs, and capital expenditures.

 

You would think they cant compete on price but I saw quite a few items where right above the price they mention "Lower than Amazon".  They need more sales to increase pricing power with their suppliers. Personally I found the site to be better than WMT and TGT but not as good as AMZN. One more thing is all the sales were done by bringing me in and retaining my attention through points. There was no conventional advertising (newspaper, tv, magazines, online ads).

[adesigar]

In the future it might not take that full $40 in SYW points to win his business.  It might only take $20 in points next time.  That could create margin.

 

Also, SHLD might be able to grow revenue via profitless sales.  Amazon doesn't make much profit, but is deemed to be very valuable in the marketplace due to their large and growing revenues.  I think Eddie is now more willing to use loss-leaders at Sears/Kmart because they have ShopYourWay points to keep customers engaged with the company.  SYWR Points create a sticky relationship with customers....they send out an email that reminds you of the points you have, and sometimes notifying customers how the points are due to expire, which prompts customers to shop at Sears/Kmart.  Note how a newspaper flyer, billboard or TV commercial weren't needed to get this sale.  Those costs will be reduced going forward.

 

It wont take $40 anymore. I don't think Ill be switching most of my purchases from AMZN to SHLD anytime soon but I will compare AMZN prices with SHLD and some business will definitely move over. You're right it was all about points and pricing and no advertising was involved.

[peridotcapital]

 

In the future it might not take that full $40 in SYW points to win his business.  It might only take $20 in points next time.  That could create margin.

 

Also, SHLD might be able to grow revenue via profitless sales.  Amazon doesn't make much profit, but is deemed to be very valuable in the marketplace due to their large and growing revenues.  I think Eddie is now more willing to use loss-leaders at Sears/Kmart because they have ShopYourWay points to keep customers engaged with the company.  SYWR Points create a sticky relationship with customers....they send out an email that reminds you of the points you have, and sometimes notifying customers how the points are due to expire, which prompts customers to shop at Sears/Kmart.  Note how a newspaper flyer, billboard or TV commercial weren't needed to get this sale.  Those costs will be reduced going forward.

 

The theory is perfectly rational, but the bottom line is that it isn't working. They have layered in another form of promotional spend in the form of digital rewards, with no results. As Eddie loves to tell us, 70% of sales come from SYW members. And yet comps have not budged... they're still negative. If the strategy was working, then at the very least "profitless" sales would be improving. Will that all of the sudden change when they get to 80% or 90% SYW penetration? No reason to think the late-comers would be any more loyal (in fact, you would expect the most loyal customers to be among the early adopters of SYW).

 

 

[BTShine]

 

In the future it might not take that full $40 in SYW points to win his business.  It might only take $20 in points next time.  That could create margin.

 

Also, SHLD might be able to grow revenue via profitless sales.  Amazon doesn't make much profit, but is deemed to be very valuable in the marketplace due to their large and growing revenues.  I think Eddie is now more willing to use loss-leaders at Sears/Kmart because they have ShopYourWay points to keep customers engaged with the company.  SYWR Points create a sticky relationship with customers....they send out an email that reminds you of the points you have, and sometimes notifying customers how the points are due to expire, which prompts customers to shop at Sears/Kmart.  Note how a newspaper flyer, billboard or TV commercial weren't needed to get this sale.  Those costs will be reduced going forward.

 

The theory is perfectly rational, but the bottom line is that it isn't working. They have layered in another form of promotional spend in the form of digital rewards, with no results. As Eddie loves to tell us, 70% of sales come from SYW members. And yet comps have not budged... they're still negative. If the strategy was working, then at the very least "profitless" sales would be improving. Will that all of the sudden change when they get to 80% or 90% SYW penetration? No reason to think the late-comers would be any more loyal (in fact, you would expect the most loyal customers to be among the early adopters of SYW).

 

It isn't showing up in their posted earnings numbers yet, but that doesn't mean it isn't working.  We are still in the early innings of the SYWR story and time will tell if it works, or not.

[Kraven]

 

In the future it might not take that full $40 in SYW points to win his business.  It might only take $20 in points next time.  That could create margin.

 

Also, SHLD might be able to grow revenue via profitless sales.  Amazon doesn't make much profit, but is deemed to be very valuable in the marketplace due to their large and growing revenues.  I think Eddie is now more willing to use loss-leaders at Sears/Kmart because they have ShopYourWay points to keep customers engaged with the company.  SYWR Points create a sticky relationship with customers....they send out an email that reminds you of the points you have, and sometimes notifying customers how the points are due to expire, which prompts customers to shop at Sears/Kmart.  Note how a newspaper flyer, billboard or TV commercial weren't needed to get this sale.  Those costs will be reduced going forward.

