William Borden
Reuters News Service - Oct 7, 1999

NEW YORK  - Discount retailers had shoppers dashing for back-to-school bargains last month and apparel sales were stronger than expected, all of which should help third quarter profits and build momentum going into the key holiday season.

"The gains in the discount sector are on or above plan," Banc of America Securities analyst Tom Tashjian said. "It looks like this pace of growth could provide some upside to some of the earnings estimates."

"August and September sales are an excellent proxy for how the holiday sales will come in....We think it will be a very strong holiday," Deutsche Bank Alex.Brown analyst Joe Grillo said.

"The month was strong despite the impact of a major hurricane," Grillo said. Since Hurricane Floyd struck mid-week for the week ended Sept. 25, the storm did not hurt sales as much as it would have if retailers had to close stores on a weekend.

Also, cooler weather helped drive apparel sales, Grillo said. After a string of warm autumns, he said there is pent up demand for winter and fall clothing.

Department stores, however, had a fairly easy comparison for the five weeks ended October 2 from last year, since sales in the 1998 period were dampened by fears that Asia's economic crisis would spread to the United States, Tashjian said. He said their sales "were deceivingly better than trend."

The Deutsche Banc Alex Brown Same-Store 100 Index showed a 6.5 percent increase in same-store sales, compared with a 5.6 percent increase last September and a 6.4 percent increase in August.

The Standard & Poor's Retailer Index fell 0.35 percent or 3.29 points to 870.28, down but performning better than the broader market with the S&P 500 Index off 0.41 percent at 1319.93.

Sears Roebuck and Co., the No. 2 U.S. retailer, reported a 4.1 percent increase in domestic same-store sales, a measure of sales growth at stores open more than a year.

After a string of lagging results, Tashjian said, "It's nice to see a good number out of Sears."

Wal-Mart Stores Inc. , the world's largest retailer, announced a 7.2 percent increase in same-store sales and store expansion plans on Tuesday -- the same day of a conference for securities analysts.

Kmart Corp. , the second largest discounter after Wal-Mart and the third largest U.S. retailer overall, bucked the strength trend in the discount sector, though, saying its September results fell short of expectations. Its same-store sales edged up 2.5 percent as company Chairman, President and Chief Executive Officer Floyd Hall cited a "an increasingly promotional" back to school season.

Dayton Hudson Corp., which reported a 6.9 percent increase in same-store sales including its department stores, had a 8.6 percent increase at its Target division, the nation's No. 3 discount chain.

Regional discounters and dollar store chains also turned in strong results. Dollar General Corp, Family Dollar Stores Inc., Bradlees Inc., and Ames Department Stores Inc. each posted same-store sales that topped 5 percent or more.

Among the department stores, Saks Inc. reported a 5 percent increase in September same-store sales, but noted that several of its stores were closed due to hurricanes. Without the effect of the storms, the company estimated that same-store sales would have gained 6 percent.

J.C. Penney Co. Inc. said same-store sales at its department stores fell 0.1 percent -- the fifth fall in seven months -- but it turned in strong performances at its catalog and Eckerd drug store divisions.

Federated Department Stores Inc. , the parent company of Macy's and Bloomingdales and catalog retailer Fingerhut, said same-store sales rose 3.7 percent. Chairman and Chief Executive James Zimmerman said Hurricane Floyd hurt some of the company's sales on the east coast.

Among specialty apparel retailers, Gap Inc. and Limited Inc. posted same-store sales gains of 7 percent and 8 percent, respectively.

The Big Store seems a bit small these days.

Consider that Sears, Roebuck and Co. shares have lost nearly a quarter of their value in just the past five weeks — shaving $3.3 billion off its market capitalization.

Once the king of retailers, Hoffman Estates-based Sears now finds itself a middle-tier player in terms of its Wall Street valuation. And with the low valuation comes a once unthinkable consideration: Could Sears be vulnerable to a takeover?

At the very least, some observers expect Sears to bolster its takeover defenses. The company instituted a staggered board of directors in 1988 (amid takeover concerns), but does not have a "poison pill" defense.

