SEARS TURNS THE CORNER

Sears, Roebuck and Company, often thought of as a has-been retailer with a checkered past, seems to be turning the corner towards profitability.

For the second quarter of 2003 Sears exceeded analysts’ expectations by posting a $309 million quarterly profit, up 38 percent from a year earlier. Revenues for the first half of 2003 were $10.2 billion, compared to $10.14 billion a year ago. In fact, most of those gains in profitability were due to Sears’s sell-off of its credit card business.

On July 15, 2003, Sears sold its troubled credit card division to Citigroup for $32 billion. At the same time, Sears entered into a 10-year marketing and service alliance with Citigroup to provide credit and customer service benefits to Sears’s 59 million card-holders (23 million of whom are active card users). Sears has been using part of those proceeds to buy back its own stock, driving the stock price back up as it pays down most of its debt.

In late August, Sears reported that its same-store sales were better than expected due to strong appliance sales. Finally, Sears broke its losing streak of 23 straight months of negative same-store sales. Still, the company cautioned that its consumer retail sales for the second half of the year are likely to remain flat.

Formidable Real Estate Holdings

Sears is also sitting on a cash cow. Sears owns 519 of its 872 mall stores. Sale of those real estate properties (with a lease back to continue to operate them) could generate over $7.6 billion of cash for Sears, according to industry estimates.

So, the company is well-funded, almost debt-free, and poised to return to solid profitability.

Number-One Appliance Retailer

Although Sears is often thought of as an also-ran in the North American market compared to stronger, more profitable players like Wal-Mart and Target, the fact is that Sears is, by far, the number-one retailer of appliances in the United States.

Sears also has a strong brand franchise with male customers, thanks to its well-respected Craftsman Tools line.

Sears Canada (a separate company in which Sears, Roebuck still holds a 55 percent stake) is one of the most popular retailers in Canada, with 122 full-line stores, 44 Sears home stores, 2,200 catalog pickup locations, 143 dealer stores, 15 outlet stores, 51 floor covering centers, 50 auto centers, and 115 Sears Travel Offices.

Gaining Traction in Apparel

In order to continue its trip back to profitability, Sears needs not only to focus on its core hard goods business, but also to gain market share in apparel. That’s one of the reasons that Sears acquired Lands’ End 14 months ago. Here’s a brief progress report on that integration—focusing on the story of Sears and Lands’ End as multi-channel retailers(1).

INTEGRATING LANDS’ END: A SUCCESS STORY SO FAR

In the 14 months since giant retailer Sears swallowed up direct marketer Lands’ End, a lot of progress has been made in integrating the two companies. We’re happy to report that both companies appear to have benefited from the merger, and, most importantly, so have both companies’ customers. Lands’ End’s customers—who were afraid that the Lands’ End quality and/or customer experience would suffer—have been pleasantly surprised. Lands’ End has continued to offer great service and good products at fair prices. Sears’s customers have been, on the whole, pleasantly surprised to find the Lands’ End merchandise selections in the women’s, children’s, and men’s apparel departments of the Sears stores.

When Sears acquired Lands’ End, Sears’s CEO, Alan Lacy, made the usual commitment about maintaining the Lands’ End culture. Surprisingly, the reports to date are very positive. The Lands’ End team remains bullish about the merger and pleased with the results it has achieved so far. One reason for that bullishness may be the compensation plan. Instead of giving Lands’ End employees incentives on apparel sales through their traditional catalog and online channel, employees now earn bonuses on total sales of Lands’ End apparel. Therefore, the more clothing that moves through Sears stores, the better they do!

EXECUTIVE SWAP. According to Bill Bass, former senior vice president for e-commerce and international at Lands’ End and now vice president and general manager for customer direct at Sears, one of the secrets of the smooth corporate culture meld has been the way Sears and Lands’ End have swapped high-level executives. Bill left the Lands’ End online property and took over all of Sears’s online and direct marketing channels. The head of merchandising for Lands’ End took over as head of apparel merchandising for all of Sears. Sears sent its chief operating officer to Lands’ End, and so on. Says Bass, “If you take really good people and put them in each other’s jobs, you do away with the committees and the fact-finding. You hit the ground running, you learn as you go, but, most important, you have the decision-making authority.”

IMPROVING THE CROSS-CHANNEL/CROSS-BRAND CUSTOMER EXPERIENCE

One of the promises of the Sears/Lands’ End merger is the ability to extend the reach of Lands’ End apparel into Sears’s vast retail footprint. That goal has been successfully accomplished. Lands’ End apparel is now featured in virtually all of Sears’s retail outlets.

Metrics: From Zero to 874 in 14 Months. In fact, in the 14 months since Sears acquired Lands’ End, Lands’ End apparel departments have been rolled out in 874 of Sears’s department stores.

BUY ONLINE; RETURN AT THE STORE. Starting October 3, the Sears/Lands’ End team will be rolling out another cross-brand convenience: the ability for Lands’ End customers who shopped online or by catalog/phone to return Lands’ End merchandise at their local Sears store...