The Branded Pantry

I was struck by some of the financial news regarding big retail in the last 7 days. At Supervalu analyst Scott Mushkin of Banc of America Securities reportedly changed his rating of Supervalu’s stock from “sell” to “neutral,” and urged the company to respond to “contracting earnings, eroding margins and higher capital expenditures” by selling off its distribution business“Supervalu could divest non-core assets such as distribution (we believe worth about $10/share) and use the capital to accelerate remodel activity and subsidize lower prices,” Mushkin wrote in a note. “While current market conditions may make this more difficult, such a move by management could yield significant upside.”At the same time Edward Lempert, Chairman of Sears Holding the company that owns Sears and K-Mart, announced that he was reversing a decision that he had made two years earlier to centralize and combine the power of the brands. He will now break the brands into physical retail outlets by banner, online banners, and consumer brand banners such as Kenmore. The rationale is that the rejuvination of the brands has never occured, the share price is in the toilet despite massive buy-back efforts and so its time to break the assets up, and see what can be salvaged. Not the best real-estate market to try and tap that asset, but..Sears and K-Mart were facing a tough future made tougher by stronger competitors at every turn, by unclear positioning against every form of competition, against old-increasingly irrelevant facilities, against online (althought they had some interesting online properties) and against ongoing strategy and staffing revisions that left an increasingly mediocre store service crew facing a dimishing audience. (more…)