Though analysts who follow Sears consider a takeover remote — its appeal as a retail property is limited — a creative financial player might find value in breaking up Sears' lucrative credit card business, its valuable real estate holdings and its still-thriving hardware and appliance business.

Regardless, Sears' plummeting market value — shares traded in the $31 range late last week — is heightening the pressure on Chairman and CEO Arthur Martinez, who shocked analysts Sept. 2 when he announced that Sears would miss third-quarter earnings targets. With his turnaround plan on the ropes, he now finds himself in the biggest management crisis since his arrival at Sears seven years ago.

"I think investors have basically just washed their hands of this company," says Asma Usmani, an analyst with Edward Jones in St. Louis.

NOT SO BIG ANYMORE 
(figures in billions) 

Home Equity Deals Mount in U.S. Asset-Backed Mart

 Reuters New Service, Sept 15, 1999

Sears-iously Speaking!

Local Managers Take Up Challenge of 
Re-Making Retailer

Susan Chandler
Chicago Tribune, Sept 19, 1999

The battle to reinvent Sears, Roebuck and Co. was supposed to have been won several years ago. Under the generalship of Chief Executive Arthur Martinez, the nation's second-largest retailer spiffed up its stores, ramped up its credit-card business and pumped up growth with new off-the-mall specialty businesses.

But just when it looked like full-fledged victory was in sight, Sears stumbled. Credit losses soared in 1997. Several of its off-the-mall concepts failed to turn a profit and were sold off in 1998. And sales at its 850 department stores have been disappointing since the middle of last year, while specialized retailers and discounters were racking up big gains.

So it was back to the war room for Martinez, who declared in January: "It's time for the Second Revolution."

Since then, the need for profound change at the Hoffman Estates-based retailer has become more urgent. Earlier this month, Sears announced it would not meet profit projections for the rest of 1999--the third straight year it has failed to meet its targets. The warning was accompanied by a management shakeup that left merchandising guru Robert Mettler out of a job. Shareholders vented their disappointment, driving down Sears stock by more than 10 percent.

Clearly, new tactics were needed. This time around, Martinez has declared, the battle plan is focused on Sears' department stores. Apparel assortments are being pared down. Categories are being added. Prices on commodity items are being cut.

But the Second Revolution also is attacking Sears' deeply ingrained bureaucracy. Executives are trying to shift power to the stores, and store managers are being asked to function more like old-fashioned merchants, who listen to what customers want and then deliver it.

And all this is supposed to occur without burdening employees with heaps of additional work and new initiatives. Sears, in fact, is committed to helping its 300,000 employees do a better job of balancing work and family demands.

Industry experts aren't sure whether Sears can reinvent itself and retake ground in an increasingly competitive retail battlefield.

Yet if the company can, it will be because of the efforts of corporate foot soldiers and platoon leaders whose names aren't known outside their immediate circles. To better understand the dynamics of the Second Revolution, here's a look at three managers on the front lines.

Trusting the stores

If there is any part of Sears that doesn't appear to need fixing, it would seem to be its hard-lines businesses.

Kenmore appliances, Craftsman tools and DieHard batteries--all brands that Sears created--have consistently racked up big sales gains while the softer side of Sears has struggled to keep up.

But Steve Titus, Sears' vice president of sales for hard lines, isn't sitting on the sidelines as Sears attempts to reinvent itself.

The 31-year Sears veteran is on a Second Revolution mission too: to push authority down to the men and women who manage the hard-lines departments at Sears stores. That means increasing their say about what their departments will carry--or not.

Sounds simple, perhaps. But in a giant, tightly centralized operation like Sears, where everything from sales plans to merchandise displays are determined at its sprawling headquarters, it's a seismic shift.

Still, it's something CEO Martinez believes must be done.

"I'm asking the home office to trust our stores more," says Titus, who started at Sears loading shrubs and manure into customers' cars in Milwaukee and has relocated his family 10 times for the company.

"They know what they should carry. The customers tell them."

