Where is Martha?

First, her Apprentice-style TV show was dumped leading to a very public row with former friend and real estate tycoon Donald Trump. Now retail consultants are wondering about the strength of her relationship with Kmart, which is part of Sears Holdings Corp.

Sears Holdings, which was created by the November 2004 $11 billion acquisition of Sears, Roebuck & Co. by Kmart, is said to be tightfisted in negotiating a new contract with her. (The merger closed March 24, 2005.) The Chicago Tribune reported that Sears Chairman Edward Lampert, a multimillionaire former hedge fund manager who orchestrated the takeover, wants the household diva to accept less money while expanding her Kmart license to include Sears stores.

All of which has led to gossip about Stewart’s future with the company. It’s rumored that she’s in talks with Federated Department Stores’ Macy’s chain to move the brand there. Sears, Macy’s and Martha Stewart spokespeople would not comment.

Consultants fear if Sears loses its relationship Stewart’s Everyday line it will further muddy the waters for the country’s third-largest retailer.

“They’re not going to pay her what she wants and what she’s worth,” says George Whalin, president of Retail Management Consultants. “They need her, but they’re going to lose her.”

The bigger question, say consultants, is “What is Sears strategy?” Eighteen months after the takeover was announced, and a year since it closed, the Sears/Kmart approach is hazy. Originally considered a real estate play by Wall Street when Kmart bought Sears, with a nod from Sears investor Vornado Realty Trust, the retailer is now trying to shape a merchandising strategy—and, say industry watchers, floundering in its attempts.

For example, consultants are shaking their heads over the relabeling last month of Sears new and expanding Essentials store idea. Fashioned from shuttered Kmarts, they were supposed to integrate the best products from both chains. The stores are now being called Sears Grand, taking the name of an off-mall concept originated before the takeover. But, say consultants, the planned Essentials store, are not grand. They are baby Grands.

“It doesn’t make sense to start bastardizing a concept before you see if you can make it work,” says Whalin.

The name change is part of Sears’ decision to retool the stores, according to a corporate spokesman. The company is primping and preening them to be as visually appealing as the Sears Grand stores. He wouldn’t comment on product strategy or negotiations with Stewart, but noted her Everyday line of products are only sold in Kmart and Sears Canada stores. “It’s perplexing,” says Don Delzell, a principal at consulting firm Retail Advantage. “I think Wall Street still views it as a retail strategy.” At market close yesterday, Sears’ stock was 119.17 a share, after trading in a range of 107.83 to 163.50 over the past 52 weeks.

Consultants are questioning Lampert’s vision. They say Sears Holdings is failing in an attempt to emulate Target, and is now losing middle-market business to turn-around success story JCPenney and to off-mall chain Kohl’s Department Stores, which is expanding rapidly and could be a potential buyer if Sears real estate comes on the market.

Neil Stern, a consultant with McMillan Doolittle says he thinks Lampert, who is running things, views Sears as an overall asset, not just a real estate company. Real estate represents one part, and the other part is the operating divisions. “He still needs to run the company for the foreseeable future, and run it as profitably as he can,” says Stern.

But how to do that is the question? Sears is strong in hardlines, where its Kenmore appliances and Craftsman tools are popular. And Kmart brings some strength in traffic-generating areas. “But how do you create that in a coherent picture to the consumer?” asks Stern.

Lampert envisioned some of this disparagement. “We know we cannot please everybody, but we believe that people generally value clarity and consistency,” he said in a letter to shareholders September 8 of last year.

Industry watchers, however, say that it is exactly those things—clarity and consistency that are missing from Sears’ strategy.

--Beth Karlin