SEARS SCHEME: CUT BRANDS AND JOBS
Byline: David Moin / With contributions from Evan Clark
NEW YORK — After months of anticipation, Alan Lacy on Wednesday delivered his plan for reviving Sears, Roebuck’s 860 full-line stores. It’s a full plate of changes, with apparel still playing a big part.
So will job cuts, about 4,900 in total, including 3,600 salaried positions from Sears stores and field organization over the next 18 months, and 1,300 from the Hoffman Estates, Ill. headquarters. Sears, with 300,000 employees, seeks to save $600 million annually by 2004, and improve profitability on an operating basis by $1 billion within the next three years, with two-thirds of that from cost reductions.
“The difficult economy coming into Sept. 11 has clearly gotten worse,” said Lacy, Sears’s chairman and chief executive, at an analysts meeting in Chicago. “It’s time for the implementation of a full-line store improvement plan. Look for three key themes: better store focus, consistency, and it’s a lot about changes in apparel.”
Lacy said Sears will eliminate 570 brands and labels in soft goods to simplify its assortment, extend the successful Apostrophe career private label into casual clothes, and develop a “megabrand” for classic women’s, men’s and children’s wear, which will replace the Crossroads and Trader Bay proprietary labels.
Sears has been dogged by rumors that it was dropping apparel, but Lacy said, “We are completely committed here. It’s very important to our franchise.” Soft goods account for about $9 billion in sales. Total revenues are about $41 billion, with full-line stores representing $25 billion. “Apparel is not the strongest part of our business,” Lacy acknowledged, though “fine jewelry, footwear and home fashions business are in fact working well.”
He told analysts that Sears is “moving away from a traditional department store model, won’t compromise core categories, particularly hardlines, and will become significantly more efficient about productivity.
“We don’t want to be a discounter. We don’t want to be a department store. The short answer is we want to be Sears. We can carve out a unique position.”
About 250 smaller stores with “uncompetitive assortments” could operate with offerings that largely favor hardlines. “That puts some pressure on our softlines business. We’ll still be in it, but much more focused.
“We do have a new positioning for apparel — to get more focused and simpler,” he added. “We want to be the store of choice for classic-style apparel products with recognizable values. Casual is where our franchise is. We’ve been too career-oriented. Better product is where we need to focus. We’ve had too many shops, too many brands, too many labels.”
Special sizes, fine jewelry and diamonds offerings will be beefed up, among other categories cited by Lacy, and there will be more products presented by classification versus collection. Also planned are open-sell areas in athletic and kids footwear. The center courts, where Sears is exiting cosmetics, will showcase apparel, with renovated central pads of ready-to-wear surrounded by juniors, fine jewelry, bath, body and fragrance, handbags and hosiery. Cosmetics will be gone by mid-2002. Most of the merchandise changes will be complete by the fall of next year, Lacy said.
Other changes at Sears: centralized cashiering, more “consultant servicing” in categories, particularly in such areas as fitness products, and expensive jewelry where customers want help, and more uniformed signage and fixturing — 132 different fixtures will be reduced to 11.
Executives said the chain will remain an aggressive high-low promotional merchant, but will put more dollars into telling its branding story revolving around its unusual breadth of assortment and new tagline, “Sears, Where else?”
Profits for the three months ended Sept. 29 slid 5.8 percent to $262 million, or 80 cents a diluted share, nailing analysts’ consensus estimates. Year-ago earnings totaled $278 million or 81 cents. Excluding non-comparable items in the year-ago period, net income increased 0.4 percent.
Total revenues rose 1.7 percent to $9.75 billion compared to $9.59 billion. Turnover from the retail segment waned 1.3 percent to $8.37 billion, while revenues for the credit and financial business surged 24.2 percent to $1.38 billion. Shares gained 52 cents to close at $38.31 on the New York Stock Exchange Wednesday.
For the nine months, earnings plunged 73.3 percent to $241 million, or 73 cents a diluted share, from $901 million, or $2.57. Revenues climbed 1 percent to $28.84 billion.
Philip Emma, a fixed-income analyst with Moody’s Investors Service, noted, “They have a lot of things on their plate over the next few years” meaning “a lot of execution risk.” The tallest hurdle for the turnaround is “getting a lot of these things down, essentially simultaneously, without impacting the parts that work,” like tools and other hardlines.