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Sears to Focus More on Members, Less on Stores

Fiscal 2014 was chock full of what outsiders may have called desperate measures, but Eddie Lampert refers to as “big steps forward” for Sears.

The now 129-year-old retailer spun off its Lands’ End brand, took short term loans secured by its real estate, issued a Rights Offering for 40 million common shares in Sears Canada and entered into a series of real estate deals to generate liquidity—and ended up with $2.4 billion of it to show for its fiscal 2014 efforts.

In advance of last week’s stockholders meeting, Lampert said in a Sears Holdings blog post, “These $2.4 billion in funds from last year put us on better footing for the future, allaying any stray stakeholder concerns about us having enough money for the near future and allowing us to fund our company’s transformation much faster. That’s only the beginning. This year, we believe we can derive even more value than we did last year.”

In the last six months, Sears Holdings has been working to form real estate investment trust (REIT), Seritage Growth Properties, which will buy properties from Sears and sell them back to the retailer. The company expects the REIT will yield $2.5 billion cash proceeds, freeing up cash for the future once the transaction closes in the second quarter.

Sears also entered into joint ventures with retail real estate companies Macerich, Simon Properties and General Growth Properties through which Sears contributed stores in the malls in exchange for a sum and retaining 50 percent ownership, resulting on another $400 million in cash proceeds.

The company has yet to outline how it will spend the collected cash, but Lampert said in the stakeholder meeting that beyond instilling confidence among suppliers that it can in fact pay its bills, some of the money would go to paying down debt and accelerating Sear’s transformation into a tech savvy, asset-light retailer more focused on members than stores, the Chicago Tribune reported.

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Lampert has said in previous statements that some stores could stand to be smaller and more productive, so some Sears and Kmart stores will contract by half, going from an average of 150,000-square-feet to 75,000. The move will allow for new tenants in the other half of the space, and according to Lampert, drive more traffic.

Last year alone, Sears Holdings shuttered 234 stores, bringing its count to 1,725 Sears, Kmart and Sears Auto Center locations as of Jan. 31, and Lampert noted the retailer would close more stores this year.

Sears is also looking to expand its Shop Your Way member program, the golden child of its transformation, so that its members will benefit from a more tailored shopping experience.

Lampert said, “Sears and Kmart have already moved beyond the old and sorely outdated traditional store network models. Every day, we are building richer, deeper relationships with our members through Shop Your Way, Buy Online Pickup In Store, In-Vehicle Pickups & Returns, Digital Kiosks and more.”

But despite the retailer’s moves to enhance the shopping experience with member benefits like personal shopper service, reward points and personalized services that retain information on past purchases to ease related future purchases, Sears has struggled to get shoppers to tap into all of its available tools.

Shop Your Way Members have dipped with store closures, but Lampert said the focus is on getting existing members to shop more. “We always want more members, we don’t need more members,” the Chicago Tribune reported Lampert as saying. “We want deeper relationships with members.”

“I’ve said many times that one of my regrets in helping steer Sears and Kmart over the last decade is that we haven’t had or generated the money to fund our transformation quickly enough.” Lampert said in the blog post, “While operational performance has been the cause of some of that, pension expenses, the recession and other factors have impacted us as well,” adding later that, “By raising such substantial capital in 2014 and 2015, we’ll now be able to accelerate our company’s transformation.”