 

The theory is perfectly rational, but the bottom line is that it isn't working. They have layered in another form of promotional spend in the form of digital rewards, with no results. As Eddie loves to tell us, 70% of sales come from SYW members. And yet comps have not budged... they're still negative. If the strategy was working, then at the very least "profitless" sales would be improving. Will that all of the sudden change when they get to 80% or 90% SYW penetration? No reason to think the late-comers would be any more loyal (in fact, you would expect the most loyal customers to be among the early adopters of SYW).

 

It isn't showing up in their posted earnings numbers yet, but that doesn't mean it isn't working.  We are still in the early innings of the SYWR story and time will tell if it works, or not.

 

I suspect that they will have their share of losses, but will make it up on volume.

[merkhet]

The theory is perfectly rational, but the bottom line is that it isn't working. They have layered in another form of promotional spend in the form of digital rewards, with no results. As Eddie loves to tell us, 70% of sales come from SYW members. And yet comps have not budged... they're still negative. If the strategy was working, then at the very least "profitless" sales would be improving. Will that all of the sudden change when they get to 80% or 90% SYW penetration? No reason to think the late-comers would be any more loyal (in fact, you would expect the most loyal customers to be among the early adopters of SYW).

 

That's over/understating it a little. Comps have, in fact, budged. Sears Domestic comped up last quarter. Kmart Domestic comped down 2.2% and looks to me like they might be arresting the fall given that the Kmart comp year-over-year was down over 4%.

 

Someone mentioned margins being important. The 1Q presentation indicated something about how they expect margin improvement as points earned in 1Q get spent over the following quarters. Perhaps they are starting to scale back the points a bit.

 

And, again, let's not forget that they spent $1.5 billion on advertising last year. There's probably significant room for margin improvement by cutting the advertising.

[BTShine]

The theory is perfectly rational, but the bottom line is that it isn't working. They have layered in another form of promotional spend in the form of digital rewards, with no results. As Eddie loves to tell us, 70% of sales come from SYW members. And yet comps have not budged... they're still negative. If the strategy was working, then at the very least "profitless" sales would be improving. Will that all of the sudden change when they get to 80% or 90% SYW penetration? No reason to think the late-comers would be any more loyal (in fact, you would expect the most loyal customers to be among the early adopters of SYW).

 

That's over/understating it a little. Comps have, in fact, budged. Sears Domestic comped up last quarter. Kmart Domestic comped down 2.2% and looks to me like they might be arresting the fall given that the Kmart comp year-over-year was down over 4%.

 

Someone mentioned margins being important. The 1Q presentation indicated something about how they expect margin improvement as points earned in 1Q get spent over the following quarters. Perhaps they are starting to scale back the points a bit.

 

And, again, let's not forget that they spent $1.5 billion on advertising last year. There's probably significant room for margin improvement by cutting the advertising.

 

Merkhet,

 

Well said.

 

Cheers!

[coc]

And, again, let's not forget that they spent $1.5 billion on advertising last year. There's probably significant room for margin improvement by cutting the advertising.

 

Without impacting sales volume?

[Guest wellmont]

The theory is perfectly rational, but the bottom line is that it isn't working. They have layered in another form of promotional spend in the form of digital rewards, with no results. As Eddie loves to tell us, 70% of sales come from SYW members. And yet comps have not budged... they're still negative. If the strategy was working, then at the very least "profitless" sales would be improving. Will that all of the sudden change when they get to 80% or 90% SYW penetration? No reason to think the late-comers would be any more loyal (in fact, you would expect the most loyal customers to be among the early adopters of SYW).

 

That's over/understating it a little. Comps have, in fact, budged. Sears Domestic comped up last quarter. Kmart Domestic comped down 2.2% and looks to me like they might be arresting the fall given that the Kmart comp year-over-year was down over 4%.

 

Someone mentioned margins being important. The 1Q presentation indicated something about how they expect margin improvement as points earned in 1Q get spent over the following quarters. Perhaps they are starting to scale back the points a bit.

 

And, again, let's not forget that they spent $1.5 billion on advertising last year. There's probably significant room for margin improvement by cutting the advertising.

 

I don't think it works that way. I don't believe you can magically cut advertising costs and maintain the same volume of sales. not for sears/kmart anyway. if you could eddie would have tried it already. after all we are a decade into this "turnarund".

