METTLER OUT AT SEARS AS PART OF SWEEPING REALIGNMENT OF DUTIES
Byline: David Moin
NEW YORK — Amid paltry sales gains, revised earnings forecasts and concerns that its turnaround campaign of the Nineties has stalled, Sears, Roebuck & Co. announced a dramatic management restructuring Thursday.
Robert Mettler was removed as president of merchandising, and Arthur Martinez, chairman and chief executive officer, was put more squarely in charge of repairing the full-line retail chain.
In addition, an office of the chief executive has been established, elevating two non-merchants. Alan J. Lacy, 45, president of Sears Credit, will add responsibilities as president of Services, leading the Homes Services and e-commerce businesses. Julian C. Day, 47, chief financial officer since March, has been named to the new position of executive president and chief operating officer for finance, logistics and information technology.
Asked whether it puts in motion a possible succession strategy, the 59-year-old Martinez told WWD, “These are two very able, high-potential executives and the changes give them more responsibility and position them for further growth inside the company.”
They both report to Martinez.
Asked whether Mettler left Sears voluntarily, Martinez said only, “Bob has left the company. Beyond that, it’s very much a no comment.”
Preferring to discuss the future, Martinez said the reorganization “relieves me of some of the large number of people directly reporting to me.”
“It will shrink my span of control so that I could, in fact, spend more time and get much closer to our merchant team, our store team, and our performance issues,” he continued.
While the new structure will enable Martinez to focus more on the troubled Sears stores, it also puts more heat on him to get the turnaround charged up again.
“There could be a horse race between Lacy and Day,” noted Hal Reiter, ceo of Herbert Mines Associates executive search, referring to a potential successor to Martinez.
To support Martinez in his retail effort, Sears created two new president positions, both reporting directly to him. Mark A. Cohen, formerly executive vice president of marketing, is now president of softlines, while retaining responsibilities for retail marketing activities; Lyle G. Heidemann, formerly senior vice president of appliances and electronics and the driving force in generating a strong appliance business at Sears, was named president of hardlines.
Other executives who will be working closely with Martinez on the retail front are Mary Conway, recently named president of stores, and William L. Salter, who continues as president of specialty retail, working closely to integrate the specialty operation into the mainstream retail operations.
With its business slumping, Sears adjusted its third-quarter earnings estimates to between 63 and 67 cents per share, excluding noncomparable items, a decrease from last year’s 76 cents and below analysts’ expectations of 82 cents.
Sears is also revising its full-year outlook for earnings per share to increase in the low single digits, excluding any noncomparable items.
Consequently, Wall Street pounded the stock, which fell 3 11/16 Thursday to 33 1/2, a 9.9 percent tumble.
For the four-week period ended Aug. 28, Sears’ domestic store revenues reached $2.15 billion, while comparable domestic store sales increased only 0.1 percent. Total sales rose 1.8 percent, excluding the impact of divesting Western Auto and HomeLife. Revenues were 4.7 percent below those of the August period a year ago.
Asked how women’s apparel performed last month, Martinez said sportswear was up in the low single digits, “somewhat below plan.” He also said that since the first of the year Sears has reduced its vendor base 15 percent and that the chain is rolling out two key private labels, Crossroads and Apostrophe. Both did well during the month, he noted. “The relatively undifferentiated product in our women’s sportswear did not perform,” Martinez asserted. “We want differentiated product. There are initiatives coming into place, in brand and product development. There is a major fall fashion sale event happening in September. We’ve been shortchanging our apparel business in our marketing, but we will have it front and center going forward.”
Sears recently dropped its “softer side” ad campaign, replacing it with a new one bearing the tagline, “The good life at a great price. Guaranteed.”
In other merchandise areas, Martinez said, there were strong increases in infants’ and toddlers’ apparel, home appliances, personal computers and big screen and projection TVs. On the other hand, sales in lawn and garden, men’s and footwear were below the levels of a year ago, and overall comparable revenue performance for the month was not up to expectations.
He also said he expects strengthened marketing and merchandising initiatives to have a positive impact on sales and that cost-cutting will be intensified as well.
At Sears, Martinez and Mettler once had a strong working relationship, but recently the atmosphere at Sears headquarters in Hoffman Estates, a suburb of Chicago, reportedly had become tense.
Industry sources, while not surprised by Mettler’s departure, characterized the restructuring as a dramatic development, considering the instrumental role Mettler played in helping to revitalize Sears in the Nineties. Mettler, in fact, was hand-picked by Martinez for that job, shortly after Martinez joined Sears in 1992 as ceo of the Sears Merchandise Group.