Sears is 20 years behind the curve on this one, however, says James E. Schrager, professor of entrepreneurship and strategy at the University of Chicago's Graduate School of Business.

"If we want to see the outcome of central planning, we just have to look at the Soviet government," he says. "Maybe this will finally be the year that Sears arrives in the mid-1980s."

In the past, executives at Sears' headquarters would base sales projections on the retailer's extensive database of what sold last year and then add on a few percentage points.

Now, the retailer is asking its district merchants how many of certain key items they expect to sell and using that information to craft sales plans. The change is already making itself felt.

"Some item numbers are being doubled. We're much closer to a market focus than ever before," Titus says.

In order to free up his subordinates to focus on what customers want, Titus is liberating them from a major hassle: dealing with e-mail and requests for information from upstairs.

Titus has labeled a file "Dumb." He has asked the more than 120 people reporting to him to forward any messages that fit that description. Then Titus himself deals with the requests.

"My job is to eliminate as much static as possible," he says. "When we put too much on your plate, you take your eye off the ball."

Successful clusters

In any battle, there are grunts and generals. And behind the scenes making everything happen are support personnel who never get much credit. In Sears' Second Revolution, Rick Burbee is one of these unknown soldiers. Call him Sears' chief visual strategist.

As creative design director, Burbee is supposed to banish cluttered racks of clothes from stores and replace them with in-store boutiques that highlight national brands, such as Vanity Fair lingerie and Benetton apparel, and Sears' in-house brands, including Canyon River Blues denim and Circle of Beauty cosmetics.

When Martinez recently said he wanted a more tightly focused apparel assortment, it was a clarion call for Burbee and his six-person team to lead the charge.

The visual design team at Sears is definitely taking its work to a new level. Burbee recently signed up Victor Skrebneski, one of the country's top fashion photographers, to create a new shop for its Crossroads women's casual apparel collection.

Skrebneski, a Chicagoan better known for photographing supermodels, has created visuals for Crossroads that emphasize smiling, happy faces of people shoppers can relate to.

Not that Burbee is trying to be subtle.

"We really wanted the shops to be intentionally intrusive--to stop a customer in her tracks so she would realize we had something different going on," says Burbee, who has spent 27 of his 51 years at Sears.

At the Sears store in Schaumburg's Woodfield mall, the effect was almost immediate. After installing the new Crossroads shop, sales soared the next day, even though the merchandise was exactly the same.

The new Skrebneski look is still being rolled out, Burbee says. About 300 Sears stores now have it. Eventually, all 850 of the full-line stores will.

Marketing Sears from a lifestyle perspective is a smart move, says Gwen Morrison, vice president of Frankel Brand Environments, a Chicago-based team that creates brand-building marketing campaigns for retailers.

"Look at the success of Pottery Barn. They put merchandise together based on a certain level of taste and quality. If you can establish the relationship with the customer, you can cross-merchandise," or sell shoppers related items they weren't looking for.

Although it's a fun job to create lots of little shops within a big store like Sears, Burbee and his team have to be careful not to make shopping more difficult, retail experts say.

Customers like seeing entire outfits put together for them-- something in-store shops do well--but they don't want to be forced to wander from place to place shopping for a single item.

So Burbee has to take an almost Zen-like approach to his job. While he is creating groupings of apparel or other products, he is also making sure they flow into related items. His next project: Creating special shops to set off Nike athletic footwear, which is headed to the stores in January.

Connecting with customers

If the Second Revolution is to succeed, the decisive battle will be at Sears' department stores.

And few face a stiffer challenge than Melinda George, the manager of the Sears store in Oakbrook Center. There, amid the outdoor mall's attractive park-like setting, George's Sears store must compete with the likes of Nordstrom, Marshall Field, Saks Fifth Avenue and Neiman Marcus.

But George, a 39-year-old retail veteran, is genuinely excited by the challenge. And she believes Sears can succeed in winning over middle-class customers if it does a couple of things right--get trendy merchandise on the floor when it's hot and push customer service up another notch.

