External Analysis of Sears Holdings Corporation

Introduction

Sears Holdings Corporation or Sears Holdings specializes in the retail industry of United

States. it is one of the largest retail mergers in the country- an amalgamation of Kmart Holding

Corporation and Sears, Roebuck and Co. formed in 2005 (Barbash and Barbano, 2004). It is a

broad line retailer with over two thousand full-line and over one thousand specialty retail stores

in the United States operating through Kmart and Sears and more than four hundred full-line and

specialty retail stores in Canada operating through Sears Canada Inc. (“Sears Canada”), a 92%-

owned subsidiary (USSEC, 2011). Among the top ten retailers in the country by their revenue, it

has captured 9th position in the list and is behind Wal-Mart, The Home Depot, Costco, Target,

CVS Caremark, Walgreens, Kroger, and Lowe's (Stores org, 2009). The company works in three

different market segments: Kmart, Sears Domestic and Sears Canada, during the fiscal year 2009

(one source, 2011).

It is the one of the market leaders in the home appliances products, tools, and garden

equipment etc. it is also offering consumer electronics products and automotive repair and

maintenance services in United States. Brands important to the company and most revenue

generating includes: Kenmore, Craftsman and DieHard etc. there are many other brands offered

at the various stores including Sears and Kmart. (Sears, 2011).

SWOT Analysis

SWOT Matrix

The SWOT analysis lists internal strengths and weaknesses and compares them with the

external opportunities and threats. The SWOT analysis of Sears Holdings Corporation is as

under:

Strengths

Brand equity

Strong retail network

Strong management team

Weaknesses

Fluctuating revenues

Debt requirement

Opportunities

Emerging markets

Health care brands

Private label brands

Threats

Economic slowdown

Competition

Labor costs

Strengths

Sears Holdings Corporation is among the top retailers in the home appliance in the

United States. It is also among the leaders in the tools, gardening equipment, consumer

electronics and automotive repair and maintenance. The most profitable brands of the company

are Kenmore, Craftsman and DieHard. It also offers well known labels like Lands' End, Jaclyn

Smith etc. for the clothing. The company also offers Country Living collection by Sears and

Kmart (Sears, 2011).

The company’s market position is very strong due to its listing in various websites. It is

currently listed at number nine among the top retailers in United States (Stores org, 2009).

Moreover, It is currently listed at number 48 in the Fortune 1000 companies list (one source,

2011). It has a very strong retail network in United States and Canada. The company operates

over three thousand retail outlets in the United States under different brand names. Some of its

brand names include mastheads of Sears, Sears Grand, Sears Essentials, Sears Hometown Stores,

Sears Hardware, Kmart, etc. The company has a very strong managerial capability that manages

its wide range of retail outlets in USA and Canadian markets.

Weaknesses

The merger of Sears and Kmart with Roebuck and Co. was a strategic advantage for the

company but the merger has affected the revenues generated by the company which are

consistently declining. The first year after its merger, the income of Sears Holdings plunged 84%

from $858 million (Daniels, 2011). The current CEO title of the company is held by Eddie

Lampert. The operations result for the first quarter of 2011 was not much convincing for the

company. The company incurred the losses over one hundred and fifty million US dollars for the

quarter ended in April 2011. According to some of the analysts in the industry, the declining

revenues and the market position of the company are due to the strategies devised by Eddie

Lampert, for instance, "penny-pinching cost-savings by stifling investment into stores”. The

company is instead of recovering the losses is engaged in the activities like buying back stocks

and increasing its presence online (Jones, 2011). This situation has increased the debt

requirement threat for the company in order to meet its business operations requirements.

Opportunities

Most of the retail outlets of the company are in United States, Canada and Puerto Rico

respectively. There is a trend in the market that large number of organizations is directing their

business operations to the emerging markets of China, India and Japan. These developing

markets show great potential of growth and success to the companies operating in them. If Sears

Holdings expands its business operations to these markets, then there is a strong likelihood of its

success in these markets.

Another opportunity available to the company is to expand its product lines. There is a

growing trend in the American markets for the retailing of health care related brands. Sears can

think of entering into this segment by expanding its branding and business portfolio. This can

increase its market share to many folds.

Moreover, there is a common practice among the other market players that they are

engaged in the manufacturing, and marketing of private labels. Sears Holdings already has lot of

private labels in the markets. All it has to do is to re position its brands in order to maximize their

impact in the current markets.

