Lampert's New Organizaton Adds More Confusion To Sears Retailing

Implications: Lampert's new efforts to revive Sears retailing is likely to mean lower sales, higher costs, and more employee turn over.  Here's why.

Analysis: Sears Holdings announced in January that it was reorganizing its business in to profit centers including “brands”, “retail” and “real estate”.  Now it appears Lampert has also decided to follow through on his scheme to create a ‘store in store’ structure for the retail segment of Sears Holdings.   

According to a press release, the company appointed John W. Froman as president of tools and lawn and garden operations.  The company also named Douglass Moore as svp and president of appliances.  Earlier the company appointed Kevin Holt as evp of store operations, while David McCreight remained president of Lands End.  

The question for investors is: Just how will this new organizational structure keep costs low, while driving top line sales?  Assuming he follows through and appoints a new president and CEO for Holdings, Lampert is adding a new layer of expensive executive management. 

It also raises questions about how the stores will be managed.  Historically, store managers had P & L responsibility for store operations, including execution, training, hiring, and staff coverage.  However, under the new structure, category presidents will have primary P & L responsibility for various categories including apparel, appliances, tools…etc.  If true, store managers will be reduced to little more than property caretakers.  Unfortunately, Lampert’s new ‘store in store’ structure is defacto a matrix organization which historically has been unsuccessful in practice, despite its intellectual elegance  

Notwithstanding the problems with the operating structure, the fact is there are few if any successful ‘store in store’ formats in operation today.  Granted, department stores continue to create boutiques for identifiable brands.  For instance Polo® is frequently a stand alone brand which is uniquely identified by dedicated space and brand identification in department stores. But in general, boutiques aren’t destinations in and of themselves.  

‘Store in store’ offers should be sufficiently robust to be destinations which historically hasn’t been the case for either Sear’s categories or proprietary brands.  The last categories that were destinations included the automotive department and the catalog department which were effectively abandon about 20 years ago.  Today most Sears’ category offers are too narrow to be dominate in the marketplace, much less be seen as a destination by consumers.  

Lampert may believe that his new category presidents can change that.  But just how they can accomplish the task remains unclear.  The cap-ex budget is planned flat with 2008 and inventory levels are already high.  The 2009 budgeting cycle will be first time these new merchants will be able to propose creditable sales, inventory investment, marketing, and cap-ex plans to turn the business around.  But it’s not clear just how Lampert will allocate investment capital between profit centers, much less with in a single profit center like retail.       

What all this amounts to is more management layers, poorer communications, longer execution times, and a demoralized stores management organization; hardly the ideal environment in which to turn a business around.  Sadly the real losers will be consumers and employees as Sears relevance to the market place continues to decline amidst all this upheaval.