Byline: Dianne M. Pogoda and Mark Tosh, with contributions from Thomas J. Ryan

NEW YORK — Arthur C. Martinez, the executive credited as the catalyst for the sweeping changes that have revitalized the Sears Merchandise Group, will become chairman and chief executive officer of its parent, Sears, Roebuck & Co.
He will succeed Edward A. Brennan, who said Thursday he intends to retire in mid-1995 following a spinoff of the company’s 80 percent ownership of the Allstate Corp. insurance business. Brennan, 60, recommended that the board approve Martinez, chairman and ceo of Sears Merchandise Group, as his successor.
Sears also said James M. Denny, 62, vice chairman, will retire at the conclusion of the spinoff, which will be considered at a special shareholders meeting in the spring.
Martinez, 55, joined Sears in his current post in September 1992 after a 12-year career with Saks Fifth Avenue. At the time he left Saks, he was vice chairman, a post he held from 1990 to 1992, and prior to that he was senior vice president and group chief executive for the retail division of the former Batus Inc. Batus owned Saks before selling the chain to Investcorp.
In a statement Thursday, Martinez said he was “personally gratified” with the faith Brennan has placed in him and his organization.
“I have every confidence in our ability to deliver on that responsibility,” he said.
“With Ed Brennan’s support and encouragement, the Sears Merchandise Group has experienced significant success over the past two years,” Martinez added. “We have a strong, aggressive management team in place to continue this momentum. We’ve proven that our marketplace strategies are correct and [Thursday’s] announcement will enable us to fully focus on our revitalized retailing businesses as we move forward.”
Martinez said the planned spinoff of Allstate represents “another example of Ed Brennan’s bold leadership,” adding, “He served Sears extraordinarily well through some great and tough times.”
Brennan has been “the heart and soul of Sears for nearly 40 years,” he noted.
Wall Street applauded Sears’ decision to spin off its Allstate holding. Its share price rose 2 5/8 to 51 1/2 Thursday on the New York Stock Exchange.
Analysts said the spinoff allows the Merchandise Group to become a “pure play” as a stock, with its performance tied directly to any price movement.
Linda Morris, at PNC Investment Management, said Sears’ stock price generally lagged behind other retail stocks due to Allstate. She said most stocks of financial companies trade at about seven or eight times earnings while an average retailer might trade at 10 to 12 times.
She also noted that the spinoff, which will leave just a pure retail issue, makes it easy for analysts and investors to understand the company.
“We know that sales can be volatile, but an earthquake or a hurricane is a hell of a lot more volatile,” she said. Analysts also said it would benefit Sears employees, who would see the Merchandise Group’s progress more directly reflected in the stock price.
A big factor in Sears’ success, Martinez noted at a conference this year, has been its ability to improve attitudes both in the workplace and with the public. As part of its workplace strategy, the company brought in fresh talent at each level, something Martinez referred to as “new people for new thinking.”
At the executive level, 44 percent of management was new. For senior managers, it was 31 percent; regional general managers, 40 percent; district general managers, 28 percent; store general managers, 29 percent, and sales managers, 15 percent.
Some observers questioned the appointment of Martinez as the head of Sears Merchandise in 1992 because he had moved up the retailing ranks as a financial executive, rather than as a merchandising man.
Soon after Martinez came on board, however, he and Brennan initiated a series of changes that have vastly improved the chain’s sales and profits. The company first announced it would focus on retailing and slash debt by getting out of the financial arena, disposing of most of its financial services — including all of Dean Witter, Coldwell Banker and the Discover card, as well as 20 percent of Allstate.
In January 1993, Sears undertook the major restructuring that focused its Merchandise Group into three categories: apparel, home and automotive. It also announced plans to cut 50,000 jobs, close 113 stores and, perhaps most dramatically, close its 105-year-old catalog operation.
In 1993, Sears Merchandise Group accounted for sales of $29.6 billion, or about 58 percent of Sears’ total revenues. Following the Allstate spinoff, Sears Merchandise will operate about 800 stores, including 412 in major metropolitan areas. Martinez, described by observers as a talented, hands-on executive, led the drive to build the apparel and home goods business with the “Softer Side of Sears” advertising campaign, which has been building cross-shopping and customer recognition, as well as sales, since it was launched in September 1993.
Martinez, building on a strategy that Brennan started in 1992, also has added more brands to Sears’ overall assortments.
In February 1993, Martinez recruited Robert Mettler, a former Robinsons-May executive, to head the Sears Apparel Group, a move that has paid off in increased apparel sales.
The company expects apparel sales to grow in the high single digits this year. The retailer also re-entered the cosmetics business last year and new departments should be in place in 120 of the 800 Sears stores by the end of the year.
Retail consultant Kurt Barnard said Martinez combines three remarkable abilities.
“He can formulate a vision for the company, develop a strategy to achieve that vision and execute the strategy,” he said.
Barnard said Martinez is “top notch at figures, extremely fair with vendors and has an uncanny ability to surround himself with competent executives.”
He also has a keen understanding of the American consumer, Barnard added. Under Martinez, Sears has become the moderate-price alternative to department stores, and is taking market share from them, as well as from discounters, Barnard said.
Thomas Tashjian, an analyst at First Manhattan, said Martinez has been “the catalyst for change in the merchandise group, and it was bright and smart of Brennan after several attempts to bring someone in from outside the business to rework it, someone who had no allegiances except toward profit.”
Terry McEvoy, at Janney Montgomery Scott, an investment house, termed the transition from Brennan to Martinez as a “natural” move.
“Brennan restructured the company and clarified the situation, and now it’s time for a merchant to see if he can make the stores work,” McEvoy said.
Another observer said the smartest thing Brennan ever did was hire Martinez. “This move is not a surprise,” said the source. “When Martinez was hired, it was pretty certain that he was the heir apparent. Now it’s time for Brennan to fade into retailing history.”
Analysts also praised Brennan.
“I think he’s leaving in a blaze of glory,” said Walter Loeb, at Loeb Associates, of Brennan’s successful bid to restructure Sears. “You’ve also got to remember that it was Brennan who found Arthur and not that Arthur found his way to Sears.”
He called the move “a real confidence boost for Arthur.”
Wayne Hood, at Prudential Securities, said Brennan was “the mastermind” behind what turned out to be one of the largest corporate restructurings in retail history.
Martinez received a little more than $2 million in salary and bonuses in 1993, according to the company’s proxy statement. The paycheck consists of his base salary of $900,000 and a bonus of $1.1 million.
Brennan received $3.07 million last year, including a base salary of $1.02 million and a bonus of $2.05 million.

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