Reference no: EM1377207

In the 1970s, Sears was the nation's largest retailer. Positioned as a middle-line retailer, between low-priced, discount houses and higher-end department stores, Sears was indeed where America shopped-especially for hard- ware and appliances. Craftsman and Kenmore have consistently been among the most highly praised brand names in the country. Americans still wash clothes and dishes with Kenmores. and mow lawns and drive nails with Craftsmen. Reliance on the hard lines. however. has not allowed Sears to keep pace with the American retailing scene.

The last 30 years have brought major changes to American retailing. The most dramatic development was the explosion of Wal-Mart. Sam Walton's original idea was to rely on low prices, stand-alone stores, and locations in small towns that were underserved by the retailing system. To maintain growth, Wal-Mart eventually moved to larger towns and cities and even outside the country. Today, it dominates both American and global retailing. Although Wal-Mart is a fierce competitor, it is not the primary source of Sears's market woes. While Wal-Mart has undoubtedly siphoned off some of Sears customers, the two retailers don't compete with each other on their individual strengths. Wal-Mart sells soft goods and Sears sells hardware. In some ways, they almost complement each other.

While Wal-Mart was gobbling up sales outside the mall, other retailers were changing their strategies within the mall. JC Penney, the company most closely resembling Sears in the 1970s, eliminated its hardware and appliance lines, beefed up soft goods-especially women's and children's clothing-and located in the mall, where 75 percent of women's clothing is sold. This strategy worked well for Penney's, which is now positioned below the major department stores but above the lower-priced specialty outlets.

Sears, in contrast, kept the appliances and hardware, tried to beef up the soft goods, and located stores both in and adjacent to malls. It also diversified into financial services. While other retailers focused on expanding their clothing lines and developing exciting in-store clothing sections, Sears spread itself too thin. From its beginnings 118 years ago, Sears always carried some women's clothing, house- hold items, and toys at Christmas in order to make shopping a family experience. However, the predominant ambiance at Sears stores into the 1950s was that of a hardware store in which the tools and hard goods were the champs.

This image of a "hardware store" has been hard for Sears to change, and the retailer has not always shown a real willingness to do so. While saying that it would improve its clothing lines, and while signing contracts with Cheryl Tiegs and Stefani Powers, Sears left the position of women's fashion director unfilled for 9 years. Even when new, more- upscale lines were introduced, they were displayed next to neon-flowered tops and stretch pants. Clothing racks were a mess-overcrowded, sloppy, and utilitarian. There was no organization within the women's' clothing department. A shopper might find $20 sweaters next to $80 sweaters. If the two looked alike, guess which the consumer bought.

Not only were the clothing departments shabby and uninviting, there were not enough mirrors and dressing rooms-without which a store can't sell to women. Marketing research in the early 1990s showed that the woman who bought her clothes at Sears was almost 50, had an income of less than $30,000, and was there to buy $6.99 stretch pants. The company's 1990 ad slogan "You gotta be puttin' me on" admitted to the consumer that fashion had not been Sears' strength.
To change that, during the 1990s Sears threw out most of the cheap, polyester pants and brought in recognized brand lines such as Chaus and Village. Unfortunately, all the merchandising problems persisted. Goods were jumbled together, there were not enough mirrors, and the departments were still shabby and uninviting. Ugly red signs remained in place to remind consumers that good were "as advertised" or "on sale." The clean-up of Sears image was not completed and the introduction pf "the softer side of Sears" was not a success.

In 2002, to specifically address its fashion image shortcomings, Sears purchased Lands' End for $1.86 billion and immediately put Lands' End management in charge of Sears fashion apparel. Unfortunately, the two companies are quite dissimilar. Lands' End is an upscale catalog company appealing to white baby boomers. It sells mostly casual wear supplemented with some professional wear. It is a "folksy" company located in Dodgeville, Wisconsin, that prides itself on the casualness of its work place, the completeness of catalog descriptions, and the helpfulness of telephone operators. Important decisions were often made over a frosty mug of beer.

