Sears Aims for Renewal

Beleaguered company refocuses on profitable mall locations

THE busy scene on this construction site looks more like a vision of Sears's future than of the company's past.

Earthmovers rumble and shiny steel girders soar into the sky right next door to the old Sears that opened in this Boston suburb in 1965. Though the existing store is one of the 113 units slated to be closed this year, a brand new Sears store is being built on an adjacent lot.

In addition to the store closings, Arthur Martinez, chairman of Sears's retailing division, this week announced the closing of its unprofitable $3.3 billion "big book" catalog operation, the 2,000 independently owned catalog-only stores, and a trim of 50,000 employees. Clerical and managerial staff will bear the brunt of the layoffs. The catalog, a company hallmark since 1898, had after-tax losses between $135 million and $175 million in each of the last three years.

"What will emerge is a company sharply focused on our core retailing business," says Perry Chlan, a Sears spokesman. "While these actions are painful, they address chronic problems in the merchandise group."

Previous restructuring efforts include the 1983 launch of the "Store of the Future," the 1987 installation of Michael Bozic to head the merchandising group, and the 1990 effort by chairman Edward Brennan to trim 48,000 jobs in that division.

Mr. Martinez was brought from Saks Fifth Avenue to head the retailing group last August. In September, Sears announced that it would sell its financial services and real estate subsidiaries, and part of its insurance unit. Then in October, Sears reported a $833.7 million loss for the third quarter, its first quarterly loss since 1933.

In spite of its problems, the company will still be the third-largest United States retailer, with about $28 billion in sales and 747 stores. "A lot of people would like to have the problems Sears has," says Mark Alpert, a professor at the University of Texas at Austin. Companies would "like to be that big, have the brand identification, that reservoir of goodwill."

The response to this restructuring will test how much goodwill Sears has in the bank. "These are classic things that [Martinez] has done," says John Whitney, a professor at Columbia Business School who has participated in several corporate turnarounds. "He won't have to come back and take another bite of the apple. The strategy when you do something like this is to really get it deep enough that you don't have to go back and do it again."

"No Sears guy would have ever done that," says Philip Abbenhaus, a retail analyst with A. G. Edwards in St. Louis. "So they had to get somebody from the outside.... The new man in charge has addressed the problem."

In his new book "Liberation Management," management guru Tom Peters rails against the plodding pace of change at Sears. "Sears was born no-nonsense, became everyman's store, then got spoiled by success," he writes. Referring to previous reorganizations at Sears, Peters calls the company "10 days late and 10 dollars short, compared ... to Wal-Mart," a chief competitor.

After this latest restructuring, Wall Street may be willing to give Sears some breathing room. But its competitors certainly won't.

Sears must rethink its competitive strategy, says Avijit Ghosh, a professor at New York University. "Sears is caught in between," he says. Department stores and specialty stores have moved upscale, becoming more fashion-oriented. Competitors such as Wal-Mart, Kmart, and appliance and electronics chains challenge Sears with low prices. "Sears seems to be neither here nor there," Mr. Ghosh says.

Martinez sees an opportunity for Sears where competitors have "vacated product categories." It will focus on its heritage as a "true department store," he says.

An area ripe for rededication is the company's lackluster sales force. "People want to shop at Sears, but most of the time something happens and they get turned off," Mr. Abbenhaus says. "Until [Sears] can improve the operation of the stores down to the level of the salesperson wanting to be at Sears and wanting Sears to succeed, they've got a problem. This is not something that turns around overnight."

When the drag of unprofitable stores is eliminated, Mr. Whitney sees several sources of "vitality": The inventory in the closed stores can be converted to cash; inventory turnover for the healthier stores should go up, reducing the need for cash; higher turnover will reduce the need for reserves against inventory write-offs.

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