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William Lominac Sally W. Griffin English 1102 092 18 November 2013 An Inquiry into the Sears Blue Tool Crew Community Sears, Roebuck and Company, also known simply as Sears, is a national retailer that has been in business for over 120 years. Originally renowned for its eclectic mail-order catalog, Sears began opening department stores in 1925, which greatly expanded both the companys reach and profits. Until it was overtaken in sales by Wal-mart in 1989, Sears was the United States largest retail store (Dallas, Web). Within each Sears store there are a number of merchandise lines, including appliances, clothing, electronic, mattresses, lawn and garden, and, relevant to this discussion, tools. Each department is staffed with its own crew that exclusively sells merchandise within their department. Each member of an individual crew has his or her own goals, called metrics, that they are responsible for meeting. There are a few metrics that are required of every department; one of these is Shop Your Way, Sears rewards program that has enrolled tens of millions of members since its inception. Indeed, upwards of 60% of transactions at Sears are made by members of the program (Stock, Web). Another metric measures the number of in-store online sales, titled Store-to-Home transactions. Sears, like many brick-and-mortar retailers, is experiencing a drop-off in sales in the midst of soaring profits for online-only retail units such as Amazon.com. In an attempt to modernize

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Sears and equip it to compete with the new wave of retail sales, CEO Eddie Lampert has put an increased focus on individuality among departments, who compete for resources and profits, as well as on harboring online sales, which currently account for only around 3% of Sears total revenue. However, Lampert has received much criticism for his perceived abandonment of Sears brick-and-mortar stores in favor of fully supporting online sales. Thusly, the questions in this inquiry revolve around this new focus on becoming an integrated retailer, a term Mr. Lampert uses to describe his vision for the future of Sears (Kimes, web). The discourse community that is centric to this paper is the Blue Tool Crew, and the paper will examine some of the communication and language that is used by its members. In the tool section at the Sears in Hickory, North Carolina, there are five salespeople. Each member of the crew is tasked with meeting a number of metrics that in order to become and remain members of this community. These include the two metrics mentioned in the introduction, as well as applications for Sears credit cards, Protection Agreements and Sears Purchase Protection plans, which are two programs that help to fix or replace merchandise outside of the manufacturer s warranties; shopping recaps, which allow crew members to communicate with potential customers and drive revenue into the stores; accessory percentage, which is a ratio of the number of base units (for example, drills) sold with accessories (like a drill bit or tool bag) to the total number of base units sold; they also are required to ask for customer service surveys with each transaction, in addition to fundamental metric of sales. With all of these metrics to keep up with, it becomes necessary to develop short, easily remembered ways to refer to them, so that those in the discourse community can effectively

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cover each one during the course of a relatively short transaction. As such, Protection Agreements become PAs, Sears PurchaseProtect has the moniker SPP, customer service surveys are CSAT, shopping recaps are leads, and so on. With this system of abbreviations and nicknames in place, the community can engage in discourse at any time about these metrics, quickly and effectively, without confusing or overselling to the customers. Above all, effective communication is required to maintain a cohesive, mutually beneficial relationship between members of the discourse community, in order to locally help the Hickory Sears store and, nationally, the Sears company reach its sales goals and become the juggernaut retailer it was before the recent economic downturn. As was mentioned in the introduction, Sears has struggled in merchandise sales in the last 20 years or so, particularly in the first part of the new century. After being overtaken in sales by Wal-mart in 1989, Sears has since been surpassed by Target, Best Buy, and Home Depot, the latter two of which are direct competitors to Sears in the Appliance/Electronics and Tool/Lawn and Garden departments, respectively (Dallas, web). Over the past three years alone, Sears has lost nearly $4.5 billion, the result of increased competition both in-store and online, decreased same-store sales, lost revenue from store closings, and other expenditures. Despite this, Sears Holdings, the parent company of Sears and of K-Mart and who acquired Sears in 2005, has financial assets in the range of $25-26 billion, due in large part to Sears ownership of much of its real estate, as well as a relatively large remaining market share (Kimes, web). The CEO of Sears Holdings, Mr. Eddie Lampert, appointed himself to the position earlier this year, after running the company in the background since the acquisition was finalized in 2005.

