Logistics Key to Sears Overhaul

FORT LAUDERDALE, Fla. -- Sears, Roebuck and Co. may be minus a catalog, but cataloging the company's day-to-day operations is the heart of its five-year plan to improve profitability.<BR><BR>"We will do 1998's business on fewer dollars than 1994's,...

FORT LAUDERDALE, Fla. — Sears, Roebuck and Co. may be minus a catalog, but cataloging the company’s day-to-day operations is the heart of its five-year plan to improve profitability.

“We will do 1998’s business on fewer dollars than 1994’s, but we also want to double inventory turnover in that same period, ” Arthur Martinez, chairman of the Sears Merchandise Group, said at the National Retail Federation’s recent Logistics and Inventory Management Conference here.

Martinez said improved logistics is the backbone of the plan. “We’ve come to recognize that we are just as much in the distribution business as we are in the merchandising business,” he said. “Our logistics system can create significant competitive advantages for us. Information is power here, and we hope to use it to accomplish dramatic reductions in costs.”

The company is developing a base line from which logistics can be improved.

“We are bench marking ourselves by channel to understand cost issues, speed issues, throughput issues and productivity issues so that we can set objectives for our logistics organization that are consistent with best-demonstrated practices in the industry,” Martinez said. “We want to be better, faster and cheaper than the competition, but underlying all of this is the need for excellent technology.”

Though economies of scale have made the company relatively successful in the past, Martinez said Sears cannot rely on volume alone to drive its business. Efficient operations are equally important, he stressed.

“The power of volume is not to be ignored, but we also have to take dollars out of the system,” he said. “In our systems area, we have a high expenditures level without the kind of benefit we are looking for in terms of supporting our business. In supply-chain management, we have a cost base in this area in excess of $1 billion, but what we want to achieve is a continuous improvement in cycle time in order to bring unit costs down.”

Martinez outlined several of the company’s goals. Sears wants 90 percent of the merchandise arriving at its stores to be “floor ready,” it wants to have a 95 percent in-stock ratio on basic items and a 98 percent in-stock ratio on promotional items, and to raise customer satisfaction percentages of its home-delivery system to 97 percent. “That last link in the distribution chain is often the weakest,” he said.

Martinez said Sears is making progress toward those goals.

“We are well on our way to our goal of doubling inventory turns,” he said. “We have taken inventory turnover from about 3.1 turns to 3.8 turns over the last 18 months. We want to take a significant chunk of our SG&A costs out of this area.”

The ongoing redesign of Sears stores, which the company undertook last year, will make more demands on the company’s distribution infrastructure as space becomes available for faster turning items like apparel, according to Martinez.

“Sears historically built its stores with a very poor net-to-gross relationship,” he said. “Only about 50 percent of the space was selling space. We had extensive receiving functions, stock space and credit operations in every store. Over a five-year period, we will be recapturing 12 million square feet of our total store base of 65 million square feet for sales. That’s the equivalent of opening about 30 new stores a year and is a growth strategy because we can capture square footage without the bricks and mortar.”

Most of that new-found space is being given over to apparel. “Our apparel business has been growing at significant double-digit rates,” Martinez said. “Apparel was one of Sears’ best-kept secrets — a quiet, little $5 billion a year business inside a $20 billion store business. Our most profitable business in terms of ROI, it was living in the shadow of our hard-lines.

“We will double our apparel selling space from 25 million square feet over the next five years.”

Timely replenishment is critical if Sears is to make the transition a success. “Speed is important in the fashion channel,” Martinez said. “We want to move floor-ready merchandise from the vendor to the store in a maximum of six days.”

Sears plans to accomplish that and other goals by inviting those in its organization responsible for distribution and inventory management to play a larger part in corporate planning and decision making.

“Logistics will be part of our business strategy,” he said. “The logistical officials will be responsible for entire supply-chain management from the point of origin right to the point of sale.”

Strong distribution and inventory management systems are also key to Sears’ plans to spin off some of its hard-lines business into freestanding stores, according to Martinez. Though the retailer recently closed 133 department stores and eliminated 50,000 jobs, Sears is expanding those parts of its business where it feels its mammoth distribution system gives it an edge over the competition.

“We are rolling out 20,000-square-foot freestanding hardware stores across America,” Martinez said. “We have 80 of them now, and our distribution system lets us out-price, out-assort and out-service neighborhood hardware stores. We want to micromarket, but maintain the economies of scale of a national retailer.”

Sears is banking on a fast, reliable distribution system to help reinvent its furniture business too. “We want to be the Toys ‘R’ Us of furniture retailing,” he said. “We are building 30,000-square-foot home and lifestyles centers as we exit furniture from our big stores. Only we have the kind of logistics and systems support required to execute that concept nationwide,” he said. “We’re building them at the rate of about 35 a year.”