Take the case of black Capri pants. Women around the country couldn't get enough of the calf-length pants this summer, and Sears rode the wave, along with the likes of Gap and Banana Republic, thanks to prominent aisle displays.

"We sold hundreds every weekend. There's a heightened sense of urgency with trends," George says. "Before, we had the merchandise, but we weren't getting the message out."

For fall, George's store is highlighting other trendy items such as "skants" (skirt/pant combinations popular with teens); "club wear," such as gray polyester pants with lots of zippers, and "hands-free" nylon handbags that are worn slung across the chest.

Being next door to higher-end retailers benefits Sears, George believes. "They go to Nordstrom and see a fabulous pair of shoes for $80. Then they come here and see them for $30," she says.

Of course, George is doing her best to make her Sears store fit in with its upscale surroundings. The store is well-appointed, clean and brightly lit. It also has something that once was the preserve of high-priced retailers: its own personal shopper.

Linda Petrovich sits at a desk in front of escalators with a sign that identifies her as a personal shopping assistant--no appointment necessary.

The program is so popular, George hopes to expand it to nights and weekends. Customers who use the service are spending an average of $250 on apparel, nice-sized sales for Sears.

It's all about getting closer to customers, George says. And as part of that, she is driving home a new message to her sales associates: Make eye contact and greet every customer you see, whether or not she needs assistance.

Leonard Berry, marketing professor at Texas A&M University and author of "The Soul of Service," says what George is doing is pretty basic. But, he adds, "They are short steps by themselves, but taken together, they're starting to tell a different story to the customers of that store."

There's no question that George's job in Oak Brook won't get any easier now that Sears has chosen to go head-to-head with discount competitors such as Dayton Hudson Corp.'s Target chain and Kohl's Corp.

But George, who has worked for May Department Store Co. and Elder-Beerman Stores Corp., wouldn't be hanging around if she didn't think victory was possible.

"If you had asked me five years ago if I would be a store manager for Sears, I would have said, `No way.' "

Today, she says, "I really do think they're headed in the right direction. Everyone wants to be with a winner."

Another "Store of the Future" Memo

Sept 22, 1999

Arthur Martinez Comes Up with Another Big Idea for the Big Store

Eddie Baeb
Crain's Chicago Business, Sep 6, 1999

Despite the bombshell that Sears' 1999 earnings will be a big disappointment, Sears Chief Executive Arthur Martinez still believes the Hoffman Estates-based retailer's problems can be solved in the not too distant future.

In fact, Martinez says, Sears, Roebuck and Co. is hoping for a strong holiday season with sales gains in the 4 to 5 percent range--numbers that would make most retailers happy.

"I'm personally optimistic things will pick up," Martinez said in an interview last week.

But Wall Street is much less sanguine about Sears' prospects for a speedy recovery. And following Sears' warnings Thursday, analysts say there are no easy answers about what the nation's second-largest retailer should do now.

Analysts who follow the retailer already have dropped their earnings estimates for all of next year. The consensus estimate for Sears' earnings in 2000 was $4.06 a share before Sears issued its warning Thursday.

After the news, analysts lowered their targets by 9 percent to an average of $3.68, still more than the disappointing $2.68 Sears earned last year. But the downward revisions come at a time when many retailers are raising their targets based on strong sales and expectations for a cheery holiday season.

Meanwhile, earnings estimates for J.C. Penney Co.--Sears' closest national competitor, which has been foundering, too--also were caught in the downdraft.

"That's more than a trivial reduction," said Chuck Hill, director of research for First Call, an investment research firm that tracks analyst estimates.

"That shows that people aren't viewing this as just a Sears problem," Hill said, referring to Sears. "It's a department store versus discounter problem."

Adding insult to injury, Moody's Investors Service on Friday placed Sears' debt ratings under review for possible downgrade, noting that its new marketing initiatives haven't yet improved sales momentum.

Sears stock fell $4.75 a share, or 13 percent, to $32.44 in the final two trading days on the New York Stock Exchange last week.

