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SEARS’ NEW STRATEGY: GETTING MORE SERIOUS ABOUT ITS SOFTER SIDE

NEW YORK -- Sears, Roebuck & Co. has done a 180.<P>After recently flirting with the idea of getting out of apparel entirely, but realizing it is too big to drop, the retailer is now committed to once again growing the business. The willingness to...

NEW YORK — Sears, Roebuck & Co. has done a 180.

After recently flirting with the idea of getting out of apparel entirely, but realizing it is too big to drop, the retailer is now committed to once again growing the business. The willingness to invest goes well beyond its $1.9 billion acquisition of Lands’ End in May. “Lands’ End is very important, but it’s more like the icing on the cake,” said Kathryn Bufano, Sears executive vice president of softlines, in an interview on the retailer’s apparel strategy. “When you think about all of the initiatives that are taking place, it’s mind-boggling.”

Among those Bufano cited are:

Introducing the Covington private sportswear brand in August. The line is made up of updated classics, such as chunky ribbed turtlenecks and boot-cut denim jeans, and is projected to exceed $200 million in sales in its first year.

Pumping up Canyon River Blues, another proprietary brand, by introducing tops to go with the denims and bottoms.

Launching big-and-tall shops with national brands and Covington.

Creating open-sell areas for costume jewelry, athletic and kids’ footwear, while shoes retain sales consultants.

Establishing central checkouts for faster transactions, credit applications and returns chainwide by the end of this month. Only consultative-sell departments, such as shoes and fine jewelry, keep registers.

Reorganizing the men’s floor by classification.

Reorganizing and reducing store staff with crews to focus on specific tasks, such as markdowns and sizing. Scheduling will be more task based.

Also, 142 labels in apparel and soft home combined that mean little to shoppers or the bottom line will be discontinued by the end of the year. Softlines consume 40 percent of the floor space in Sears’ 870 doors, produce 40 percent of the sales volume, but only attract about 30 percent of the customers, said Bufano. She believes there’s an opportunity to attract a higher percentage. In a matter of weeks, Sears will be entirely out of cosmetics, with no plans to reenter that business.

Yet to be worked out are marketing programs to lure Sears hard goods shoppers to the softer side of the store and its new brands. The programs will be crucial to the strategy. “We will have a big marketing program to support Covington and Lands’ End. We haven’t yet formulated it. It’s definitely something that will be developed,” said Bufano, who joined Sears in January after serving as president of Dress Barn for about a year, and before that, executive vice president of women’s at Macy’s East. She reports to Sears chairman, president and chief executive officer Alan Lacy.

In overhauling its softlines, Sears is joining a growing pack of retailers, many of them direct competitors, attempting to differentiate in apparel. J.C. Penney Co. is overhauling its softlines as part of a five-year turnaround strategy. While Penney’s seems further advanced than Sears in reconfiguring its stores for easier shopping and for spotlighting key items and trends, it has yet to come up with a big hit comparable to Lands’ End in its quest to get better brands on the shelves.

Other department stores are also trying to improve apparel offerings, primarily by developing their own products. Both The May Department Stores Co. and Dillard Department Stores are investing to build private brands for exclusivity and meatier margins, and May Co. and Federated Department Stores have recently shown they’re willing to experiment with new formats, such as scaled-down department stores with more specialized assortments and less square footage.

In addition, many department stores have eliminated certain categories over the last decade, such as electronics and furniture. Sears really hasn’t, which is what may be its main mark of distinction. “We’re a broadline retailer,” Bufano said. “We are not like any other store in the mall.”

Another point of differentiation: “We have very strong Hispanic and urban offerings,” Bufano said, and the company is playing them up. For example, the Covington fashion look book (the first look book produced by Sears, Bufano noted) has black, Hispanic, Caucasian and Asian models, reflecting efforts to appeal to minorities.