Contrast that with Sears' many layers of management and hodgepodge of bureaucracy. Sears had even built one of the world's tallest buildings (at the time) as a monument to the company, and it once had a corporate guideline with 29,000 pages. Sears executives dress for success use the latest business jargon while Lands' End manager ride bicycles to work. For example, at a recent meeting, a Sears manager was quoted as saying "We've been out interfacing with stakeholders to obtain consensus." A Lands' End manager responded with "Do you know said? Normal people don't talk like that!"

Besides the corporate culture clash, Lands' End managers were under the gun to rollout their brand in Sears 870 stores in just 10 months. These managers did not have much experience with in-store retailing. The
End result was overstocks of the land' End merchandise that had to be discounted at the end of the season. Lands' End management realized that it had a lot to learn about in-store retailing. After 2 years, Lands' End has still not determined the appropriate level of merchandise for stores and is still plagued with overstocks.

The clash between the two groups emphasizes the difficulty that Sears faces in determining an appropriate positioning for the company. Lands' End executives claim that their first concern is the consumer while Sears' first. concern is the stockholder-a claim that Sears denies.

A major issue at Sears is this: Just who is the consumer? Lands' End sells clothing to the market that frequently buys appliances and hardware at Sears, which might indicate that this could be a good fit. But market research shows that women are still uncomfortable shopping at Sears and prefer to go elsewhere. In addition, one of three customers at Sears is either African-American or Hispanic - marketing segments that Sears has nurtured. Among Sears' 872 stores are 97 MAC (Multicultural Aspirational Concept) stores, which carry ethnic-inspired lines. Most of these are located urban areas such as Los Angeles and Miami and are scheduled in 2004 to get new ethnic lines-Russell Kemp African Americans and Azucar Bella for Hispanics. At the same time, Sears will also introduce cookware catering Mexican and Caribbean shoppers' tastes. These urban and inner-city locations might be a major opportunity for Sears, as inner-city areas especially are underserved by chain retailers and dominated higher-priced, Mom 'n Pop stores.
Studies show that inner-city locations do not have higher incidences of crime, shoplifting, or employee turnover. But that's a very different market from the Lands' End market and from the current, typical. Sears' female customer.

Not only is it difficult to determine who Sears' customers are, it's also difficult to determine what Sears is. In last 20 years, its financial business, especially the credit card operation, was so successful that some analysts dubbed Sears a financial company with a retail unit on the side. In 2001, retail sales were 76 percent of revenue with store that best meets customer needs. of 2.2 percent. In contrast, credit card operations were 12.6 percent of sales, but 60.8 percent of operating income. In late 2003, Sears sold its credit card operation to Citigroup. This transaction left Sears free to concentrate on improving its retail operations and also generated some $32 billion, which Sears can use to renovate stores. It also means that Sears must increase operating income from retail sales.

What has Sears chosen to do? In addition to shoring up its fashion image through the Lands' End purchase, Sears has introduced a three-tier collection of home fashions, labeled Whole Home, which was enthusiastically received industry people and which initially generated better , Sears is also spending hundreds of millions of dollars to renovate stores. So far, this has not been enough. In the second quarter of 2004, Sears' revenue declined by 14 percent, sales declined by 2.9 percent, and net income dropped by a whopping 83 percent. As a result, analysts such as Standard & Poor's dropped Sears credit rating and Sears share prices declined.

Sears realizes that it has lost market share to Wal-Mart, Target, and Best Buy, and that it must find some means of competing with those retailers. Even the CEO of Sears has commented that "shoppers have to drive by these big-box category killers in order to get to the mall. We need to find a way to get closer to customers." Taking these comments to heart, Sears management is launching Sears Grand stores. These stores will be located away from malls in freestanding locations. Sears has already purchased 54 old Kmart stores and subleased 7 Wal-Mart stores, which could potentially be 61 Sears Grand stores.

