At the crossroads: Sears searches for a new direction - includes related article on effect on discounters - HomeMarket Trends

At the Crossroads: Sears Searches For a New Direction

The nation's No. 1 retailer is going through an identity crisis. To break out of its earnings funk, Sears is considering establishing power formats in several home fashion categories

It's tough to be part of the Sears family these days. With critics raising questions about the long-term and short-term health of its merchandising group, Sears is now thrashing about like an unruly relative, searching for bold new strategies to improve its flagging performance.

Every system, policy and procedure that was once accepted as part of Sears' retail gospel is now being reexamined at the highest echelons.

Sears chairman Edward A. Brennan went public with the company's "refocusing" of Sears strategic direction," at an analysts meeting last November. He also acknowledged that the need for improvements is urgent and conceded, "...a number of our initiatives in the past have taken far too long to develop."

Recent sales results reinforce that sense of urgency. With sales up to $30.2 billion for 1988, a $2.2 billion increase, Sears earnings actually declined from $787 million in 1987 to just $524 million in 1988.

Brennan announced a whole new retailing strategy for Sears that calls for heavier reliance on name brand merchandise, an everyday pricing strategy and broader assortments. The actual mechanism that will embody all of these changes is a series of "power formats," the company's bid to offer more "category-dominant assortments in order to strengthen Sears as a destination store," Brennan said.

Some of the first experiments with these power formats, not surprisingly, focused on hard lines and were rated as successes. The Brand Central format for consumer electronics and the Tire America by Sears format produced strong results, Brennan said.

On the soft lines side, in home fashions, power formats have not yet been formulated in bed and bath, window treatments and furniture, but Sears has dropped some importants hints about new directions being considered.

Sears will go after different profile customers for different product categories within the store. That conclusion is based on the one power format in home fashions that has been formulated, floor coverings, along with preliminary discussions Sears has had with its major suppliers.

Top Sears executives say the company's new reliance on higher volume sales through branded goods does not mean it has become a discounter, but it seems clear that Sears will soon compete more directly with discount chains in some categories.

What remains unclear, however, is whether Sears can streamline its decision-making process and muster the discipline to execute these new programs to generate the margins it needs from the expected higher volume.

The power format for floor coverings has already been rolled out to all 726 stores that offer the category. The assortment has been doubled to more than 2,000 sku's and prices come with a guarantee that customers won't see their purchase at a lower, sale price later on.

"Sears will now carry the largest non-duplicated assortment of branded products in the market," said Ed Gilligan, national manager, floor coverings, at the unveiling of the chain's carpet department prototype in Jersey City, N.J.

Brands like Mannington, Armstrong and Trevira were added to the mix and most house brand floor coverings dropped. While there's no way of predicting exactly how this strategy will manifest itself in other home fashion categories, it's logical to assume Sears will give national brands a higher profile in its bed and bath and window treatment departments.

To execute this new strategy, Sears has tried to decentralize operations and decision-making by establishing systems for suppliers to ship direct rather than having merchandise stored in warehouses. And, store managers have been given greater flexibility in pricing to respond more effectively to changing market conditions.

Test results from experiments that led to the rollout have encouraged optimistic projections for the category. But the changes have enabled Sears to catch up to competitors rather than to surge ahead and set the competitive pace.

For example, although Sears has now added many national name brands to the new assortment, there were virtually no stain-resistant carpets in the assortment up until last year--even though stain resistant carpeting accounts for 90 percent of all carpet sales nationwide.

The existing window treatment department is decidedly upscale and will almost certainly remain that way even with pricing changes and the introduction of more branded goods. And, too, the department offers custom drapery services complete with installation, which positions Sears to compete in this category with JCPenney and specialty stores rather than with discounters.

Bed and batch categories are different. In these product areas, Sears seems ready to make a grab for some of the volume now generated by discounters. Industry insiders who have been privy to Sears' latest thinking in domestics say the company is likely to focus more attention on the "better" merchandise in its good, better and best style of presentation and pricing.