Threats

There are number of threats that can adversely affect the business of Sears Holdings

Corporation. The biggest threat faced by Sears Holding Corporation is the competition among

the local, national and international retail companies. Top three competitors of the company are

J.C Penney Corporation Inc., Target Corporation and Wal-Mart stores Inc. (Hoovers, 2011). The

retail business is a cut throat competition. The market players have multitude of businesses

across various states of US and around the globe.

Moreover, many companies are merging and becoming large entities. If any merger of

the magnitude equal to Sears can have impact on the market position and share of the Sears

Holdings Corporation. Another threat faced by all these market players is the recession faced by

the US economy. Sear’s revenue growth will likely be affected. The housing market crisis as

well as the increased food and utility prices affect the buying power of the people by leaving the

consumers with less disposable income. Then the minimum wage rate set by the US government

has increased the labor costs of the companies operated in the United States which has in turn

increased their costs of doing business in the markets (Insley, 2011).

PESTEL Analysis

The PESTEL analysis contains the analysis of Political, Economic, Social, Technological,

Environmental and Legal environments of a country with reference to a particular object. The

PESTEL analysis of Sears Holdings Corp. is as follows:

Political

As of January 2010, the US Supreme Court overturned several long standing restrictions

on the corporate political spending activities. The Court’s decision ruled over the Tillman Act of

1907 – which first limited corporate political spending. The new ruling passed by the US

Supreme Court, the corporate entities is now able to spend unlimited amount of funds in order to

support the candidates. They are subject to the US laws and are still not allowed to make

expenditures directly in activities that are not supported by the law. Furthermore, the tThird-

party groups such as trade associations also may use unlimited general purposes funds for

independent expenditures (SPA, 2011).

Sears Holdings’ political spending policy allows for the company to engage “in the

political campaign process to help elect candidates of both major political parties who support

the retail industry and believe in the free enterprise system.” (Sears, 2011). The company makes

contributions with corporate funds to state level candidates as well as state retail association

political action committees. Sears Holdings’ has contributed nearly $900,000 to state level

recipients and $237,000 to 527 groups since the 2002 election cycle (Sears, 2011).

Economic

Sears Holdings business has been and will continue to be affected by the worldwide economic

conditions; a failure of the economy to sustain its recovery, a renewed decline in consumer-

spending levels and other conditions, including inflation, could lead to reduced revenues and

gross margins, and negatively impact its liquidity ratios. Many economic and other factors are

outside of control, including consumer and commercial credit availability, consumer confidence

and spending levels, inflation, employment levels, housing sales and remodels, consumer debt

levels, fuel costs and other challenges currently affecting the global economy, the full impact of

which on Sears Holdings business, results of operations and financial condition cannot be

predicted with certainty. These economic conditions adversely affect the disposable income

levels of, and the credit available to, customers, which could lead to reduced demand for

merchandise. Their vendors are also affected, upon which it depends to provide with financing

on the purchases of inventory and services (USSEC, 2011).

Social

It is the major employer in United States after Wal-Mart. At January 29, 2011, Sears had

approximately 280,000 employees in the United States and U.S. territories, and approximately

32,000 employees in Canada through Sears Canada. These employee counts include part-time

employees (USSEC, 2011). It received a 100% rating by Human Rights Campaign for Corporate

Equality Index for the year 2009 (HRC, 2009) for the fourth year in a row. Likewise, it was

named as one of the 100 best companies for the working mothers for the year 2004 by the

working mothers’ magazine (WM, 2004). Moreover, it was named as one of the Best Places to

Work for LGBT Equality published by the Human Rights Campaign, for 2009 (HRC, 2009). It

has won number of awards and recognitions by the various local and international agencies

(Sears, 2011).

Technological

Without the significant amount of technological advancements, it is quite difficult for the

market players to sustain their market presence and profitability in the today’s competitive

environment. Sears Holdings pioneers social networking platforms with mysears.com and

mykmart.com. New interactive community web sites provide leading tools giving customers a

voice to share insights, personal experiences and make smarter purchasing decisions (Reuters,

2009). It has started technology leadership development program (TLDP) for the professionals.

