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 Opportunities Emerging markets Health care brands Private label brands

Weaknesses Fluctuating revenues Debt requirement

y y y

y y

Threats Economic slowdown Competition Labor costs

y y y

y y y

Strengths Sears Holdings Corporation is among the top retailers in the home appliance in the United States. It is also among the leaders in thetools, 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 companys 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 companyis 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. Sears 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 Courts 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 tThirdparty 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 consumerspending 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 todays 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 Masters 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 EPAs 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 teams 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).

Porters 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, Kohls, JC Penney, Macys, Home Depot, Lowes and Best Buy are some of the national retailers with which it competes. Home Depot and Lowes 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 Hudsons 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/wpdyn/articles/A56358-2004Nov17.html Daniels, L., (2011) Twin Titanics or turnaroundwhich 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-0520sears-20110519,0,4352753.story One Source (2011) fortune 1000 Companies list, Retrieved on July 2, 2011 from http://www.onesource.com/free/Company/FortuneList/Fortune/0 (2011) Sears Holdings Corporation, Company Profile, Retrieved on July 2, 2011 from http://www.onesource.com/free/Sears-Holdings-Corporation/Company/Profile/49373305\ Reuters (2009) Sears Holdings Pioneers with social networking, Retrieved on July 2, 2011 from http://www.reuters.com/article/2009/05/07/idUS222034+07-May-2009+PRN20090507 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 Stores Org (2009) 2009 Top 100 Retailers, Retrieved on July 2, 2011 from http://www.stores.org/2009/Top-100-Retailers SPA (2011) Political Transparency and Accountability Profile (2011) , Sears Holdings Corporation (SHLD), Retrieved on July 2, 2011 from http://www.politicalaccountability.net/ht/a/GetDocumentAction/i/5001 USSEC, (2011) Sears Holding Corporation, Form 10-k, Retrieved on July 2, 2011 from http://quote.morningstar.com/stock-filing/AnnualReport/2011/1/29/t.aspx?t=XNAS:SHLD&ft=10-K&d=67f0b9d8d9add9269c85151a4a13ba90 (2011) Competition, 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=10K&d=67f0b9d8d9add9269c85151a4a13ba90 (2011) Legal Proceedings, Form 10-k, retrieved on July 2, 2011 from http://quote.morningstar.com/stock-filing/AnnualReport/2011/1/29/t.aspx?t=XNAS:SHLD&ft=10K&d=67f0b9d8d9add9269c85151a4a13ba90 (2011) Risk Factors, Form 10-k, Retrieved on July 2, 2011 from http://quote.morningstar.com/stock-filing/AnnualReport/2011/1/29/t.aspx?t=XNAS:SHLD&ft=10K&d=67f0b9d8d9add9269c85151a4a13ba90

WM (2004) 100 best companies for working mothers, retrieved on July 2, 2011 from http://www.workingmother.com/