The Sears Grand stores will be 250,000 square feet, considerably larger than traditional 90,000 square foot Sears stores. They will contain new departments such as music, movies, books and magazines, dry grocery, health and beauty aids, cleaning products, pet supplies, toys and games, a seasonal garden center, an automotive center, and home maintenance tools such as plumbing parts and furnace filters. Stores will be open from 8 A.M. to 10 P.M. on weekdays and from 10 A,M. to 9 P.M. on weekends. Instead of individual department checkouts, Sears Grand stores will include shopping carts and checkout lanes at the front of the store.

Apparel will be in the center of the store, prominently featured along the "boulevard"-an 18-foot wide aisle running through the center of the store. The boulevard is the only aisle that will contain product display. Other aisles will also be wider and less cluttered. This might sound like a typical discount store format, but Sears maintain that the Grand store will really be full-line Sears store, located away from malls with a positioning of better quality merchandise at a good value. They maintain that Sears is not and will not be a discounter.

Given the company's previous difficulties with in-store layout and merchandising, the first five "Grands" will be pilot stores, with each one testing different things. Size and merchandise assortments will vary and customer reactions will be closely monitored in order to design a prototype store that best meets customer needs.

So far, there are three Sears Grand stores - one near Jordan Landing Shopping Center in Salt Lake City; one in Gurnee, Illinois, a suburb of Chicago; and one outside Las Vegas. The nest two stores will be in Rancho Cucamonga, California, and Austin, Texas. After that, there will be 61 new stores in a hybrid format as well as renovations of 100 stores each year.

While the Grand stores are exciting concept that offers customers many benefits, some observers claim that they will not be enough to save Sears. One analyst commented that "Sears has not fixed its core business. What they've done is play musical chairs with the management and worked on financial engineering - buying back shares, selling the credit portfolio, cutting costs like crazy - but not dealing with the core problem." Defenders of the Grand stores retort "[Critics] have not been to one, so they do not know what we are trying to do. We are trying to grow this company so that we can bring Sears to places we have not been before." Who is right? Customers will make that decision with their dollars.

1- Develop a positioning statement for the new Sears that would be broad enough to cover all the types of Sears stores.

2- In your opinion, is the claim "Sears is not a discounter" valid? Why or why not?

3- How successful do you think the Grand stores will be? Explain. Who is its competition?

4- How successful do you think the Grand stores will be? Explain. Who is its competition?

Sears: Visions of Grandeur?'
In the 1970s, Sears was the nation's largest retailer. Positioned as a middle-line retailer, between low-priced, discount houses and higher-end department stores, Sears was indeed where America shopped-especially for hard- ware and appliances. Craftsman and Kenmore have consistently been among the most highly praised brand names in the country. Americans still wash clothes and dishes with Kenmores. and mow lawns and drive nails with Craftsmen. Reliance on the hard lines. however. has not allowed Sears to keep pace with the American retailing scene.

The last 30 years have brought major changes to American retailing. The most dramatic development was the explosion of Wal-Mart. Sam Walton's original idea was to rely on low prices, stand-alone stores, and locations in small towns that were underserved by the retailing system. To maintain growth, Wal-Mart eventually moved to larger towns and cities and even outside the country. Today, it dominates both American and global retailing. Although Wal-Mart is a fierce competitor, it is not the primary source of Sears's market woes. While Wal-Mart has undoubtedly siphoned off some of Sears customers, the two retailers don't compete with each other on their individual strengths. Wal-Mart sells soft goods and Sears sells hardware. In some ways, they almost complement each other.

While Wal-Mart was gobbling up sales outside the mall, other retailers were changing their strategies within the mall. JC Penney, the company most closely resembling Sears in the 1970s, eliminated its hardware and appliance lines, beefed up soft goods-especially women's and children's clothing-and located in the mall, where 75 percent of women's clothing is sold. This strategy worked well for Penney's, which is now positioned below the major department stores but above the lower-priced specialty outlets.