[peridotcapital]

The theory is perfectly rational, but the bottom line is that it isn't working. They have layered in another form of promotional spend in the form of digital rewards, with no results. As Eddie loves to tell us, 70% of sales come from SYW members. And yet comps have not budged... they're still negative. If the strategy was working, then at the very least "profitless" sales would be improving. Will that all of the sudden change when they get to 80% or 90% SYW penetration? No reason to think the late-comers would be any more loyal (in fact, you would expect the most loyal customers to be among the early adopters of SYW).

 

That's over/understating it a little. Comps have, in fact, budged. Sears Domestic comped up last quarter. Kmart Domestic comped down 2.2% and looks to me like they might be arresting the fall given that the Kmart comp year-over-year was down over 4%.

 

Someone mentioned margins being important. The 1Q presentation indicated something about how they expect margin improvement as points earned in 1Q get spent over the following quarters. Perhaps they are starting to scale back the points a bit.

 

And, again, let's not forget that they spent $1.5 billion on advertising last year. There's probably significant room for margin improvement by cutting the advertising.

 

I'm looking at the trend, not just one quarter. You could point to Q1 2014 Sears Domestic comps being up 0.2%, but then I would counter that Q4 2013 was down 7.8% and Q3 2013 was down 4.0%. One data point doesn't tell us much.

 

Speaking of trends, attached is a chart I keep updated... it shows quarterly comps (going back 4 years). Looking at that data can you tell when SYW started? How about when it was being ratcheted up? It's hard to look at that and say SYW is working. I say comps "haven't budged" because the data suggest they have not thus far. If we get multiple quarters of positive comps and we can start to see a trend, then I'll buy into the premise that it's working. And then we can also graph margins in the same way to measure whether SYW is helping them solve their "profit problem."

[merkhet]

There's a Freakonomics podcast about reducing advertisement not impacting sales from a few months ago. I may even have written about it here but yes, it's possible to decrease advertising without affecting sales.

 

And wellmont, we are not 10 years into the turnaround. We are three years. SYW wasn't here ten years ago...

[merkhet]

The theory is perfectly rational, but the bottom line is that it isn't working. They have layered in another form of promotional spend in the form of digital rewards, with no results. As Eddie loves to tell us, 70% of sales come from SYW members. And yet comps have not budged... they're still negative. If the strategy was working, then at the very least "profitless" sales would be improving. Will that all of the sudden change when they get to 80% or 90% SYW penetration? No reason to think the late-comers would be any more loyal (in fact, you would expect the most loyal customers to be among the early adopters of SYW).

 

That's over/understating it a little. Comps have, in fact, budged. Sears Domestic comped up last quarter. Kmart Domestic comped down 2.2% and looks to me like they might be arresting the fall given that the Kmart comp year-over-year was down over 4%.

 

Someone mentioned margins being important. The 1Q presentation indicated something about how they expect margin improvement as points earned in 1Q get spent over the following quarters. Perhaps they are starting to scale back the points a bit.

 

And, again, let's not forget that they spent $1.5 billion on advertising last year. There's probably significant room for margin improvement by cutting the advertising.

 

I'm looking at the trend, not just one quarter. You could point to Q1 2014 Sears Domestic comps being up 0.2%, but then I would counter that Q4 2013 was down 7.8% and Q3 2013 was down 4.0%. One data point doesn't tell us much.

 

Speaking of trends, attached is a chart I keep updated... it shows quarterly comps (going back 4 years). Looking at that data can you tell when SYW started? How about when it was being ratcheted up? It's hard to look at that and say SYW is working. I say comps "haven't budged" because the data suggest they have not thus far. If we get multiple quarters of positive comps and we can start to see a trend, then I'll buy into the premise that it's working. And then we can also graph margins in the same way to measure whether SYW is helping them solve their "profit problem."

 

The problem I have with your chart is that it doesn't take into account the fact that closing stores are going to comp down significantly as they don't re-stock. You can't sell what you don't have.

 

The reason I put some weight on Sears Domestic's Q1 is that other stores (WMT) comped down during the same time.

 

We will have to revisit this in a year, but I suspect that we are at an inflection point.

[Scudbucket]

FWIW, I started hearing SYW radio ads within the past couple of weeks.  It's during the work commute, too.

[Luke 532]

Lampert unloads 560,000+ shares of AutoNation from 7/22-7/24: http://www.sec.gov/Archives/edgar/data/350698/000118143114027362/xslF345X03/rrd413497.xml

[Luke 532]

FWIW, I started hearing SYW radio ads within the past couple of weeks.  It's during the work commute, too.

