By Nathan Layne
HOFFMAN ESTATES, Illinois May 6 (Reuters) - The $2.5 billion cash that Sears Holdings Corp's proposed real estate trust is expected to generate should muffle the retailer's "skeptics and cynics" for a while, Chief Executive Eddie Lampert said on Wednesday.
And he is counting on a loyalty program to silence them for good.
Speaking at an annual shareholders meeting, the CEO described the Shop Your Way loyalty program as a key competitive advantage that allows it to squeeze more out of each customer even as it shrinks its store base.
Members of Shop Your Way, which offers points and tailored deals, accounted for 74 percent of overall sales in 2014. That relatively high percentage for a mass retailer offers Sears valuable insights into its customer base, said Dennis Armbruster, managing partner at LoyaltyOne Consulting, which specializes in affinity programs.
But the cost is high. Sears has invested hundreds of millions of dollars on Shop Your Way and technologies to integrate online services and its stores. And because the program offers rewards on top of traditional store discounts, margins have suffered.
Sears has lost $7 billion over the past four years and sales have continued to fall. This shows the loyalty program has not been effective, said Chad Brand, head of Peridot Capital Management, which invests in Sears bonds.
Brand said Sears needs better products to drive traffic to its stores. Otherwise, "I don't think Shop Your Way will work," he said.
REIT SPINOFF: A CASE FOR LESS SPACE
Sears plans to spin off about 250 stores into a real estate investment trust (REIT) next month, a move that it estimates will raise $2.5 billion and which Lampert said should alleviate liquidity concerns for "several years."
Lampert cited ride hailing service Uber as an example of how companies can use technology to build profitable customer relationships without depending on physical assets like a fleet of taxis or, in Sears' case, retail stores.
The REIT would find new tenants for a portion of the space in the spun-off stores, allowing it to operate a smaller footprint more profitably, he noted.
Lampert said Sears did not necessarily need more Shop Your Way members, but wanted existing ones to buy at Sears what they might otherwise purchase elsewhere.
While most retailers have loyalty programs, Lampert said none had placed such an emphasis on personalizing and communicating with customers.
He showed shareholders a video depicting an ideal interaction with a shopper, peppered with deals and useful information through an app on her smartphone, as she toured the store. One offer, for an oil change, highlighted the advantage of Sears' broad range of services that could be offered through Shop Your Way.