"Clearly, they're getting attacked on a lot of fronts," said Margaret Gilliam, president of Gilliam & Co., a New York retail research and consulting firm. Among them: heightened competition from Old Navy, Target and Home Depot.

"When you have a big established store base like Sears, it's very tough to hang on to market share when you have all kinds of stores moving in on you."

So what should Martinez do to reinvent Sears the second time around?

No one is volunteering a pat solution.

"They've got a real problem, there's no question," Gilliam said. But clearly the two main thrusts of Martinez's first turnaround campaign have failed, retail consultants say.

Many of the gains Sears made in the first five years of Martinez's tenure now appear to be related to handing out millions of Sears credit cards to uncreditworthy borrowers.

The easy credit created a short-term boom as new cardholders bought lots of things they couldn't afford. But when they stopped paying their bills and started declaring bankruptcy, Sears' bad debts soared and profits tumbled.

Martinez's other strategy to boost revenue--creating thousands of off-the-mall specialty stores selling hardware, furniture and tires--also has been a flop, analysts agree.

Sears jettisoned its money-losing HomeLife furniture and Western Auto chains last year, conceding defeat. In fact, the retailer's biggest success has been its so-called dealer stores.

Independently owned dealer stores replaced Sears catalog stores in small towns around the country, offering a downsized assortment heavy on hardware and appliances.

But the dealer stores weren't part of anyone's grand plan, retail consultants point out. They were brought back after the Sears catalog was folded because of demand from rural Sears customers who had been left out in the cold.

So far, Martinez's plan to reinvent Sears a second time isn't winning rave reviews.

At an analysts' meeting earlier this year, he laid out a series of piecemeal initiatives that included a new more value-focused advertising campaign. The new theme, "The Good Life at a Great Price. Guaranteed," was unveiled last month as part of Sears' pledge to be more competitive with its aggressive discount competitors.

Other moves include creating special shops inside Sears stores to showcase brands and adding new product categories such as dinnerware, glassware and gardening accessories.

But these are tactics, not grand strategies, analysts point out. And the new message lacks the conviction Martinez had in the early days when he was adding selling space to stores and preaching the benefits of improved customer service, they say.

Still, Tom Tashjian, retailing analyst at Bank of America Securities in San Francisco, says Martinez deserves a lot of credit for what he has accomplished since arriving at a beleaguered Sears in 1992.

The challenges Martinez is up against now may very well be macroeconomic forces beyond his control, Tashjian says.

"A good part of Sears' customer base is postwar Baby Boomers. Every year they are less interested in buying apparel and more interested in saving money," he said.

Tashjian admits Martinez may have erred in picking too many targets early on. Sears was trying to win market share from both discounters at the low end and department stores at the high end.

"It's easier to put your full force of marketing against one segment, not two," he said.

That dichotomy seems already to be resolved. Martinez has clearly defined Sears' latest challenge as fighting off further market-share losses to discounters such as Wal-Mart, Kohl's and Old Navy.

That's the right move, according to George Whalin, president of Retail Management Consultants in San Marcos, Calif.

"Sears has always danced with the discount business but they've never embraced it," Whalin said, noting that Sears backed off an "everyday low price" strategy in the late 1980s.

Unfortunately, trying to beat Wal-Mart or Target at their own game will require painful sacrifices, especially because people's perceptions of Sears will be hard to change, Whalin believes.

"You're going to have some crappy quarters. Your margins will be strapped to the gills. But they're going to have to bite the bullet and get through it," he said.

If Sears doesn't do something, its problems will only intensify when the economy softens and even high-flying retailers are hurting, Whalin warned.

But can Sears ever come close to being as hip as Old Navy or as sharply priced as Wal-Mart? Unlikely, if not impossible, retail analysts say.

Soft Side of Sears May Be in Its Head

David Greising
Chicago Tribune, Sep 5, 1999

Arthur Martinez deserved the retail industry's Executive of the Year award in 1993 after he returned Sears to profitability. For his theme song that May night, Buster Poindexter's "The Best is Yet to Come" won out over Tony Bennett's "Hot, Hot, Hot."

They chose the wrong song.