Sears Holdings Corporation is focused on hiring the best and brightest talent, and rapidly

developing this talent into future business and technology leaders through accelerated career

paths and challenging, yet rewarding opportunities. TLDP is designed to recruit highly talented,

innovative and motivated Master’s Degree candidates from top universities and technical

programs (Sears, 2011).

Environmental

Sears Corporation is taking part in various environmental saving initiatives to reduce its

impact on the society by limiting the use of water, reducing the wastes by using recyclable

products and bags, using solar energy to reduce its dependence on traditional energy sources. It

has won the U.S. Environmental Protection Agency (EPA) National Building Competition –

2010 (EPA, 2010). The Sears Full-line store located in Glen Burnie, Md., placed second in the

first annual U.S. Environmental Protection Agency (EPA) National Building Competition. The

EPA’s ENERGY STAR program challenged teams from fourteen buildings (i.e., retailers,

schools, hospitals, hotels, etc.) across the country to measure their energy use and to “work off

the waste” in their facilities from Sept. 2009 through Sept. 2010. The team’s final results

included: a 31.7 percent reduction in energy use, $45,612 savings on their energy bills and a

reduction in the carbon footprint of the store by more than 272 metric tons of carbon dioxide

(Sears, 2011).

Legal

From time to time, Sears Holdings is involved in lawsuits and regulatory actions relating

to business, certain of which may be in jurisdictions with reputations for aggressive application

of laws and procedures against corporate defendants. The company is impacted by trends in

litigation, including class-action allegations brought under various consumer protection and

employment laws, including wage and hour laws (USSEC, 2011). The current legal proceedings

are related to their Orchard Supply Hardware subsidiary (“OSH”) which has received a notice of

violation from the California South Coast Air Quality Management District (“SCAQMD”)

alleging that OSH stores that are located in the SCAQMD jurisdiction sold architectural coating

products that exceed the current SCAQMD limitations on volatile organic compounds. The

parties are currently negotiating toward a resolution of this matter (USSEC, 2011).

Porter’s Five Forces Analysis

Rivalry among Established Competitions

  Sears Holdings compete with a wide variety of retailers, including other department

stores, discounters, home improvement stores, consumer electronics dealers, auto service

providers, specialty retailers, wholesale clubs, as well as many other retailers operating on a

national, regional or local level. Online and catalog businesses, which handle similar lines of

merchandise, also compete with Sears. Walmart, Target, Kohl’s, JC Penney, Macy’s, Home

Depot, Lowe’s and Best Buy are some of the national retailers with which it competes. Home

Depot and Lowe’s are major competitors in relation to the home appliance business, which

accounted for approximately 16% of 2010 and 15% of 2009 and 2008 reported revenues. Sears

Canada competes in Canada with Hudson’s Bay Company and certain U.S.-based competitors,

including those mentioned above, that may be expanding into Canada. Success in these

competitive marketplaces is based on factors such as price, product assortment and quality,

service and convenience, including availability of retail-related services such as access to credit,

product delivery, repair and installation. Additionally, Sears Holdings is influenced by a number

of factors including, but not limited to, the cost of goods, consumer debt availability and buying

patterns, economic conditions, customer preferences, inflation, currency exchange fluctuations,

weather patterns, and catastrophic events (USSEC, 2011).

Bargaining Power of Suppliers

The level of bargaining power of suppliers to drive their profits from the market players

is pretty fair. Sears Holding Corporation has diverse range of suppliers to meet its requirements.

For this many suppliers have to give discounts and other incentives in order to remain in business

and meet the challenges imposed by the other suppliers in the market. Strong supplier relations

have been integral to Sears and Kmart throughout their long histories. Through these suppliers,

Sears Holdings Corp. is able to offer products that are of high standards. Sears Holdings corp.

can find other suppliers that can provide its supply needs. Thus, the power of the suppliers in the

industry is then counterbalanced by the availability of substitutes.

The Bargaining Power of Buyers

The bargaining power of buyers is very high in the case of retail business. Due to the

presence of various similar services providers the customer tends to switch to the other if they

find their product better in terms of quality and prices. There are a number of factors that support

this claim. For instance, buyer power is high as many substitutes are made available to the

market. With this source of buyer power, buyers tend to have a greater control over the

manufacturers. Sears Holdings Corp. is considered as the retail store that caters to the moderate

and more educated and well-off clientele as to compare with its rivals.

