MARTINEZ HAS HOLIDAY CHEER FOR SEARS

Byline: Valerie Seckler

NEW YORK — “I continue to be very optimistic about Christmas,” declared Arthur C. Martinez, chairman, president and chief executive officer of Sears, Roebuck & Co.
The Brooklyn-born ceo — in town for his yearly meeting with the media at “21” Thursday — wore a brave face just two hours after Wall Street sent Sears stock down 10.8 percent.
The stock dived following the company’s announcement that its third-quarter net rose 7.9 percent, but that there is a growing rate of credit card delinquencies. On Friday, Sears stock slumped another 1 5/16, closing at 46 3/4 on the New York Stock Exchange.
Despite the problem, Martinez offered an upbeat holiday outlook, saying apparel sales began to pick up last week and that the holiday sales campaign will be supported by a 15 percent hike in media spending. Most of that budget will be allocated to television and radio, Martinez said.
“We had a strong Columbus Day weekend, and our business is on plan,” the ceo reported. “We’ve been helped by a blast of cooler weather in the Midwest and Northeast.
“I hate to be a weather merchant,” Martinez added, “but our apparel business has suffered because of unseasonably warm weather in the Northeast during the second part of September and first part of October.”
Weak apparel business was the key culprit in Sears’ disappointing same-store sales gain of 2.2 percent for the third quarter, Martinez noted. Sears, with sales of $38 billion annually, had targeted a mid-single-digit increase for the three months ended Sept. 27.
While upbeat over holiday prospects, Martinez called the credit problem a “thorny one” and acknowledged that Sears is “applying a lot of management effort to resolve it.”
“We’re being stingier with our credit card customers as they go even a little bit past due now,” Martinez told reporters, at the cocktail reception. “We’re also monitoring other credit accounts held by SearsCard customers, to help identify problems earlier.”
In an interview before his remarks to the group, Martinez said, “It is mostly a consequence of SearsCard customers whom we’ve put on the books over the last three to four years” that Sears upped its reserve for credit card delinquencies by a whopping 85 percent, or $503 million, in the third quarter. “It is the most significant increase we’ve ever had,” he added.
By Dec. 31, Sears will have added about 16 million SearsCard customers over the past three years, Martinez estimated. “We’ve generally seen the greatest number of credit card delinquencies in the early phase of new accounts,” he said. “We’re at a higher level of that old pattern.”
He noted that the company’s credit collections were in line with the industry average during the first half of the year, but began to exceed the benchmark in the third quarter.
“We’ve made no change in our credit scoring to ease standards for issuing credit cards, so the change in behavior is a little hard to sort out,” said Martinez, who appeared confident despite the credit woes and the hit taken by the company’s stock Thursday.
“Even with all of our credit card problems, we’ll have a very good year-over-year in the unit,” the Sears chief projected, while reiterating that if the delinquency rate continues to climb it would depress operating results.
Turning to other matters, Martinez told WWD that Sears will probably launch four to six junior versions of its full-line stores next year, before accelerating the new format’s growth. The first two 70,000-square-foot units bowed Sept. 11 in Statesville and Wilson, N.C., two small towns each with about 50,000 people.
There’s room for around 100 junior Sears nationwide, Martinez estimated. Apparel occupies 70 percent of the selling floor in the smaller box, up from 60 percent in its usual 130,000-square-foot unit. Sears research found consumers were leaving small markets to shop elsewhere for apparel, prompting the decision to open smaller boxes.
“There’s a little rush of enthusiasm in the company for the junior Sears, but I’m taking a show-me stance,” the ceo related. “I want to see the return on invested capital before we accelerate the rollout. They need to do about $15 million to pay off with a fair return on investment.”
Asked about Sears’ plan to open more stores in urban markets, Martinez said the company is still scouting for sites in downtown Chicago and Detroit. “There continue to be more opportunities in New York City,” he noted. “I think we could have two stores in Manhattan and three in Brooklyn.”
As noted, Sears is one of three finalists bidding to occupy the Columbus Circle site of the New York Coliseum. Sears does not expect to learn whether its bid is the winner until after the Nov. 4 mayoral election, according to Martinez.
“There is no plan B; we don’t have an alternative site in our cross hairs,” Martinez said. Sears is hoping to locate its first Manhattan store at the Coliseum site.
Sears will open its second Brooklyn store Saturday at Kings Plaza in the borough’s Marine Park section and launch its second Bronx unit in fall 1999, in The Mall at Bay Plaza, a proposed regional mall in the Baychester area.
“The old Chinese curse is ‘May you live in interesting times,’ and this certainly has been an interesting year for Sears,” Martinez said.

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