Sears Troubles Go Beyond Auto Scandal
NEW YORK — SEARS, Roebuck & Co. calls itself the store where "America shops." But it is also currently the store where auto inspectors stalk: California and New Jersey regulatory officials allege that Sears' auto-service centers systematically overcharged customers for repairs, or required payments on work not performed.
Sears officials deny that the chain bilks customers. Officials from chairman Edward Brennan down to store managers urge customers to review questionable bills with stores, they say.
A spokesman for the Chicago-based retailer says Sears "will cooperate" with investigations under way in California and New Jersey. And late last week Sears got a boost from regulatory agents in New York State and Illinois, who said they have not uncovered any wrongdoing at Sear's auto centers.
The challenge for Sears - which maintains about 860 full-line retail stores throughout the United States - goes far beyond just a potential scandal involving auto-repair centers, says Melvin Crask, a retail industry expert at the University of Georgia's Terry College of Business. "Sears has had marketing trouble now for a long time, and conditions are not getting better. The company has not reacted quickly enough to fundamental changes in retailing. It has not been very visionary," he says.
In fact, Professor Crask says it is quite possible that by the mid-to-late 1990s Sears may be known more as a financial services company (such as American Express) than a retailer.
Once a giant-killer in national marketing and catalog sales, Sears long ago overtook its Chicago-based rival, Montgomery Ward & Co. But in past decades Sears has faced far more formidable competitors which are geared to low-cost mass merchandising at the retail level. The result, according to experts such as Crask, is that Wal-Mart Stores Inc. and K Mart Corporation are the dominant mass merchandisers in the US, not Sears.
By outward measurements, Sears' financial ledgers look impressive. For the first quarter of 1992 the company earned a near record $322 million, up 36 percent over the previous year's results. Revenues reached $14 billion. For 1991 as a whole, Sears had net income of $1.3 billion, on earnings of $57 billion. Both figures were up over 1990 results.
The catch, says Janet Mangano, a retail specialist with the investment house Burnham Securities, is that Sears's earnings are overwhelmingly from its financial services divisions. Sears' financial services firms include Allstate Insurance, the Dean Witter Reynolds Inc. brokerage house, Coldwell Banker, a real estate company, and the Discovery Card, a unit of Dean Witter.
"Sears' long-range difficulty is related far more to earnings momentum than to just what happens regarding auto-service centers," Ms. Mangano says. "Investors question Sears' prospects for growth." Mangano says retail sales in general will be weak for the second quarter of 1992, given sluggish consumer spending and unseasonably cold weather this spring. Sears' retail outlets could be particularly hard hit, given a growing tendency among families to shop at discount stores.
In recent years, Sears has undergone considerable reorganization. Entire units have been shifted around on organizational charts; the catalog unit has been cut back. Many employees lost jobs, although Sears still employs more than 460,000 people, about 350,000 of them in the merchandising sector.
Ironically, Sears sought to "upgrade its emphasis on quality" at a time of economic downturn, when many shoppers were looking for low cost, Mangano says. Sears was trying to compete with J.C. Penney, a national chain that has successfully upgraded its retail image while racking-up impressive earnings growth.
But J.C. Penney is more of a department store, unlike Wal-Mart and K Mart, which are full-service chains like Sears. Wal-Mart and K Mart stress low prices, along with quality. Moreover, Sears's catalog division faces inroads from aggressive direct-marketing firms like Spiegel, Land's End, and L.L Bean.
Will Sears management finally "wake up" to its marketing challenge? Crask asks. The answer, he says, will determine whether the chain "where America shops" is still a major factor in retailing by the end of this decade.