Sears, in contrast, kept the appliances and hardware, tried to beef up the soft goods, and located stores both in and adjacent to malls. It also diversified into financial services. While other retailers focused on expanding their clothing lines and developing exciting in-store clothing sections, Sears spread itself too thin. From its beginnings 118 years ago, Sears always carried some women's clothing, house- hold items, and toys at Christmas in order to make shopping a family experience. However, the predominant ambiance at Sears stores into the 1950s was that of a hardware store in which the tools and hard goods were the champs.

This image of a "hardware store" has been hard for Sears to change, and the retailer has not always shown a real willingness to do so. While saying that it would improve its clothing lines, and while signing contracts with Cheryl Tiegs and Stefani Powers, Sears left the position of women's fashion director unfilled for 9 years. Even when new, more- upscale lines were introduced, they were displayed next to neon-flowered tops and stretch pants. Clothing racks were a mess-overcrowded, sloppy, and utilitarian. There was no organization within the women's' clothing department. A shopper might find $20 sweaters next to $80 sweaters. If the two looked alike, guess which the consumer bought.

Not only were the clothing departments shabby and uninviting, there were not enough mirrors and dressing rooms-without which a store can't sell to women. Marketing research in the early 1990s showed that the woman who bought her clothes at Sears was almost 50, had an income of less than $30,000, and was there to buy $6.99 stretch pants. The company's 1990 ad slogan "You gotta be puttin' me on" admitted to the consumer that fashion had not been Sears' strength.
To change that, during the 1990s Sears threw out most of the cheap, polyester pants and brought in recognized brand lines such as Chaus and Village. Unfortunately, all the merchandising problems persisted. Goods were jumbled together, there were not enough mirrors, and the departments were still shabby and uninviting. Ugly red signs remained in place to remind consumers that good were "as advertised" or "on sale." The clean-up of Sears image was not completed and the introduction pf "the softer side of Sears" was not a success.

In 2002, to specifically address its fashion image shortcomings, Sears purchased Lands' End for $1.86 billion and immediately put Lands' End management in charge of Sears fashion apparel. Unfortunately, the two companies are quite dissimilar. Lands' End is an upscale catalog company appealing to white baby boomers. It sells mostly casual wear supplemented with some professional wear. It is a "folksy" company located in Dodgeville, Wisconsin, that prides itself on the casualness of its work place, the completeness of catalog descriptions, and the helpfulness of telephone operators. Important decisions were often made over a frosty mug of beer.

Contrast that with Sears' many layers of management and hodgepodge of bureaucracy. Sears had even built one of the world's tallest buildings (at the time) as a monument to the company, and it once had a corporate guideline with 29,000 pages. Sears executives dress for success use the latest business jargon while Lands' End manager ride bicycles to work. For example, at a recent meeting, a Sears manager was quoted as saying "We've been out interfacing with stakeholders to obtain consensus." A Lands' End manager responded with "Do you know said? Normal people don't talk like that!"

Besides the corporate culture clash, Lands' End managers were under the gun to rollout their brand in Sears 870 stores in just 10 months. These managers did not have much experience with in-store retailing. The
End result was overstocks of the land' End merchandise that had to be discounted at the end of the season. Lands' End management realized that it had a lot to learn about in-store retailing. After 2 years, Lands' End has still not determined the appropriate level of merchandise for stores and is still plagued with overstocks.

The clash between the two groups emphasizes the difficulty that Sears faces in determining an appropriate positioning for the company. Lands' End executives claim that their first concern is the consumer while Sears' first. concern is the stockholder-a claim that Sears denies.

