Howard Davidowitz, chairman of the retail consulting and investment banking firm Davidowitz & Associates just went on a spectacular rant on Larry Kudlow’s CNBC program about hedge fund manager Eddie Lampert’s attempts to run his Sears/Kmart abomination. His rant was hilarious, it was spot on, and pulled the mask off of the ol’ lone ranger. Lampert has had a "hall pass" issued to him by all his Wall Street hedge fund buddies on his so-called turnaround chops. Howard just confiscated the pass. Larry Kudlow is doing podcasts. We’re seeing if he published transcripts or archives. If so we’ll publish a link. It’s worth a read or listen. Especially if you’re a regional retailer looking to gain traction against the WalMart/Sears/Kmart/Target/Costco juggernaut.
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Don’t know if this is anything of interest to you but this is a MAJOR reason for same store sales declines, along with out of stocks, sorry delivery service and just poor service in general because as goes Sears hardlines, so goes Sears.
Sears (and now KMart) base a large part of an employee’s performance evaluation on what are called “the numbers” and whether or not he/she reaches “parity”. This simply means that a certain percentage of their total sales must include the high profit (60-70% is a conservative estimate) “add-ons” in the form of Master Protection Agreements (MPAs) or Master Repair Agreements (MRAs). These are simply Sears’ high sounding terms for extended warranties, which Sears sells for exorbitant prices compared to other retailers, prices often amounting to 50% or even more of the price of the merchandise. (A recent post had a protection plan on a $999.99 TV selling for $599.99, approximately 2.7 times what it would have cost somewhere else).
Sears tries to justify these outrageous prices on the claim that their agreements are “better” than extended warranties offered by others because they include an annual “preventive maintenance check” (totally laughable in most cases, descriptions of some of these available on requestor on virtually every consumer complaint site on line) and allow you to complain about four different problems in your four complaints before they’ll replace the merchandise, while other stores require that all your complaints be about the same problem, yadayadayada.
Anyway, in Sears’ drive to rid itself of “unprofitable sales” which, in today’s Sears “culture” are those that do not include these protection agreements, employees are under unbearable pressure to sell these things, apparently in order to recover some of the profit being lost in the consistent (over the past seven years now) same store sales declines. A salesperson can be doing a million a year in merchandise sales but if he/she isn’t meeting “parity” in extended warranty sales, their job/livelihood is in jeopardy.
Their hours can be cut drastically, they can be transferred into a lower paying position or they can actually be fired for not “utilizing the tools available to them” which include various high pressure sales techniques (offer three times, overcome objections, don’t take no for an answer, etc.) which are taught through the weekly “coaching” sessions anyone not up to parity is required to attend, often on their own time off.
So it’s reached a point where the employee would simply rather not sell the merchandise than sell it without the protection agreement and since since walking the “unprofitable” customers falls right into line with Sears’ new hedge fund philosophies, this appears to be OK, in spite of the smoke Lampert and Lewis periodically blow in the direction of the financial media about trying to increase the customer base. Remember, they don’t subscribe to same store sales as a valid benchmark and they want only “profitable” customers, the ones who will fall for the protection agreement scam every time.
The following was cut and pasted from one of the aforementioned retail employee forums and illustrates how far many salespeople will go to avoid the “unprofitable” sale. Since by far, the vast majority of Sears shoppers do not want these agreements, a little simple math will give you one of the major reasons same store sales continue to decline.
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Posted: Mon Sep 11, 2006 5:13 pm Post subject: Best way to meet PA standard, just don’t sell the product ! Reply with quote
Most consultant salespeople try to second guess whether a customer is a good candidate to buy a PA before they even approach them. If your all alone in the dept. then you realize you don’t have any choice.
The faster you can find out how the customer feels about extended warranties the easier it is to get out of the sale.
Given the choice of selling anything without a PA or not selling it all the majority of any management type people would be, ” don’t sell it at all. ” Sad but true, why, because their job security is dependent on the stores PA standard being above standard.
Some things to say to try to get out of the sale:
1. Let me check in the back to see if we have one in stock.
2. We don’t have one in stock but we can deliver it for only $60.00. The soonest delivery date would only be about 5 weeks from now.
3. We can order it for you and call you when it comes in. You have to pay for it first and it will only take about 5 weeks to come in. Do you have a truck to pick it up ?
4. I could call another store and see if they have one in stock, if they do you can pay for it over there.
5. I would wait if I were you, they say the prices will drop about 50% in a few months.
6. It’s a good TV but it’s not rated very good in Consumer Reports.
7. You have 30/90 days to return it and there is only a 15% restocking fee.
8. I would recommend buying a PA because I saw one of our stock people accidently drop some boxes off a skid last week.
9. They say the next model will be a lot better.
10. You could open a Sears Card, the interest is only about 30% a year.
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The last one is just a small exaggeration. Have you checked the APR on those Sears/Citi cards lately? Anyway, there are numerous posts of this type scattered throughout any Sears/KMart message board these days. Sears does not want customers who don’t buy their protection agreements and would rather they shopped somewhere else anyway. The employees are simply doing their best to comply with those wishes.
Hi Tom,
This is Mike Smock and this is my blog. This post was written back in December 2005 – so I don’t know how current Howard’s remarks might be today. Just wanted to make sure readers put his remarks in the proper time frame.
Your post brings up some interesting questions about Lampert’s management style and what happens when financiers/CPA’s start running the business.
Oops!!! Sorry about that. While I’m embarrassed about goof, I hope someone will find the information pertinent given that far from turning Sears around as a retailer, Lampert has simply continued the downward slide while sucking tons of cash out of the company.
Again, my bad on not checking the date of the article.
Hi Tom,
I think your comment is spot-on, and I think Howard’s comments still ring true. I used to call on Sears back in the early 80’s when you went to the Sears Tower to talk to the buyers. How things have changed!