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Sears Targets the High End

Retail dinosaurs like Sears Holdings Corp (NASDAQ:SHLD) and J.C. Penney Company, Inc. (NYSE:JCP) have not evolved much over the years, the stores look pretty much the same as they did 20 years ago, except with fewer shoppers.  JCP stock has taken a well deserved beating this year, and received plenty of bad press along the way.  Sears has held up better than J.C. Penney but that could change soon as the stock is sitting near important long term-support, and the company is set to report earnings on Thursday before the market open.  Investors have not had an appetite for the old department store stocks, let’s see what Sears is doing differently to change that and how the stock could be affected. 

It is no secret that consumers have been shifting towards e-commerce and more modern stores over the past 15 years, and that hasn’t been good for big department store chains that did not evolve. The older stores were being challenged to find new ways to attract customers and bring them into stores. In 2004 K-Mart bought Sears in an attempt to offer a wider selection of products to better compete with Wal-Mart Stores, Inc. (NYSE:WMT) and Target Corporation (NYSE:TGT) but the two companies never meshed, and five years after the merger SHLD sales had dropped more than 10%. During the same time period Wal-Mart sales increased 30% and TGT‘s more than 24%. JCP declined about 6%. To make matters worse for Sears, The Home Depot, Inc. (NYSE:HD) and Lowe's Companies, Inc. (NYSE:LOW) started taking market share in tools and appliances, while offering  customers a much more modern warehouse type of atmosphere.  Sears shares suffered, but the company fought back by closing stores and buying back stock, which worked for a while, but didn’t fix the problem.

What is the company doing to turn things around? Sears has experienced declining revenue every year for the past six years and has experienced losses over the past two years, and the stock is now resting dangerously close to long-term support.  Massive cost cutting helped narrow the loss last year but part of the slight rebound was due to J.C Penney’s meltdown. CEO Lampert has been buying back huge amounts of Sears stock while trying to make the company leaner, essentially taking the same approach that didn’t solve the long-term problem before. Sears has done nothing to modernize stores, and they haven’t found any new avenues to win back the home appliance and outdoor equipment sales from Home Depot and Lowes either.  The most recent report from Sears revealed revenues had declined 9% with a $279 Million loss, and same-store sales down about 3% for the quarter. 

Sears is making an attempt at e-commerce with Sears Marketplace, which is now offering luxury items like $30,000 Rolex watches, Jimmy Choo shoes and designer purses selling for thousands of dollars. Sears Marketplace joins the seller of luxury goods and buyer who wants to pick them up, Sears acts as a third party much like an Amazon.com, Inc. (NASDAQ:AMZN)  or eBay Inc (NASDAQ:EBAY).  Sears CEO Edward Lampert says the company wants to focus on luxury items in an effort to overhaul its image and appeal to the higher end consumer.  

Sears has done very little to improve its brick and mortar stores. Trying to change Sears’ brand image by selling big ticket luxury items while going up against Amazon and eBay in the process, does not sound like it will end well for Sears. Investors should be wary of more missteps that could lead to a much lower stock price. Stock Traders Daily has Sears neutral long-term, but that could change quickly if long-term support breaks. 

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