In the Nineties, Sears racked up a run of comp gains in apparel, but it is believed that much of that was through increasing the square footage and tonnage, rather than bringing in better brands and fresher looks. Bufano says both will be apparent to consumers for the fall and fourth quarter. “We are going to start to grow again and become more profitable,” she said. “We’ve been getting better margins, but the topline hasn’t been growing. We had such catching up to do, in terms of basic retailing 101.”

Prudential Financial analyst Wayne Hood predicted in a report on Sears that the retailer’s sales should continue to struggle this year, with a 2.4 percent drop in same-store sales, and top-line growth will come later.

However, there should be some lift this fall, with Covington getting launched in mid-September in all 870 stores, and Lands’ End to bow in 177 stores by late October. Bufano said the brands represent “two different sentiments in terms of classic.” Also, Lands’ End is more expensive, considered “best” in the Sears price spectrum of “good, better and best.” Covington falls into the better zone.

With Lands’ End, Wall Street analysts have expressed concern that Sears might tinker with the product, since it’s higher priced and of higher quality than Sears customers are accustomed to. However, Bufano assured: “We’re going to be the bricks,” for Lands’ End. “We are not going to touch a thread, a stitch or a button. It will continue as a separate subsidiary. We’ll edit the line [for the stores]. We can’t possibly buy all the [stockkeepng units] and put them in our stores.”

Covington, on the other hand, is coming out of the ether with more than 100 sku’s. To develop the brand, Sears relied on focus groups and close examination of the competition, aiming to up the ante in terms of quality and fit while keeping prices low. “We did exhaustive testing on denim strengths, thread counts, washability,” Bufano said. “We bought samples from the competition, tested them, tore them up, and compared them to ours. We went to Gap, Old Navy, Kohl’s,” among other stores.

As reported, Covington is 100 percent sourced and designed by Sears, and replaces eight private labels, including Trader Bay, Crossroads and Fieldmaster. Covington will be situated just off mall entrances, where the Circle of Beauty cosmetics areas once stood, though Covington shoes will be in the shoe area, and Covington men’s wear will be positioned by classification. Lands’ End, on the other hand, will be merchandised by classification, rather than being concentrated in one area.

This spring, Hood of Prudential Financial reviewed a new Sears store in Durham, N.C., which incorporates almost 90 percent of the adjustments in store design, fixturing and presentation that Sears wants to make in its stores. “The new prototype design incorporated many of the same design features that makes Kohl’s so successful,” he said in his Sears report. “The new design includes brighter lighting, a significant improvement in merchandise fixturing, improved merchandise presentation, clearly marked and easier to find departments, wider aisles and easier to find full-service registers.”

He also characterized the store prototype as having a streamlined management strategy, requiring less payroll expense through a decrease in consultative-sell departments, meaning less staff. There are also uniform fixtures, making merchandise easier to find and stock, which would reduce labor costs. “In the end, payroll costs should decrease and the speed of decision-making should increase,” he noted.

This year, according to the report, 50 doors will be remodeled to fit the North Carolina prototype. Next year, and through 2005, Sears plans to step up the pace of the remodels to 160 stores a year.

Hood sees “improved efficiency and productivity in the near term, which should be leveraged by top-line growth in the longer term.”

Over the five years from 1997 to 2001, Sears’ total revenues rose only 3.1 percent to $41.08 billion. Revenues from merchandise sales and services represented 87.3 percent of the pie last year; credit and financial products made up the rest.

While reaffirming Sears’ credit rating at “A-minus” after the Lands’ End deal was reported, Standard & Poor’s debt analyst Gerald Hirschberg noted that one of the firm’s “key strengths is a number of well-known brands that have enjoyed substantial success over the years.” Among these are Kenmore, Craftsman, DieHard and the Sears credit card. “Notably absent are names in apparel,” he said.

In research notes, UBS Warburg analyst Jeffrey Edelman pointed out: “The Lands’ End brand could become a real customer traffic driver for Sears, much in the same way many of its hardline products have.”