Today, Martinez is cold, cold, cold.

Niche furniture and automotive stores he touted are now closed. The once dazzling "Softer side of Sears" campaign is dead. The credit card operation is ill. Many in his new management team are now refugees.

It all added up to Thursday's announcement that Sears' 1999 earnings will fall short, and that Martinez had ousted longtime aide-de-camp Robert Mettler and created a new three-person "Office of the Chief Executive" to help him fix Sears' problems.

Wall Street hated the surprise. They dragged Sears stock, which had reached the low $60s in mid-1997 during the Martinez Renaissance, back to $32--precisely where it was when Martinez rose to CEO in 1995.

Now that's running to stay in place.

We've seen the good Martinez and the bad Martinez. And if the good Martinez can't get back on stage soon, then it's time to see the last of Martinez.

How soon? Sooner than some might think, and sooner than Martinez probably hopes.

Word among Sears watchers is that Sears' board is giving Martinez a year to turn the company around. They don't have that much time.

If the old Martinez magic hasn't returned in a year, Sears will have lost this Christmas season and next year's, too. It will have lost more ground to hot retailers ranging from Old Navy and Target to Kohl's and Carsons. And its dreams of an aggressive push into e-retailing will be gone for good.

Sears' board should give Martinez until the first quarter of next year to put a major new strategic vision in place. If they buy the plan, they should keep him. If they don't, he must leave.

Don't think of it as a harsh six-month deadline for the big job of fixing the Big Store. See it as fair warning in his fifth year as CEO.

If Martinez doesn't make it, a new CEO will have time to put a new team and plan in place before another key holiday season comes and goes. By waiting that long, the board also will buy time to informally size up candidates to succeed Martinez, just in case.

Martinez has left himself no room for error, and no room to run.

Fortunately for the board, he has left them two distinct measures by which to judge Sears' current CEO: Sears' year-end targets, and Martinez's annual February analysts' meeting.

Martinez has told associates that Thursday's surprise doesn't release them from his demand that they meet internal sales projections for this year. If those numbers fall short, the board should know Martinez doesn't have a grasp on the severity of Sears' downturn.

The February analysts meeting will give a clear sign if Martinez's latest new plan for Sears has a shot at success.

At last year's meeting, Martinez delivered an unsatisfying mix of small-gauge ideas that had no lasting impact. It was unsatisfying in the same way as a Bill Clinton State of the Union speech: lots of applause lines, a flurry of tiny ideas, but no overarching vision.

If investors don't rally to the stock after February's meeting, it will be a sign that Martinez can't come through.

It's too bad Martinez is in this spot.

The brief turnaround at Sears was one of the more remarkable business stories of the decade, and he has adopted a broader vision of his role as a Chicago-area CEO. His peers have recognized his commitment to the city by naming him chairman of the Civic Committee of the Commercial Club of Chicago.

He has proven himself a rare talent. And if he succeeds, he will be rarer still.

Recent American business history is stocked with names of CEOs who have turned around failing companies once: Chrysler's Lee Iacocca, General Electric's Jack Welch, Coca-Cola's Roberto Goizueta and IBM's Lou Gerstner.

How many have done it twice? They rarely even get a chance.

Soft Earnings Spur Shakeup at Sears

Heather Pauly, Business Reporter
Chicago Sun Times, Sep 3, 1999

Five years ago, Sears, Roebuck and Co. was the model of a retail turnaround.

Now, that revered recovery is falling flat: Continuing its string of disappointing results, Sears said Thursday it expects its third quarter and full-year earnings per share to come in well short of Wall Street expectations. The Hoffman Estates retailer blamed weak sales and crimped profit margins.

Sears also announced several management changes.

The management shakeup calls for Arthur Martinez to retain the title of chairman and CEO, but share decision-making with two other executives.

Joining Martinez, 59, in the newly formed Office of the Chief Executive are Alan J. Lacy, 45, president of Sears Credit, and Julian C. Day, 47, chief financial officer. Lacy will be responsible for the company's home services and e-commerce businesses. Day will oversee logistics and information technology along with finance. Together with Martinez, they will participate in all principal corporate decision-making.