About three years later, Martinez rose to chairman and ceo of the corporation, after it divested its Allstate insurance firm.
The two executives led efforts to expand and renovate the square footage for women’s merchandise and raise the profile of its proprietary apparel lines through the “softer side” campaign. Last year, the company’s earnings dropped 11.8 percent and revenues rose just 0.1 percent to total $41.3 billion.
But the slender sales gains and a sense that the turnaround efforts have borne little fruit lately called for action, said one source.
“Sears really needed a scapegoat to throw out to the hungry public,” the source said. “Mettler was it.”
“I think the board got impatient, fired Mettler and told Martinez, ‘You fix the retail end. Let the other guys handle the other businesses. You have got to get this thing turned around,”‘ said a department store source.
“What Martinez did was great,” he added. “He took a troubled business, gave it more apparel space, put in the merchandise, and raised comps by broadening the credit base. They added as many moderate lines as they could. But Sears hit a wall in terms of moving up in price points and acquiring brands and is not as fast as Wal-Mart in fashion. When Martinez came in, everyone thought Sears was going to take over the world. It’s been a difficult job. He did everything he could to turn around the image, and he did make progress, but not enough at the retail level.”
Many observers think Sears became too dependent on credit customers and suffers from uncollectible credit accounts.
“I think the future for Sears has to be not making money on credit, but on the retail end of the business,” said the department store source. “But in order to make money on the retail business, you have to make money on the apparel end of the business, and in order to make money in apparel, you have to broaden the customer base and acquire more brands.”
According to Robert Kenzer, chairman of Kenzer Corp., an executive search firm, Sears has been squeezed by department stores dominating the key brands and becoming highly promotional, and discounters, which have become more fashionable, with prices below Sears.
“Mark Cohen’s promotion is clearly a step toward becoming more competitive with the mass merchandising marketplace, because of his broad mass merchandising experience at both Mervyn’s, and Bradlees,” Kenzer said.
However, Cohen’s experience was mixed. At Mervyn’s, he was head of Mervyn’s West region, based in Texas, where he orchestrated Mervyn’s expansion outside its California homeland. After expanding, Mervyn’s pulled out of some markets, including Florida. At Bradlees, Cohen commanded the chain while it was in bankruptcy. He also once ran the Lazarus division of Federated Department Stores.
Some market sources lamented the departure of Mettler, calling him a dedicated worker who was not afraid to put in long hours, and others thought he was upstaged by Martinez too often.
“Arthur looked like a knight in shining armor when the obvious stuff had to be done — the renewed apparel emphasis, store renovations, a reemphasis on core businesses in apparel, paints, tools. All of that was the low-hanging fruit, the stuff you pick off quickly,” observed Isaac Lagnado, president of Tactical Retail Monitor consulting firm.
Lagnado also noted that as a result of those efforts, Sears posted fantastic comparable-store gains for several seasons. In the last 2 1/2 years, however, comps were harder.
“It’s tested his mettle much more. That’s the issue,” Lagnado said. “The easy solutions have been exhausted. Major competitive entries, from Kohl’s, Target, Proffitt’s and Home Depot, are going directly after Sears. Sears is getting it from both sides. It’s the old middle-of-the-road approach, with double yellow lines and dead armadillos.”
Sears has also been plagued by legal problems, particularly in the credit arena, distracting executives from the business.
“The problems counteracted a lot of what Martinez and Mettler were doing in advertising and positioning the softer side and was an issue with consumers,” Lagnado added.
Several sources said Sears’ softer-side campaign should have been dumped sooner, and the new campaign — which pushes price, and the entire store, rather than focusing on fashion — should have started earlier.
“Bear in mind that they got some hype converting store space from nonselling to selling, pulling out the furniture, putting more space into higher-turning apparel, and the clever softer-side ad program,” said retail analyst Maggie Gilliam. “All these things certainly helped. They were smart, but it ran out of steam.”
“Sears had accomplished a major turnaround, but there are new challenges to meet, the new competitive challenges posed by department stores offering more value and becoming more price-promotional and the growth of major big box competitors, like Kohl’s, and the continuing improvement of Wal-Mart, Target and Kmart,” added Arnold Aronson, managing director of retail strategies for Kurt Salmon Associates.
Martinez said Sears will be more focused on promoting all the categories and the departments in its stores, and that this Labor Day weekend there will be “a big push” to do just that.
“We want the customer to experience all values,” Martinez said.
Sears also said Thursday that it will open a store on State Street and Madison Avenue in downtown Chicago, catercorner to the landmarked Carson Pirie & Scott flagship.
“There’s been a great recovery in downtown Chicago,” Martinez said. “There’s a lot more people living in that part of town.”