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Sears reworking strategy for stores outside of malls

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Sears Holdings, operator of the Sears and Kmart chains, is retooling its plans for Sears stores outside of malls. The Sears Essentials name will be dropped in favor of the Sears Grand brand, and some food and media items will be added to the merchandise mix.

The Essentials stores, located in converted Kmart buildings, combine Sears goods — such as Lands' End apparel, Kenmore appliances, DieHard batteries and Craftsman tools — with convenience and health and beauty items typically found at Kmart. As Sears Grands, they also will offer milk and other convenience foods, as well as CDs, DVDs, books and magazines.

"The customer has migrated from malls to off-mall sites, so our hope is that the Sears customer will have an option," says Paul Fenaroli, vice president of new store development.

The stores have Sears merchandise in an off-mall setting that also offers more one-stop shopping.

"Showcasing the products in a non-department store format is a way to leverage the Sears brand name and exclusive products," says James Ragan, equity analyst at Crowell Weedon.

The 47 existing Essentials stores will become Sears Grands as their remodeling is finished. Another 14 stores due in May, about a year after the introduction of the Sears Essentials brand, will open as Sears Grands, including two former Utah Kmart stores located in American Fork and West Valley City, according to Chris Brathwaite, a spokesman for Sears Holdings.

Using former Kmart stores is a faster and cheaper way to execute the off-mall strategy than new stores. "This is a chance to do something much more immediate," Fenaroli says.

Sears Holdings continues to run 926 Sears department stores, mostly in malls, and 1,400 Kmart stores.

Off-mall stores originally were a strategy of Alan Lacy, former Sears CEO who left shortly after it was acquired by Kmart last year. He created the Sears Grand concept as newly built stores as big as a Wal-Mart Supercenter, but without groceries. Eight still operate. His new The Great Indoors home-decorating stores aimed for the Home Depot and Lowe's market. There are 16. Both ideas are on hold.

CEO Edward Lampert, who brought Kmart out of bankruptcy court three years ago, steered the merger with Sears Roebuck into Sears Holdings. In restructuring Kmart, he gained note as much for divesting unprofitable stores in shrewd real estate deals as for improving sales. The new Sears Grand strategy is a way to expand Sears out of malls at minimum cost and see if old Kmart sites can be more profitable.

"Lampert is being very prudent and frugal in capital expenditures," says Bill Dreher, retail analyst at Deutsche Bank. "He's trying to choose the greater value of a store: an operating concern vs. an asset sale. In other words, is it worth more dead than alive?"

To succeed, Sears Grand must attract Sears loyalists but be different enough to lure new customers. "It's a good move," says Kenneth Bernhardt, marketing professor at the Robinson College of Business at Georgia State University. "The new brand is most important to get the initial visit. After that, the brand will take on a meaning based upon the consumer's experience."

Contributing: Dave Anderton