New pricing strategy to affect distribution channels - Sears

New Pricing Strategy to Affect Distribution Channels

CHICAGO -- Sears new everyday pricing policy will affect every aspect of the retailer's business including the merchandise distribution channels.

"When you get into an EDL [everyday low] pricing environment, the rate of sales becomes more level and predictable ... improving the efficiency of your distribution," said Eric Saunders, Sears' senior vice president of administration and planning.

Further streamlining its distribution network is Sears' move toward a more vertical accounting structure. Under this system, catalog and retail divisions will have separate inventories by July. Saunders said the vertical structure also allows Sears to streamline the flow of goods since it "allows us to focus some individual on the accountability of inventory control."

Combined, these two factors have already led to some major distribution changes, and additional moves are expected in the near future.

Begun two years ago, Sears' plan calls for both the separation and repositioning of the retailer's distribution process. Prior to the change, Sears operated 13 warehouses throughout the country, serving both the retail and catalog divisions.

Now, however, with the operational separation between the two entities, Sears is also dividing and paring down the distribution facilities. Currently, catalog merchandise distribution is down to 10 facilities following the closures of sites in Chicago, Seattle and Boston. Future plans call for this number to drop further, when Sears eliminates the catalog division at its Atlanta and Minneapolis facilities early next year, while also pulling out of Philadelphia later the same year.

At the Greensboro, N.C., site, catalog operations will actually increase space. While some of the former catalog centers will completely close down, others will be taken over by the retail division.

Saunders said some DCs will continue to house both catalog and retail operations, but the two will be separate operating business units.

While catalog operations are cut back, Saunders said the retail replenishment centers will eventually total between nine and 11 facilities.

Sears is also reworking its mixing warehouse distribution system. In an effort to get facilities closer to the manufacturers, particularly in the case of Brand Central, Sears is paring down the facilities for its large ticket items. The move will take Sears from some 50 regional centers to five or six, Saunders said. These mixing warehouses, the first of which is now under construction in Columbus, Ohio, will be leased facilities.

"The distribution changes are part of a logistics strategy that supports the expansion of our power formats--such as Brand Central in home appliances and electronics--and the introduction of EDL prices in Sears stores and catalogs," said Sears Merchandise Group chairman and chief executive officer Michael Bozic.

In addition to these changes, Sears continues to operate five fashion centers. However, these will not undergo any major realignments.

To better coordinate the entire network, Saunders said Sears is now developing a new database system. While this year will see the full implementation of bar code scanning from store cash registers through the merchandise flow system, Saunders said Sears is also looking to update its present inventory control network. The new program will "interface with all inventory management systems to track goods. We've had a system like this for 20 years, but now its time to redo and update it."

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