SEARS CANADA SEEKS ONLINE DOMINANCE
Byline: Brian Dunn
MONTREAL — Sears Canada Inc., the country’s most profitable department store chain, hopes to further boost its fortunes by developing a separate online shopping portal — and selling space on it to other retailers.
The Toronto-based company also plans to launch an online auction in the fall and a Christmas gift registry, similar to a wedding gift registry, in an effort to drum up new business and get customers to linger on its Web site.
With the help of Toronto-based Boston Consulting Group, Sears is exploring the possibility of using its extensive distribution network to fulfill orders for other online retailers, although it said it was premature to provide any details about how it would work.
The objective is to position itself as the dominant online retailer in Canada. This would include developing a service for delivering the merchandise of third-party retailers.
Sears Canada, 55 percent-owned by Sears, Roebuck & Co., already has in place one of the best infrastructures, with 110 department stores, 25 furniture and appliance stores and 2,000 pick-up locations for its catalog business across the country.
The company turned in a record performance last year, boosting earnings 36 percent from 1998 to $135.7 million (converted from Canadian dollars at current exchange rates) on sales of $4.16 billion versus $3.72 billion.
It also acquired the T. Eaton Co., its name, brands and 16 key locations across the country. Some of the locations will be converted to Sears stores, allowing the firm to enter new markets. Downtown locations where Sears has never had a presence will be renovated and reformatted as Eaton’s to compete against the Bay department stores. The discontinued Eaton’s catalog will also be relaunched.
“Our plan to enter these new markets under the Eaton’s banner will allow us to offer dramatically different merchandise and service selection to attract new customers, without causing any confusion about what our Sears stores already stand for,” said Sears Canada chairman and chief executive officer Paul Walters.
Sears plans to offer 24,000 items online this year at Sears.ca, triple the offerings available in 1999. The retailer expects its Internet sales to reach $115 million this year and $238 million next year versus $15 million in 1999. The company’s goal is to grow three times faster than the overall e-commerce growth in Canada. Online sales are expect to more than double this year to $2 billion from $953 million last year, according to a report by J.C. Williams Group of Toronto.
It’s an ambitious target for Sears but probably attainable, given its infrastructure, according to retail consultant Jim Okamura at J.C. Williams.
“They’re trying to leverage their infrastructure, which is as good as or better than anything out there. But because they cover so many categories, it won’t be an easy task selling third-party merchandise without running into a conflict. They’ll have to find specialty stores to represent, like Nevada Bob’s, which they sell.”
By selling online for others, Sears also faces the risk of compromising its brand equity, said Okamura.
“It’s almost like running your own e-commerce departments, and Sears may not be stringent enough to police the system.”
But Okamura applauds the idea of an online auction as a way to reduce inventory: “It’s like an online equivalent to outlet stores.”
The online auction will have two elements — the traditional auction to clear surplus inventory, similar to that of the eBay auction site, and a second, so-called Dutch component similar to those held at Filene’s Basement, where merchandise is offered at progressively lower prices until a buyer makes a bid.
By beefing up its online activity, however, Sears could cannibalize its traditional selling channels.
“That’s the big question mark for all retailers,” said Okamura. “At this point, nobody knows what’s going to happen. But Sears is as savvy as anyone and will go after consumers and worry about it later.
“The theory is, it’s better to lose a customer to yourself than to a competitor.”
Okamura gives a lot of credit to Walters for the company’s aggressive rush into e-commerce.
“Going back 18 months or so, when Sears was nominated for best retailer by the Retail Council of Canada, Walters predicted growth would come mostly from nontraditional channels,” he said. “He’s proving it.”