Sears goes national with Kansas pricing test; Wichita survey shows discounters still strong

Sears Goes National with Kansas Pricing Test

Wichita Survey Shows Discounters Still Strong

WICHITA, Kan. -- Sears' new every single day pricing program isn't just a Kansas test anymore, but a nationwide effort to change the century-old shopping habits of the Sears customer.

However, judging from the lukewarm reaction to the new strategy from consumers in this test market, everyday pricing, by itself, will not be the salvation of Sears.

In fact, the results of a consumer survey conducted here for DSN offer testament to the belief of Sears Merchandise Group chairman Michael Bozic that everyday pricing is just one of "four pillars" that support the new Sears merchandising and cultural revolution.

The rollout of power "category-killer" departments with name brands, restructuring of the headquarters and field organization, and improved logistics to meet the needs of each Sears business are at least as important to the eventual success or failure of Sears' new strategy as are the everyday low prices.

Confidence in Merchandise

"If lower prices are going to work, they will work only if there is also some improved confidence in the merchandise itself," said George Rosenbaum, vice president, Leo J. Shapiro & Assoc., the Chicago research firm that conducted the Wichita study.

"More than simply adding more name brands, it means that Sears must offer better sizes, more range of colors, and even violate traditional good-better-best selections when needed," he added.

The results of the consumer survey, based on telephone interviews on Jan. 27, 28 and 29 with 400 men and women heads of households in the Wichita metro market, reveal that Sears' everyday pricing policy has had little effect on discount store competition in this medium-sized market.

Wichita also contains stores operated by the Big Three discounters--K mart, Wal-Mart and Target--as well as national merchants, JCPenney and Montgomery Ward.

Looking forward, the survey shows that Sears (as well as Penney and Ward) can expect to lose some sales to the discount stores in the coming year.

However, Sears is likely to be more successful nationwide than the Wichita consumer survey suggests. There are several key differences between the national program, which debuted March 1, and the pilot test, which was introduced last October.

For one thing, the national program included price cuts on over 50,000 items, more than double the 20,000 items that were immediately reduced in price in Wichita. The national program is being supported by the largest ad campaign in Sears' history. It includes massive television, print and radio advertising, supplemented by enormous free publicity fueled by the two-day closing--and then reopening--of all 824 Sears stores for repricing.

Additionally, with the exception of the new carpeting department prototype, the Wichita test stores do not contain any of the power departments, such as Brand Central, that are so essential to the future success of Sears. Some observers speculate it may take as much as two years before the chain completes a chainwide rollout of all its power categories.

In fact, Sears will probably report an all-time sales record in March due to the heavy advertising and publicity of the everyday pricing maneuver. However, this could be, in Rosenbaum's words, "one of the great short-term retail success stories in history" if Sears is not successful at implementing its other merchandising and operational changes.

As a test of everyday low pricing alone, the Wichita market offers some clues to consumer reaction to the new policy.

Wichita consumers expect to spend, on average, 9 percent more at discount department stores in 1989 than they did in 1988. They expect to spend, on average, 15 percent less at Sears, Montgomery Ward and JCPenney.

Respondents said they spent an average of $327 last year at Sears stores in Wichita. Despite the new price policy, which six out of 10 respondents said they were aware of, consumers said they plan to spend just $276 per household at Sears in the coming year. That's a decrease of $51 per household.

Compare that with consumer spending plans at Wal-Mart: they spent an average of $360 at the discounter last year; they expect to spent $394 per household in the coming year.

Furthermore, despite the everyday pricing at Sears, Wal-Mart is still the store that enjoys the best reputation for offering Wichita consumers good prices every day.

When asked to name the store in which they feel most confident about finding the best prices every day, half of the respondents named Wal-Mart. Four out of five named one of the discount department stores in the market.

Despite extensive direct mail, television and newspaper advertising of the new price policy, consumers still feel compelled to price-shop before buying at

Sears.

Only 12 percent of those who have shopped Sears since the everyday pricing policy was instituted spontaneously named Sears as the best place to go for low prices every day. Among those who shopped Sears during the four weeks prior to the survey, that percentage rose to 20 percent--indicating that Sears has been successful in educating some consumers about its new prices. However, even among those who had shopped Sears in the latest four-week period prior to the survey, twice as many named Wal-Mart as the store with the best prices every day.

After conditioning American consumers for more than 100 years to wait for one of Sears' numerous sale events, the company will be hard-pressed to change ingrained shopping habits.

In fact, nearly one-third of Wichita shoppers said they would be reluctant to buy at Sears unless there was a sale going on or they checked prices at competitors.

The survey is not all bad news for Sears. The chain can take heart in at least three findings that indicate its new pricing policy is winning over some Wichita area consumers: . Spontaneous awareness of Sears' new everyday pricing policy is high--59 percent of Wichita consumers had heard of the change. . Over one-third of consumers who shopped Sears since the change said that their visits have been more successful, primarily due to better prices. . One-third of Sears' shoppers who have visited the store since October expect to shop there more often in the coming year, compared to 16 percent who expect to shop less and 50 percent the same.

Tempering those positive findings is the fact that prior to being reminded of the new policy, Wichita consumers said they planned to spend less at Sears in the coming year than in the past. Only 2 percent said they would spend more because of lower prices. Basically, four months after implementing the new pricing, there is little evidence to suggest that area consumers have decided to increase their spending at Sears.

However, after being reminded of the new Sears policy, consumer feelings toward the store improved. One in four said they will shop Sears more often in the coming year, with 12 percent citing lower prices as the reason. Another 6 percent said they would shop more often at Sears because of better quality merchandise, suggesting again that improved merchandise selection and quality will play an important role in the success of Sears' strategy.

And, if Sears is successful in executing its new strategy, discount stores as a group are likely to be affected.

Consumers who were reminded of Sears' everyday pricing were asked which retailers they would shop more or less often to make up for their changed shopping frequency at Sears.

Sixteen percent said they will shop Sears more often and a discount store less, while only 7 percent said they would shop Sears less and a discount store more.

Among individual discounters likely to lose customers to Sears, Target and K mart appear most vulnerable in Wichita. Nine percent said they would shop Sears more often and Target less as a result of Sears' everyday low prices, while only 2 percent said they would shop Target more and Sears less.

Seven percent said they would shop K mart less and Sears more; 2 percent said K mart more, Sears less.

Only Wal-Mart appears to have a firm hold on its customer base. Five percent said they would shop Sears more and Wal-Mart less; 6 percent said they would shop Wal-Mart more and Sears less.

Sears, while not releasing figures, said its research shows that since instituting everyday pricing in Wichita: . The number of Sears customers has increased dramatically; . Repeat visits have increased; . Customers who had been inactive credit card users were coming back to the store.

In addition, the company said its Wichita research showed that "vertical" shoppers, that is, single-category customers like hardware department shoppers, have returned to Sears and that cross-shoppers are once more using Sears as a source for a variety of product needs.

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