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Lampert has overseen Sears decline in over the past six years, while trying to refocus the retailer on an innovative new business model built around member loyalty and integrated sales between brick-and-mortar stores and Sears website, sears.com. Another aspect of Mr. Lamperts business model is the division and stratification of departments within Sears, which means that each department is autonomous and competes for attention, advertising, and most impactful, money. A comparison between this business model and the way a hedge fund group works can be made, in that two different divisions compete for resources as though they were two individual companies under the financial umbrella of one entity. Mr. Lampert has stated that his objective in deploying this business model is to foster better sales from each department, since one department could not rely on another to negate its poor performance, as well as to collect deeper, more informative data on the company at more intimate levels. These data, Lampert states, will drive decision-making and accountability at a more appropriate level (Kimes, web). The end result of Lamperts reformatting of Sears is a company comprised of more than 30 self-sufficient units, comprising of product divisions (such as appliances or clothing), service and support (IT, customer service, human resources and others), brands (Craftsman tools are one of Sears flagship brands), and divisions that handle online sales and support and real estate, among others. Each unit has an individual board of directors and chief officer, and records its own profits and losses individually (Kimes, web). The impact of such a system on the level of this discourse community is that truly, though the Blue Tool Crew may operate under the same store management and metrics as other divisions, they are independent of any other group in

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the store. The cashiers, Blue Appliance and Blue Electronics crews, and even the Lawn and Garden crew that the BTC shares floor space with are all, essentially, competing with the BTC for customers, attention, and cash. It is with this divided business model and under Mr. Lamperts increasing focus on online transactions that the primary question of this inquiry emerges: Is the increased attetion of Sears CEO on its online presence helping the members of this community meet their metrics, achieve their goals, and benefit the company? As with every other business unit, the Blue Tool Crew competes with the Sears.com division for sales and resources. Lamperts vision of an integrated retailer has sparked the implementation of many new features for the growing number of online shoppers from Sears: an Amazon.com-esque marketplace that contains over 75 million items from both Sears and third-party retailers; ShopYourWay Max, a free shipping service for ShopYourWay members that is akin to Amazons Prime membership; free in-store pickup for online purchases and free shipping for items bought online while in-store at Sears; and of course the ShopYourWay program itself, which rewards members who provide an email monetary incentives (in the form of rewards points and individualized coupons) (Stock, web). Each of these developments is a valuable asset to Blue Tool Crew members. The marketplace can be used to sell items that arent carried by Sears, and the free shipping for in -store orders provides a way for BTC members to keep a sale they may have lost if an out-of-stock item wasnt available. Free store pickup brings footsteps into the building that may not have come without a reason to visit the store. In a way, Lampert has been able to create a symbiotic

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relationship between the in-store sales divisions and the online sales division. However, there are more developments that may have a less positive effect. At any given time, Sears.com offers Online Only pricing on many of the items they sell from Sears. Currently, a Family & Friends event advertises Extra 5-15% off above the words Online Only (Sears.com). Sometimes, every item in the brick-and-mortar stores is available at a lower, online only price. It is therefore worth mentioning that associates instore are not permitted to match online only prices, and receive a 0.5% commission penalty if a price is matched to Sears.com. As a result, customers who may have considered coming into the brick-and-mortar store are incentivized to purchase online instead. An example in the Blue Tool Crew would be a mechanics tool set, or MTS, which are considered bread-and-butter, big-ticket items for BTC salespeople. A common online only discount on this item would be 10%, equating to anywhere from $5 on the least expensive MTS to over $130 on one of the largest. Monetarily, it would make absolute sense to a customer to purchase an MTS online in this case. On an individual level, the Tool Crew associate would lose several things: a sale, which contributes to the fundamental metric that the BTC member must meet; the opportunity for meeting other metrics, such as a Sears credit card application (which would offer financing and discount incentives to the customer), accessories (often purchased with MTS are extra ratchets, wrenches, screwdrivers, and other tools), and a ShopYourWay enrollment (coupons and cashback for the customer); and commission, which makes up a significant portion of the paycheck of a BTC member.

