HOFFMAN ESTATES, IL-Sears Holding Corp. reported selling woes with big ticket items such as appliances in its fourth quarter report, but its cheaper counterpart Kmart held up better in the past quarter. The company has also announced that it has hired Lou D’Ambrosio, a former IBM executive, as the new president and CEO.

The company reported Thursday that its net income fell to $374 million per share in the fourth quarter, down from $430 million in Q4 2009. For the recent fourth quarter, Sears same-store sales dropped 4.5%, though Kmart’s same-store sales were up 2.5%.

In a letter to shareholders Thursday, controlling investor Edward Lampert said, “Our results in Sears in 2010 were completely unacceptable.” He blamed lackluster appliance, electronics and apparel sales at Sears stores for the reduction. “…it illustrates how vital it is to adapt to market changes and constantly evolving technologies,” Lampert said in his letter.

He cites keeping up with technology and Internet selling as an important aspect of change, and points out D’Ambrosio’s pedigree in respect to this talent. “He also understands how technology can shape and change companies and industries.  The profound changes that many industries, including retail, are currently experiencing require new thinking, new leadership and new business models,” Lampert said.

Examples of such innovation include the new, smaller specialty stores. The company closed 34 Kmart and Sears stores in 2010, mostly large-format properties, but it opened 122 smaller stores during the year. “The specialty stores are intentionally smaller stores, making them far less costly and providing the opportunity to open them in many more potential locations,” Lampert said in his letter.

Another idea the firm has undertaken is leasing within the stores to brands, such as a 43,000-square-foot lease to Forever 21 at its South Coast Plaza store in Costa Mesa, CA, and a 34,000-square-foot Whole Foods store in Greensboro, NC.

Ideas for innovation will continue at the company, Lampert said. “We will continue to make long-term investments in key areas that may adversely impact short-term results when we believe they will generate attractive, long-term returns.”

He did say in his letter that the company may close a store if it is underperforming. However, he did not address in his letter or the financial report how the company can better compete with newer chains such as Walmart and Target, which in most cases feature newer locations with flashier displays and more evidence of direct consumer knowledge. A company spokeswoman tells GlobeSt.com that the company will not comment further on strategy.  

The company’s stock closed the day at $82.40 per share, down more than 5.5% from the previous  day. Sears Holdings has more than 4,000 stores in the United States and Canada.