Can Advertising Spark a Turnaround for Sears and Kmart?

Facing a big-box challenge

On the surface, the business that Sears Holdings is dangling before advertising holding companies is juicy: the chance to handle all marketing services across its Sears and Kmart brands, which collectively spend $560 million in media each year.

Total account revenue is significant as well—amounting to at least $20 million, according to sources. So why have teams from Dentsu and Omnicom Group dropped out?

Levine: Trae Patton/NBC/NBCU Photo Bank via
Getty Images; Minaj: Jason Merritt/Getty Images;
Sears Tower: Arcaid/UIG Via Getty Images

The problems of Sears Holdings transcend advertising and are, some would say, existential. In short, how does a big-box retailer not known for innovation survive in the age of Amazon? Company leaders point to ShopYourWay.com, a digitally based consumer-membership service. But even remaining contenders in the review—Interpublic, Havas and Publicis Groupe—aren't so sure.

Sears' search for a holding-company solution comes as it cuts agency compensation and investment in stores, sheds assets and real estate holdings, and grapples with cash-flow issues. (Fitch Ratings believes Sears Holdings will likely run out of cash in 2016.) Given all those problems, some question how big a difference advertising can make.

"No level of marketing effort with regard to quality or quantity can reverse the damage that Sears has incurred," said Columbia University's Mark Cohen, former CEO of Sears Canada. "Without appropriate leadership, product assortments, pricing and acceptable levels of productivity, a sinking ship like this will just continue to founder. There is no viable strategy in place that customers find attractive or compelling."

A Sears representative said the company fired Cohen in 2004 as a result of strategic differences concerning the future direction of the retailer's business.

Cohen added that Sears Holdings chairman Edward Lampert "for all his bluster, is nothing more than an asset stripper."

Bill Kiss, chief digital marketing officer for Sears and Kmart, disagreed, naturally.

"This [review] is not a cost-down, cost-cutting exercise," he said. "It's aimed at accelerating the growth of our brands and of ShopYourWay. We're committed to a digital transformation from bricks and mortar. Digital and technology is the secret sauce in what we do."

Perennially optimistic ad execs are buying into that vision. Agency sources echoed the sentiment of a former Sears marketing exec, who said, "Sears will always be an iconic brand and has come back from death's door a number of times," before also noting that "despite its issues, there's opportunity here: This is still a company of consequence, generating significant revenue, spending a lot of money on advertising. And, of course, there's the agency ego appeal of turning a company like this around."

It's rough sledding for all mid-tier retailers these days, but the decline in the Sears brand in particular has been steep. As recently as 2003, Sears spent $1.5 billion on all marketing expenses. When Ogilvy & Mather, Chicago worked on Sears from 1986 to 1993, the office was among the agency's most profitable in the U.S., with a profit margin of 15 percent on an account that spent $250 million in media annually, according to sources. But Sears' last lead agency, Dentsu's mcgarrybowen, saw account revenue decline from $10 million in 2011 to $5 million last year, sources said.

Some observers expect Sears Holdings to shift toward an all-digital marketing strategy, which would dovetail with its evolving business plan. Still, a retail consultant questioned such an approach. "Three years ago, [ShopYourWay] may have made sense, but there's no such thing as a pure online retailer anymore," said Brian Brands' Brian Kelly, a former marketing leader at Sears. "Everyone is omnichannel, while Eddie [Lampert] has been betting the house just on digital. Retail is a disaster in general, although what Eddie is doing may be even more of a disaster. He's just got the ugliest horse in the glue factory."