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Sears CEO pick leaves more questions than answers

NEW YORK — Sears Holdings Corp.'s appointment of a new CEO rich in technology expertise but short on retail experience is leaving many wondering what direction the owner of the struggling Sears and Kmart stores is heading.

The appointment of Lou D'Ambrosio came just hours before Sears reported another weak quarter, even though results from competitors Target Corp., Kohl's Corp. and Home Depot this week show shoppers are spending more.

Sears has struggled more than a decade with declining sales and customer defections and desperately needs to renovate its stores to lure shoppers back, analysts say. The Hoffman Estates, Ill., company had no permanent CEO for three years before naming Lou D'Ambrosio to its top post, causing a number of analysts and executive recruiters to scratch their heads at the choice.

D'Ambrosio's resume includes serving most recently as CEO at Avaya Inc., a telephone and software technology company, where he was instrumental in taking the company private in a $8.2 billion deal with two private equity firms in 2007.

His resume also includes 16 years at IBM, where he last headed sales and marketing for its software unit, which primarily targeted business customers, rather than consumers. For the past six months, D'Ambrosio has served as a consultant to Sears' board.

Investors gave the appointment a thumbs down. Shares fell $4.73, more than 5 percent, to $82.50 Wednesday afternoon. Sears' stock has dropped about 28 percent in five years.

Sears' chairman and largest shareholder, hedge-fund billionaire Edward Lampert, shed some light in his annual letter to shareholders released Wednesday. He noted that D'Ambrosio, 46, will help transform the 125-year-old retailer into a company for the 21st century.

He noted D'Ambrosio's technology background would be a strength as Sears builds a business that's more focused online. He also highlighted that Avaya's going private helped deliver "attractive returns to its shareholders," raising speculation that Lampert may be thinking about such a move for Sears.

"Information and technology have always been an important part of the supply chain in retail, but more and more it is becoming critical that we use information and technology in a much more profound way to deliver great customer experiences," Lampert wrote.

Many analysts say the move to a bigger online presence is a good one. They also believe D'Ambrosio could help Sears with mobile technology as more shoppers buy products from cell phones.

But Sears also has one of the largest brick-and-mortar footprints in North America, and one of the least productive. That makes D'Ambrosio a misguided choice, said Credit Suisse analyst Gary Balter and other analysts.

"While Sears has played the financial game well, and has smartly invested in the Internet, the store experience remains one lacking due to underinvestment in the basics of retailing," Balter said.

"I think they still have confusion as to what they are. I don't think they stand for anything," said analyst Brian Sozzi of Wall Street Strategies, who called Sears and Kmart "depressing places to shop."

Someone with more of a retail background would have complemented Lampert's financial strengths, Sozzi said. "I think (the appointment) is just another mistake on top of many years of mistakes."

Sears is being squeezed by retailers from all sides. At Kmart, whose business has strengthened somewhat, it faces challenges in food as Target Corp. expands into groceries. Wal-Mart Stores Inc., the world's largest retailer, has stumbled with falling sales but is still a formidable competitor.

Kmart's fashions have been improving, with exclusives like Dream Out Loud by singer and Disney Channel star Selena Gomez. But it faces heavy competition from Target and fashion purveyors like H&M and Forever 21.

Sears stores' strength has long been appliances and home goods, including the Kenmore and Craftsman brands, but those sales have weakened. Home-improvement chains Home Depot and Lowe's Cos. have been specifically targeting that category, hoping to take more business as the housing market improves.

Meanwhile, Sears' clothing isn't up to snuff with rivals like J.C. Penney and Kohl's Corp., both of which are also adding more exclusive brands.

Competitors have also kept their stores up to date. Many of Sears' stores desperately need refurbishing. Lampert gave no indication in his letter to investors that Sears is looking to remodel any stores, instead saying it is "using technology to transform our store experiences."

Lampert detailed in his letter how the company has opened smaller specialty stores that are cheaper to run. Sears closed a combined 34 Kmart and Sears stores in 2010 and added 122 specialty stores.

Craig Johnson, who runs the consulting firm Customer Growth Partners, says he's heard good things about D'Ambrosio. Still, Johnson fears Sears may be expecting too much too soon.

But time is of the essence.

"Getting the customer in the door and servicing them is the basic problem for this large chain," Credit Suisse's Balter said, "a problem where the gap with its competitors seems to widen each year."