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Obviously, the direct effect of any singular online sale is detrimental to the members of the Blue Tool Crew. But what if the residual effects of an online sale are considered? It has already been mentioned that one positive effect of free in-store pickup is to bring footsteps into the brick and mortar stores; ergo, would an increase in online sales coincide with an increase in sales in Sears stores? Sales data from the past few years can be demonstrative in answering this question. In the past three sales quarters, spanning from quarter 4 of 2012 through quarter 2 of 2013, online sales have increased steadily, averaging a nearly 22% increase over same-quarter online sales from the previous year. Similarly, quarters 2 through 4 of 2011 showed 30%, 20%, and 12.6% increases in online sales over the same quarters of the previous years, respectively. These periods of online sales growth have been mentioned prominently in quarterly sales press releases (searsholdings.mediaroom.com). However, the in-store sales simply do not match their online counterparts. During quarter 2 of 2011, where online sales grew 30% over the previous year, in-store sales fell by 1.2%, to the tune of about $125 million. In quarter 3 of the same year, when online sales showed a 20% increase, in-store sales fell by 0.7%. Likewise, the 12.6% increase in quarter 4 online sales in 2011 came with a 4.1% decrease in in-store sales, or about $540 million (searsholdings.mediaroom.com). Soon after announcing the 4th quarter losses, more than 100 stores were closed (Kimes, web). The results from last and this year are similarly disproving of the idea that online sales breed in-store sales. Obviously, the idea of increased online sales coinciding with increased in-store sales is flawed, at least in practice, where the numbers do not show the intended effect. Though it

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cant be stated that online sales are hurting those in-store, it can be seen that they are not helping the Blue Tool Crew with their in-store metrics. However, the relationship may not be as uncorrelated as it currently appears. When asked about the future of Sears, Mr. Lampert wonders how many brick-and-mortar stores are actually needed, as well as how large each stores inventory should be, and what its role will eventually become (Rosenthal, web). Lamperts confidence in the physical stores and his level of commitment to them may be evident in a recent statement concerning the in-store experience of Sears: It doesnt make sense to have millions of tens of millions of dollars invested in a property that doesnt make money What real estate affords us: Its a footprint to serve members, first. It also (gives) us the ability to afford a transformation and to be able to withstand, one, a financial crisis, which we went through, and two, withstand a period of poor operating performance, which hopefully will come to an end soon (Rosenthal, web). It would appear that Mr. Lampert sees investment in brick-and-mortar stores as nonsensical, and that the stores themselves are a sort of collateral during the hard economic tempest Sears is weathering. Indeed, more than 300 stores have been closed since 2010, with Lampert considering the closure of more underperforming stores going forward (Rosenthal, web). However, even the higher-performing stores that remain see little investment from Lampert. In 2012, capital expenditures per square foot at Sears locations were $1.51. This money is used to renovate and maintain an agreeable in-store experience at each physical store. However, this figure pales in comparison to other major

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retailers; for instance, Home Depot spends $5.56 per square foot, nearly 4 times that figure, while Wal-Mart invests $9.36 per square foot. At the top of the list of Sears main competitors, Target invests $10.12 in every square foot of its stores, which is over six-and-ahalf times what is invested in Sears stores (Kimes, web). As for Lamperts assertion that this type of expenditure makes no sense, is it truly believed to be coincidence that Home Depots sales increased by 4.6% (homedepotar.com), Wal-Marts by 5.9% (Wal-Mart annual report), and Targets by 2.7% (corporate.target.com), while Sears 2012 performance saw a decrease of 2.5% (Sears annual report)? Certainly, to deny the possibility of a correlation between investment in brick-and-mortar stores and subsequent sales increases would be an alarming position to assume. Former CEO of the oft-maligned and down-spiraling JC Penney, Ron Johnson, heavily invested in the renovation of every JC Penney store during his tenure. Though he is no longer with the company, his store-in-store concept that brought a partnership with Sephora and other micro-retailers to JC Penney stores is still in place and being expanded. The 2013 3rd quarter report from JC Penney showed a 0.9% sales increase, and the company was able to repay $200 million of its credit debt (Yagalla, web). Surely, there must be a relationship between the investment made in JC Penney stores and the sales increase that followed. As for Sears and the Blue Tool Crew community, the metrics for in-store sales remain despite diminishing investment in the in-store selling experience. As the in-store investment disappears, it is likely that so to will the in-store sales; metrics will no longer be met, and as a result, BTC members will be terminated. The store will be labeled an underperformer, and

