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Sears CEO cites pension costs for not boosting store investment

Edward S. Lampert (L) speaks at a news conference in New York in this November 17, 2004 file photograph. REUTERS/Peter Morgan/Files
Edward S. Lampert (L) speaks at a news conference in New York in this November 17, 2004 file photograph. REUTERS/Peter Morgan/Files

By Dhanya Skariachan

NEW YORK (Reuters) - Sears Holdings Corp Chief Executive Edward Lampert admits the retailer's stores could be improved, but partly blames higher pension obligations in recent years for taking resources away from its stores.

"There are many of our stores that are in absolutely perfect condition. Could they be better? Of course. Could they be updated? Of course," Lampert said in a interview on Thursday, after Sears posted a steeper-than-expected quarterly loss on weak sales and bigger discounts.

Lampert, who has faced criticism in the past for not investing enough in his company's stores, is also the largest shareholder and the chairman of the operator of Sears department stores and the Kmart discount chain.

Sears' high pension costs, which Lampert said were the result of artificially depressed U.S. interest rates, take resources away from the stores, he said, adding that many Sears rivals did not even have pension plans.

Sears has allocated about $1.6 billion during the last five years to cover pension plans and will have to spend another $350 million this year.

While Sears has been investing in e-commerce and its "Shop Your Way" rewards program, critics contend its stores need more investment and attention, as the company still derives a larger chunk of its revenue in stores rather than online. Also, rivals like Target Corp spend a lot more on their stores.

"It is not just in isolation what we want to do. We have got to manage a business with obligations to pensioners, obligations to our employees, obligations to vendors," Lampert said.

"We have got a lot of people who depend on a pension from Sears, which has hampered our ability to be more aggressive," he said.

Lampert took the CEO job at the retailer six months ago.

Sears bonds due Oct 2018 fell to their lowest level since late June after the company posted weak results. Its credit default swaps have been rising, reflecting a higher cost to insure Sears bonds against default.

The company has been closing stores, tightly managing inventory, selling real estate and shedding assets.

"COMPETITIVE" HOLIDAY SEASON

Lampert said he sees a "very competitive" holiday season, in which the retailer will carry a larger assortment of products online and focus harder on wooing its "Shop Your Way" rewards members.

"What you will see in the second half of this year and going into next year is, we are bringing a lot of the digital capabilities and a lot of the membership capabilities that we have been building into the stores," he said.

"It will be noticeable. You will have member-only deals, you will have member-only pricing, you will have member-only events."

Shop Your Way members generated over 65 percent of the company's sales at Sears Domestic and Kmart during the quarter, versus more than 55 percent in the year-ago quarter.

Lampert wants to do more to cater to online shoppers and to use Sears' massive store footprint to fill those orders quickly.

"We have been ahead of the curve in terms of making those (online) investments," he said. "We just haven't, if you will, converted being ahead of the curve into strategic advantage."

(This story corrects company name to Sears Holdings; fixes spelling of surname in paragraphs 7 and 9 in first paragraph)

(Reporting by Dhanya Skariachan; Editing by Dan Grebler)

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