The Threat of Substitute Products or Services

The threat of substitute products in case of Sears Holdings Corporation is high. There are

various retailers in the market competing with each other. This makes the great degree of

availability of alternative products to the buyers. They have significant amount of product

choices and option available. The high rate of substitutes for products is then considered a threat

for Sears Holdings Corp.

The Threat of the Entry of New Competitors

            There are certain barriers to entry in the markets currently. This means that the threat of

new competitors in the markets is low. The new entrants have to comply with the government

regulations in order to enter the markets. There is trade restrictions imposed on various levels

that discourages many new entrants to start their business set up. In retail industry, Sears Holding

Corp. and its counter parts are protected by a number of barriers to entry, which makes it

difficult for new business entrants to rise and compete. One of these barriers is the requirement

of huge working capital to start the business operations in order to compete with the existing

giants in the market. In order to acquire the right workforce, supplies and distribution channels,

the starting company must have a high initial capital. This barrier to entry then prevents other

firms to compete effectively with other global companies such as Sears Holdings Corp.

           

Recommendations

The findings of the study suggested that the Sears Corporation should focus on the

following factors in order to excel its business and social image in the world:

1. Expand its geographical presences to the emerging markets

2. Effectively utilize the resources of its Kmart merger to position itself in the market to

maximize its profitability.

3. Devise strategically itself in the markets via its corporate social responsibility to excel

its market image.

References

Barbash, F., and Barbaro, M., (November 17, 2004). Sears, Kmart to Merge in $11B Deal. The Washington Post. Retrieved on July 2, 2011 from http://www.washingtonpost.com/wp-dyn/articles/A56358-2004Nov17.html

Daniels, L., (2011) “Twin Titanics” or turnaround—which way are Sears and Kmart headed?, Medill, Retrieved on July 2, 2011 from http://news.medill.northwestern.edu/chicago/news.aspx?id=185901

EPA (2010) U.S. Environmental Protection Agency (EPA) National Building Competition – 2010, retrieved on July 2, 2011 from http://www.energystar.gov/index.cfm?fuseaction=buildingcontest.index

Farnam, T., W., (2008) Soft Money in the 2006 Election and the Outlook for 2008: The Changing Nonprofits Landscape, Campaign Finance Institute, 2007. Approximately $90 million in 501(c) spending on federal election activities was reported in 2006. T.W. Farnam & Brody Mullins, “Interest-Group Campaign Spending Nears Record”, Wall Street Journal, retrieved on July 2, 2011 from http://www.politicalaccountability.net/ht/a/GetDocumentAction/i/5001

HRC (2009) Corporate Equality Index, Retrieved on July 2, 2011 from http://www.hrc.org/documents/HRC_Corporate_Equality_Index_2009.pdf

(2009) Best places to work for list, Retrieved on July 2, 2011 from http://www.hrc.org/issues/workplace/best-places-to-work-2010.htm

Insley, J (2011) House Prices Rises by 0.5%, retrieved on July 2, 2011 from http://www.guardian.co.uk/money/2011/mar/31/house-prices-rise-nationwide

Jones, Sandra M. (19 May 2011). Sears Holdings posts $170 million loss in 1st quarter. Chicago Tribune, Retrieved on July 2, 2011 from http://www.chicagotribune.com/business/ct-biz-0520-sears-20110519,0,4352753.story

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Sears Holdings (2011) about sear holdings corporation, Retrieved on July 2, 2011 from http://www.searsholdings.com/about/

(2011) awards and recognition, retrieved on July 2, 2011 from http://www.searsholdings.com/about/recognition/

(2011) Sears Holdings Government Affairs, Retrieved on July 2, 2011 from http://www.searsholdings.com/govt_affairs/

(2011) Sears Holdings Contribution Disclosures, retrieved on July 2, 2011 from http://www.searsholdings.com/govt_affairs/contributions.htm

(2011) Technology Leadership Development Program Intern, retrieved on July 2, 2011 from http://www.searsholdings.com/careers/jobs/MBA/techleadershipintern.htm

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(2011) Risk Factors, Form 10-k, Retrieved on July 2, 2011 from http://quote.morningstar.com/stock-filing/Annual-Report/2011/1/29/t.aspx?t=XNAS:SHLD&ft=10-K&d=67f0b9d8d9add9269c85151a4a13ba90

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