May 27, 2010, 11:47 AM

Back to the future

Returning to its direct-to-consumer roots, Sears bets big on the web and provides a test bed for e-retail innovation.

A retail chain that reports steadily declining same-store sales and closes 108 stores in a two-year period could appear headed for oblivion. But Sears Holdings Corp. is in the midst of a transformation, built heavily around online and mobile commerce, and in several ways it stands out from many store chains.

For starters, Sears has deep roots in direct retailing, going back to the first Sears catalog in 1885. And it has brands consumers actually want, such as Craftsman tools, Kenmore appliances and Lands’ End apparel.

Plus, top management has thrown its full weight behind e-commerce initiatives, evangelizing within the company and to investors that Sears’ growth will come online and through combined web-store initiatives. It’s invested heavily in the past year in using the web to interact directly with online shoppers, and Sears chairman Eddie Lampert emphasized those efforts in a February letter to shareholders. “We think online social networking and social media have only just begun to have an impact on shopping, and it is a revolution we intend to harness going forward,” he wrote.

Lampert has backed up such talk with action. In the past few years, Sears has hired e-commerce executives from companies such as Circuit City, Williams-Sonoma and MSN.com, redesigned its eight e-commerce sites and tied them together with a common shopping cart, and invested heavily in mobile commerce and its online community.

It’s borrowed from others—such as taking elements of Circuit City’s buy online/pickup in-store program and creating an online marketplace modeled after Amazon’s—and broken new ground, such as by turning a Kmart store into a location devoted solely to fulfilling online and phone orders.

These wide-ranging experiments make Sears a test bed for online innovation that other retailers can learn from, says Jim Okamura, senior partner at consulting firm J.C. Williams Group. “Sears knows its offline business is declining,” he says. “But they also know that it has brands that drive traffic, like Kenmore, Craftsman and Lands’ End. They’re trying to leverage those brands to find new ways of doing business. Online is where they can be really nimble in finding new ways for consumers to shop.”

Shifting gears
Becoming an e-commerce pioneer might not have been the priority in 2005 when Lampert combined Kmart Holding Corp. and Sears, Roebuck and Co. to create Sears Holdings Corp. Many analysts believe Lampert hoped to profit by selling off large chunks of the real estate the two retail chains controlled—a strategy that fell victim to the collapse of the commercial real estate market in recent years.

Plan B involves using the web to retain the loyalty of the millions of consumers who have shopped for years at Sears, Kmart and Lands’ End, which Sears acquired in 2002. They’re a diverse group, which is why Sears’ online and mobile initiatives are so wide-ranging, says Imran Jooma, senior vice president and general manager, e-commerce, who joined Sears from Circuit City in 2007.

“Our customers have different needs,” Jooma says. “Regardless of what they’re looking for, we want them to be able to shop however they want, whenever they want and wherever they want.”

The overall message is convenience. “We want to showcase the fact that Sears is the easiest place to shop,” Jooma says.

That theme led Sears in March 2009 to launch a program called ShopYourWay, which brought together several existing initiatives and has served as the umbrella for new programs designed to give consumers many ways to shop.

Among the existing services was Web to Store, an extension of the buy online/pickup in-store option Sears introduced in 2003, when it was among the first retail chains to offer in-store pickup.

Sears has steadily enhanced the program, for instance, by allowing a customer to designate another person to pick up the item. Sears offers curbside, rather than in-store pickup in most locations. And as soon as a customer arrives at a store, the order is guaranteed to be ready within five minutes or he receives a $5 gift card, borrowing a concept from Circuit City, Jooma’s former employer, which guaranteed that items would be ready in 24 minutes.

Web to store
Sears went further in May 2009, when it converted a Kmart store in Joliet, Ill., into a pickup point for consumer-direct orders that it dubbed mygofer. Shoppers can order goods at mygofer.com, using the mygofer mobile phone app or by calling an agent. The store offers more than 20,000 items, ranging from dog food to appliances, as well as perks like free gift wrap.

When an item is ready, the system sends shoppers a text message. Consumers picking up purchases can wait in a designated parking spot and have a clerk roll out a cart and load the goods into the customer’s car.

There is only one full-fledged mygofer store, but the company has created mygofer-branded counters at more than 150 Kmart stores, many of which offer curbside pickup. Sears aims to use the Kmart locations to build the mygofer brand and encourage shoppers to use the offering for everyday purchases they might not normally make online, like paper towels.

“Shoppers have so many options, so we wanted to create a concept that is not only unique, but one that gives them everything they need—great products at a great value with less time devoted to shopping and that puts more time back in their hands,” Jooma says.

The mygofer concept could represent a model for future shopping, but Sears’ problem is that many of its stores are in undesirable locations, says Paula Rosenblum, managing partner of retail consulting firm Retail Systems Research LLC. “Transforming a Kmart into a mygofer might seem like a good use of an underperforming store, but the question becomes, who goes there?” she says. “You have to have real estate that is in a good location.”

Mobile shopping
The ShopYourWay promise includes being able to shop by mobile phone, and Sears has launched several mobile apps, including mygofer, mobile sites and a text messaging program that offers exclusive deals.

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