 

What major market do you live in/near?

[BTShine]

And, again, let's not forget that they spent $1.5 billion on advertising last year. There's probably significant room for margin improvement by cutting the advertising.

 

Without impacting sales volume?

 

Yeah. It's possible.  Amazon.com and Costco both use a member type system that allows each to advertise much less (per revenue dollar) than other retailers. 

 

Sears' ad spend at $1.5 Billion of ~$30 Billion in sales is 5% of revenue.  I'll put other numbers below.

 

JCP's Ad expenses in 2013, 2012 and 2011 were $919 million, $933 million and $1,039 million, respectively.

JCP revenues are ~ $13 Billion.

Ad Expenses ~ 7.5% of sales

 

Kohl's Ad expenses in 2013, 2012 and 2011 were  $1,013  $993  $962.

KSS revenues are ~ $20 Billion

Ad Expenses ~5% of Sales

 

TJX said "Advertising expense was $333.5 million for fiscal 2014, $298.6 million for fiscal 2013 and $271.6 million for fiscal 2012."

TJS revenues are ~$28 Billion

Ad Expenses ~1% of sales

 

Target  Advertising expenses in 2013, 2012, 2011  $1,668  $1,422  $1,360

TGT revenues are $72 Billion

Ad Expenses ~2.4% of sales

 

Costco Ad expenses are not given.  My guess is they are very low like TJX or lower.

Estimate of 1%.

 

Amazon said "Advertising and other promotional costs ... were $2.4 billion, $2.0 billion, and $1.4 billion in 2013, 2012, and 2011.

Amazon revenues were ~$75 Billion.

Ad Expenses ~3.33% of sales.    (Noteworth is that AMZN is not purely a retailer anymore...Kindle, Web Services (cloud) etc. are large divisions of AMZN, too).

 

Overstock.com lists it's ad expenses as 7% of sales in 2013.  5.8% in 2012.

 

Bonton Stores said Ad Expenses in 2013, 2012 and 2011 were $128 million , $129 million and $145 million, respectively.

BONT revenues were ~$2.9 Billion in each year.

Ad expense ~4.5% of sales.

 

Walmart - I could not easily find this info in WMT's 10-K.

 

As we can see, the retailers known to be most profitable (TGT, COST, TJX, etc.) also have the lowest ad spend as a % of revenue.  Higher ad spend as % of sales does not equal higher profits.

[peridotcapital]

As we can see, the retailers known to be most profitable (TGT, COST, TJX, etc.) also have the lowest ad spend as a % of revenue.  Higher ad spend as % of sales does not equal higher profits.

 

We aren't talking about ad spending as a % of sales, or relative to profit margins. We are saying that, all else unchanged, if you cut advertising spending you will see lower sales volumes. Or said another way, advertising has at least some impact on sales volumes. It is naive to imply that Sears could take advertising from $1.5B to $1.0B annually and see no impact on sales. The question of course, is what the impact would be relative to the reduced expense. To find that out you have to test things out.

[BTShine]

As we can see, the retailers known to be most profitable (TGT, COST, TJX, etc.) also have the lowest ad spend as a % of revenue.  Higher ad spend as % of sales does not equal higher profits.

 

We aren't talking about ad spending as a % of sales, or relative to profit margins. We are saying that, all else unchanged, if you cut advertising spending you will see lower sales volumes. Or said another way, advertising has at least some impact on sales volumes. It is naive to imply that Sears could take advertising from $1.5B to $1.0B annually and see no impact on sales. The question of course, is what the impact would be relative to the reduced expense. To find that out you have to test things out.

 

Yeah, advertising has some impact on sales volume.  No disagreement there.  How much it impacts sales is unknown and debatable (such as people are debating here on CoBF). 

 

I'm pointing out that cutting ad expenses is not definitively a self destructing move for the company.  It might be self destructive, but it might not.  Maybe a 50% reduction in ad expenses reduces sales by only 5% or less...or maybe it's 10%+.  If it's 5%, equaling $1.5 Billion in revenue, then they'll see $375 million less in gross margin (bad) but will see $750 million less in ad expenses (good) totaling $375 million higher margin (or lower loss). 

 

Some theorize that SYW creates a stronger connection with customers, which would allow Sears to reduce traditional ad expense if the customers stick around regardless of ad spending ala TJC, COST, AMZN, etc.