Does Sears Want To Become A Members-Only Club Like Costco and Sam's Club?

After an especially depressing Sears (NASDAQ:SHLD) quarterly earnings report last week—a $279 million first-quarter loss that sent the stock to its lowest point in six months—Sears CEO Edward Lampert said he's still trying to figure out some way to make the Sears brand pop again. Is Lampert toying with the idea of turning Sears into a members-only club, in the Costco, Sam's Club, BJ's Wholesale mode? 

In an interview with Bloomberg, Lampert spoke of his focus on the chain's CRM program, which he said "now accounts for more than half of Sears' sales. Sears' performance needs to improve so he can speed its transformation into a retailer focused on serving a base of loyal customers."

On one hand, such comments might reflect little more than an obvious restating of the cost of customer acquisition, namely that it's a lot cheaper to sell more stuff to existing (presumably satisfied) shoppers than to constantly acquire new ones. And given how many customers Sears has shed in the last several years, that percentage of loyalty customers is not shocking, but it is still quite high.

But what if he's thinking of more than that? What if the idea is to focus all energies on the installed base? By focusing on existing loyal shoppers and requiring everyone to have a loyalty card to come in at all, it could allow the chain to focus in a very different way on its best customers. And what could be sweeter music to financier Lampert than getting people to pay for the privilege of shopping at one of his stores?

This brings up three questions: Would it improve matters for Sears? Would it reverse the key problems? Would the member model work for Sears at all?

The hurdle: All of the clubs mentioned are deep-discount chains, focusing on large-volume purchases. The rationale for those chains—and it's a valid one—is that the annual membership fee gets covered in discounts from just one or two shopping trips.

But assuming Sears can clear that hurdle—and if the joining fee is small enough, it's not an impossible task—the possibilities of a chain with 100 percent CRM compliance are compelling. You'd potentially have a complete list of what every member buys in-store and looks at online (must enter your credentials to view the site, if you want to go to a CRM extreme). If you want to factor in mobile and push those CRM efforts, too, you could get more information on what every shopper even thinks about buying in-store, assuming that a barcode scan would reveal some level of interest.

Also, a Sears-Kmart split—where Kmart stays as it is and Sears goes the member route—could mimic the Walmart-Sam's Club model. (It's quite the same, other than those boring marketshare, revenue and profit elements that people are always yakking about.)

With that level of CRM involvement, truly customized pricing and running special offers are possible. Interestingly, this is something that the current major club chains use hardly at all. Costco, for example, does nothing customized. Indeed, the experience online-offline is quite disconnected, even to the point of each channel housing very different merchandise. Indeed, even high-level shoppers (who pay more for a higher-level card) have to stand in the same long lines as others. There are no express lanes and certainly no perks for spending a lot, other than the automated rebates.

If Sears could take such a marketing gold mine, truly leverage IT (say what you will about Sears and especially its deployments, but its IT people know their stuff) and customize, it certainly could, in theory, make this work. This assumes, though, that Sears' senior-level management really plan on staying around in the retail game. Thus far, there's little evidence that they do.

For more:

- See the Bloomberg story

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