Martinez also appointed two executives to head up hardlines and softlines. Lyle Heidemann, 54, was named president of hard goods, and Mark Cohen, 50, added the job of president of soft goods to his existing responsibility for the company's retail marketing.

In the wake of those changes, Robert Mettler, president of merchandising for the 850 department stores, resigned.

Sears said the moves were intended to free up Martinez to focus more attention on the flagging retail stores to help improve results.

At a City Hall press conference to announce the retailer's return to State Street, Martinez denied that his own powers were being reduced: "I have promoted two very able, high-potential executives . . . to have additional responsibility. They will participate in all of the decisions that we make as a company. . . . This is my recommendation. There's no sharing of power here. There's one person in charge, and that's me."

Sales at stores open at least a year--considered the best measure of sales strength--have fallen 4 percent year-to-date, Sears said.

Sears said it will earn between 63 and 67 cents a share in the third quarter ending Oct. 31, lower than the average of 82 cents a share estimated by analysts surveyed by First Call. In the year-earlier quarter, per-share profit from operations totaled 76 cents.

For the fiscal year ending Jan. 31, Sears expects earnings per share to increase at a low single-digit rate, below the 11 percent increase projected by analysts polled by First Call.

Investors battered Sears stock Thursday on the New York Stock Exchange, shaving about $1.4 billion in market value as the stock fell $3.68 3/4 to close at $33.50, the lowest level since 1995.

Martinez insisted that the setbacks are temporary. Even when Sears was riding high with sales increases that led the nation, Martinez said he never believed it would last forever.

"It was always my view, frankly, that we'd hit a tough patch," he said at the press conference. "I never knew when it would come. I never knew under what circumstances. But, here we are, and the issue is: Are we good enough and smart enough to get through it and get back on a growth track?--and I think so.

"From '93 through mid-'98, this company was on a tremendous roll. After six years, we've hit what I've described as a stall point. Our sales are not declining. Our sales are flat. What we need to do is step back and look at our merchandising focus, look at our marketing programs, and put some things together that put our sales growth back on the positive side of the ledger. We're gonna get back on track very quickly."

Sears has suffered in recent years as the shopping landscape shifted. Today's consumers--despite benefiting from the strongest economy in years--want the best value for their money, and they haven't found it at Sears. Instead, they've bought at Wal-Mart, Target and Kmart.

Meanwhile, newer chains such as Old Navy have been attracting consumers with low prices and trendy wares.

The 106-year-old retailer knows the competition is far more intense. "Our life is a lot more complicated," Martinez said late last month.

Sears also has seen growth slide in sales and earnings in the last several years as Martinez shifted his focus from resuscitating Sears to directing its growth.

Martinez joined Sears in 1993, and got the retailer back on track by jettisoning the venerable Sears catalog, slashing thousands of jobs and rejuvenating its apparel business.

After successfully completing those tasks, he devoted his attention to new ways to grow Sears' business, but spent less time and energy running day-to-day operations.

As a result, customers initially attracted by the updated, more hip clothes featured in Sears' successful "softer side" campaign, began to defect to competitors as Sears' apparel offerings lost their fashion-and-price edge.

"Martinez allowed the full-line stores to slip a little out of his control over the past two or three years, and [because of that], in the area of apparel, Sears fell badly on its face," said Kurt Barnard, retail consultant and president of Barnard's Retail Trend Report. "Now he is taking the right track by taking back the reins of Sears, and making himself fully responsible for every facet of the operation."

Sears already has made some moves to try to win back customers it has lost over the last few years. Last month, it announced a new $750 million advertising and marketing campaign designed to bring back the focus from the "softer side" of Sears to all the sides of Sears, from kid's jeans to paint to the company's repair services.

The tagline of the campaign: "The good life at a great price. Guaranteed."

Making improvements in the department stores--Sears also operates about 2,100 specialty stores selling auto parts and other goods--will be key to any recovery for the retailer, analysts said.