"They acknowledge that their bed and bath department is not the department store customer, it is the upper end of the discount market," said a major supplier. "In addition to a more aggressive stance in sheets, they are also going after greater volume in bedding by making better use of coordinates."

Despite Sears' realization that it must depend on brands to increase volume throughout the store, consumer surveys indicate that shoppers recognize Sears labels in domestics as a top national brand. One of the major issues yet to be resolved for the power format in domestics revolves around the pros and cons of reducing sku's carrying the Sears brand.

"There is a lot of discussion on that subject internally. The changes in existing brands may not be to that great an extent in bed and bath. That issue is still something of a boiling issue at headquarters," said a major supplier. "There will be more emphasis on the "better" rather than the "best" and the "good" levels of the assortment," he added.

Another supplier characterized Sears as being slow to react to changing market conditions and opportunities.

"Sears never wanted to be a leader in setting a fashion trend. If a towel mill came out with something that hit hot, they would want it but too often they would get something that had already peaked. Over the years they have felt that with their clout, they could pretty much go their own way and the consumer would follow," he said.

In towels, Sears is expected maintain its core assortment and then leave room for some swing issues.

One of the more interesting experiments Sears is now conducting in its furniture department is the addition of ready-to assemble pieces.

For several years, Sears has had several RTA sku's in microwave carts, computer work stations, wall units and entertainment centers, but it is currently studying results from its experiment with adding RTA to its traditional furniture department. Preliminary testing features Bush products in a Chicago area store experiment and Sauder in its catalog.

"We have always been of the mind that there is an upscale RTA consumer," said Jim E Kirby, senior vice president of sales and marketing for Bush. "Our marketing strategy emphasizes select distribution channels and what we have seen at Sears would tend to confirm those conclusions."

The RTA experiment has been described as an eclectic mix with some new products and many sku's not offered in current Sears assortments.

The future importance of RTA in Sears' traditional furniture assortment of sofas, love seats, sectionals, recliners and bedroom furniture remains unclear, but the possible addition of RTA would bring the retailer one step closer to discount chain assortments.

Sears' increased sensitivity to the potential for increased sales in home fashions is demonstrated by the company's willingness to support three new specialty store experiments.

Each of the experiments is also an acknowledgement from Sears that it can achieve greater sales by making it more convenient for customers to buy its products. All three stores are directed at potential home fashions customers who don't have access to full-size Sears stores.

A chain of Sears bedding shops in southern Dade County in Florida will soon be expanded to five stores. The Open Home store in Massachusett's Cape Cod focuses on country American-style furnishing and upholstered goods, and the Homestore in New York City is a small version of a Sears store with a focus on soft lines.

"All three were initiated to improve or establish market share in areas where we had not been particularly strong," said John Summers, a Sears spokesman.

In the New York City market, for example, the last full-size Sears store closed in the 1930s. For the Homestore, which offers domestics, housewares, furniture, tabletop, consumer electronics and some apartment-size appliances, Sears chose a residential area of Manhattan to offer an assortment with special appeal for urban shoppers. The riding mowers, chain saws and bench tools that appeal to Sears' suburban homeowners are not present.

Home fashions is likely to play a role in another new Sears experiment. Using the name "Sears Ltd.", the new format targets customers in densely populated urban markets. Tailored to individual locations, the new stores will contain a handful of Sears power formats. One proposed Sears Ltd. in the Chicago market will provide significant space for housewares and light furniture, while another in a different part of the Windy City, will showcase children's apparel, Brand Central and paint and hardware.

PHOTO : In its test store in Wichita, Kan., Sears has given domestics a high profile by placing

PHOTO : the department just inside the entrance.

PHOTO : Sears plans to add a fifth unit to its chain of bedding stores in Florida.

PHOTO : Upscale bath presentation at the Sears Homestore in New York is targeted at urban

PHOTO : apartment dwellers.

COPYRIGHT 1989 Reproduced with permission of the copyright holder. Further reproduction or distribution is prohibited without permission.
COPYRIGHT 2004 Gale Group