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be at risk of meeting the same fate that more than 300 other stores have met over the past three years. Though rather grim, this outlook is what many investors see when they look at the current state of Sears. The fact is the business has been underinvested in for 10-plus years, and if you look at the strategic actions they've taken, they've been selling assets that generate cash to raise liquidity. What that means is your cash flow only gets worse. You get a shot in the arm, but we call it burning the furniture, says Greg Melich, of International Strategy & Investment Group (Rosenthal, web). Gary Balter, of the investment firm Credit Suisse, provides his insight as well: Back in May we likened CEO Edward Lampert's slow dismemberment of Sears Holdings to a player in a game of Jenga, whose goal is to pull out pieces, hoping the overall structure does not collapse. With (the most recent) results, we saw further proof that too many pieces have been removed from the Sears portfolio, and the remaining structure may be too weak to exist as a viable economic model (Rosenthal, web). The answer to the question posed by this inquiry, whether the focus of Mr. Lampert on Sears online experience is detrimental to the in-store experience, and therefore the continued success of the Blue Tool Crew community, is perhaps best illustrated by this simple quote from the man himself: The focus is less on selling products and just running stores but serving members first (DInnocenzio, web). While the idea of a fullyintegrated retailer is novel, and may prove to be revolutionary, its current execution appears to be a long-suffering process, one that is developing amid the loss of

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unimaginable, perhaps insurmountable, sums of money. The losses compound and force the company to cede people, stores, and in some cases entire businesses, effectively jettisoning its limbs to allow a husk of a body stay afloat. With each store closing or business spin-off, another part of the revenue stream is discharged, making resources even more scarce. On the level of the Blue Tool Crew discourse community, the large-scale reinvention Sears is undergoing translates to several new experiences. Purely in-store customers are dwindling, as only 30% of sales are made without the customer being connected to the ShopYourWay member network. Though some business will inevitably be lost to the evergrowing world of ecommerce, it is up to members of the Blue Tool Crew to utilize the tools they are given to generate sales, in-store, online, or otherwise. Going forward, each member of the BTC must adapt to Mr. Lamperts new vision of Sears. This means adjusting to the more prominent roles of ShopYourWay and Store-to-Home transactions in selling. It means fully buying into the idea of a fully-integrated retailer, purposefully seeking out and utilizing technology to serve members, building relationships from experiences unlike those of any other retailer, and creating lifelong customers. Hopefully, it will mean that each Blue Tool Crew member will be doing their part to ensure that Sears is here to stay, for the near and distant future.

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Works Cited DInnocenzio, Anne; Chapman, Michelle. Sears 3Q Loss Widens as Sales Soften at Stores. ABC News Online. Web. Published: November 21, 2013. Accessed: November, 2013. Kimes, Mina. At Sears, Eddie Lamperts Warring Divisions Model Adds to the Troubles. Bloomberg Businessweek Companies & Industries. Web. Published: July 11, 2013. Accessed: September, 2013. Rosenthal, Phil. Sears, Kmart boss Lampert: What we have is a profit problem. Chicago Tribune Business Columns. Web. Published: November 24, 2013. Accessed: November, 2013. Stock, Kyle. The Plan to Make Sears Shoppers Go Digital. Bloomberg Businessweek Companies & Industries. Web. Published: May 29, 2013. Accessed: September, 2013. Yagalla, Mark. Why Smart Money Still Owns JC Penney and Sears. The Motley Fool. Web. Published: November 24, 2013. Accessed: November, 2013. 1990 Sales Lift Wal-Mart Into Top Spot. Dallas Morning News. Print. Published: February 15, 1991. Sears Annual Report. Sears Holdings Corporation. Web. Published: January, 2013. Accessed: September, 2013. Wal-Mart Annual Report. Walmartstores.com. Web. Published: January, 2013. Accessed: November, 2013.

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Financial Summary. Corporate.target.com. Web. Published: January, 2013. Accessed: November, 2013. Annual Report 2012. Homedepotar.com. Web. Published: January, 2013. Accessed: November, 2013. Sears.com. Web. Accessed: September, 2013. Various quarterly sales reports. Searsholdings.mediaroom.com. Web. Accessed: September, 2013.