"They're going to have to devote whatever they can to the [department] stores, said Jeffrey Edelman, an analyst for Paine Webber.

Sears could have more changes in the offing, too. The company said it expects to be "finalizing its plans and recording a charge for the expected cost of these initiatives in the second half of the year." The retailer wasn't more specific.

Contributing: Fran Spielman, Associated Press

Merchandising Mess Begets Another Mess

David Greising
Chicago Tribune, Sep 3, 1999

Talk about lousy timing.

On the morning Sears, Roebuck and Co. put out news about an earnings shortfall and a big management shake-up, CEO Arthur Martinez had an appointment at City Hall with Mayor Daley to tell reporters about Sears' triumphant return to State Street.

So, there was the "good news" conference about State Street, followed by "bad news" questions about the shake-up.

Martinez faced the latter task with the relish of someone about to touch an electric fence. He knew the sting wouldn't last. But it would still hurt.

"We're changing our organization in part because we're not happy with our business," Martinez explained.

This wasn't a surprise. Sales and profits are both so weak that Martinez dumped Sears' merchandising chief, Robert Mettler, just as Sears heads into its key holiday season.

With honchos dying out as fast as fruit flies over at Commonwealth Edison, it's a bad summer to be a mis-manager at a big Chicago company.

Two lieutenants, credit card expert Alan J. Lacy and Chief Financial Officer Julian C. Day, will join Martinez in a new "office of the chief executive."

The setup is as rare as a Lexus in a Sears store parking lot.

Office of the chairman, we see sometimes. Office of the president, too. They're used by companies in trouble, and don't typically do too much damage.

Presidents-by-committee focus on operations, and chairmen-by-committee focus on strategic issues. Both setups often serve as an arena for would-be CEOs to wrestle for supremacy.

In retailing, J.C. Penney tried office of the president, but junked it after a few years. They figured one president could gunk up the company just as well as a committee could.

Nordstrom has succeeded with a six-person co-presidency. But the people are all named something-or-other Nordstrom, so that doesn't count.

If offices of the president and chairman don't really work, office of the CEO will be even tougher to manage.

It's not used because it's not a workable arrangement.

"Office of the CEO is very uncommon. It's hard to share decision-making responsibilities among individuals," says Scott Schaefer, an expert on corporate management structures at Northwestern University's J.L. Kellogg Graduate School of Management.

Martinez insisted that he remains the most Chief of the Executives, even though there are now three chairs in the Office.

"I'm the one CEO. That is me," he said. "There is no sharing of power."

So much for a warm welcome to his new fellow officeholders.

Even if Martinez could somehow develop a group-hug approach to decision-making, you've got to wonder about his choice of brainmates.

Sears' big problem is its merchandising. That's why the year's earnings will fall short.

So Martinez, best known for his background as a finance man, dumps his top merchandiser and brings in--guess what?--two finance guys to help him out, and everyone is supposed to share.

This office-of-the-CEO concept is just another thing that Sears will have a hard time selling.

Sears Revolving Door Spins Again!

NARSE predicted in May that a minimum of 3 senior executives would leave Sears before year end. Prediction comes true! We are now deeply concerned for the future of our once great company. It is troubling to read that Sears future will be directed by an "Office of the Chief Executive" consisting of three financial managers. Wouldn't it make sense to have at least one marketing/merchant included at the helm of a retail company? Another inept executive decision added to the long list of questionable "people" decisions under Martinez's tenure.

Analyst quotes: "If they can't compete with Home Depot Inc. in tools, and can't compete with Best Buy Co. and others in consumer electronics, they've got bigger problems than not being able to compete with Kohl's Corp., Old Navy and other low-end department stores," said Brian James of Loomis Sayles & Co. He also said "All engines of the merchandising side are sputtering." Jeffrey Edelman, a respected retail analyst for Paine Webber said "They've clearly got to do something. It would appear the department stores need a lot of work."

Chairman Martinez acknowledged the changes aren't working but said the latest moves show the company's "commitment to re-energizing our sales." Three bean counters dream!

Sears Cuts Profit Forecast