A major issue at Sears is this: Just who is the consumer? Lands' End sells clothing to the market that frequently buys appliances and hardware at Sears, which might indicate that this could be a good fit. But market research shows that women are still uncomfortable shopping at Sears and prefer to go elsewhere. In addition, one of three customers at Sears is either African-American or Hispanic - marketing segments that Sears has nurtured. Among Sears' 872 stores are 97 MAC (Multicultural Aspirational Concept) stores, which carry ethnic-inspired lines. Most of these are located urban areas such as Los Angeles and Miami and are scheduled in 2004 to get new ethnic lines-Russell Kemp African Americans and Azucar Bella for Hispanics. At the same time, Sears will also introduce cookware catering Mexican and Caribbean shoppers' tastes. These urban and inner-city locations might be a major opportunity for Sears, as inner-city areas especially are underserved by chain retailers and dominated higher-priced, Mom 'n Pop stores.
Studies show that inner-city locations do not have higher incidences of crime, shoplifting, or employee turnover. But that's a very different market from the Lands' End market and from the current, typical. Sears' female customer.

Not only is it difficult to determine who Sears' customers are, it's also difficult to determine what Sears is. In last 20 years, its financial business, especially the credit card operation, was so successful that some analysts dubbed Sears a financial company with a retail unit on the side. In 2001, retail sales were 76 percent of revenue with store that best meets customer needs. of 2.2 percent. In contrast, credit card operations were 12.6 percent of sales, but 60.8 percent of operating income. In late 2003, Sears sold its credit card operation to Citigroup. This transaction left Sears free to concentrate on improving its retail operations and also generated some $32 billion, which Sears can use to renovate stores. It also means that Sears must increase operating income from retail sales.

What has Sears chosen to do? In addition to shoring up its fashion image through the Lands' End purchase, Sears has introduced a three-tier collection of home fashions, labeled Whole Home, which was enthusiastically received industry people and which initially generated better , Sears is also spending hundreds of millions of dollars to renovate stores. So far, this has not been enough. In the second quarter of 2004, Sears' revenue declined by 14 percent, sales declined by 2.9 percent, and net income dropped by a whopping 83 percent. As a result, analysts such as Standard & Poor's dropped Sears credit rating and Sears share prices declined.

Sears realizes that it has lost market share to Wal-Mart, Target, and Best Buy, and that it must find some means of competing with those retailers. Even the CEO of Sears has commented that "shoppers have to drive by these big-box category killers in order to get to the mall. We need to find a way to get closer to customers." Taking these comments to heart, Sears management is launching Sears Grand stores. These stores will be located away from malls in freestanding locations. Sears has already purchased 54 old Kmart stores and subleased 7 Wal-Mart stores, which could potentially be 61 Sears Grand stores.

The Sears Grand stores will be 250,000 square feet, considerably larger than traditional 90,000 square foot Sears stores. They will contain new departments such as music, movies, books and magazines, dry grocery, health and beauty aids, cleaning products, pet supplies, toys and games, a seasonal garden center, an automotive center, and home maintenance tools such as plumbing parts and furnace filters. Stores will be open from 8 A.M. to 10 P.M. on weekdays and from 10 A,M. to 9 P.M. on weekends. Instead of individual department checkouts, Sears Grand stores will include shopping carts and checkout lanes at the front of the store.

Apparel will be in the center of the store, prominently featured along the "boulevard"-an 18-foot wide aisle running through the center of the store. The boulevard is the only aisle that will contain product display. Other aisles will also be wider and less cluttered. This might sound like a typical discount store format, but Sears maintain that the Grand store will really be full-line Sears store, located away from malls with a positioning of better quality merchandise at a good value. They maintain that Sears is not and will not be a discounter.

Given the company's previous difficulties with in-store layout and merchandising, the first five "Grands" will be pilot stores, with each one testing different things. Size and merchandise assortments will vary and customer reactions will be closely monitored in order to design a prototype store that best meets customer needs.

So far, there are three Sears Grand stores - one near Jordan Landing Shopping Center in Salt Lake City; one in Gurnee, Illinois, a suburb of Chicago; and one outside Las Vegas. The nest two stores will be in Rancho Cucamonga, California, and Austin, Texas. After that, there will be 61 new stores in a hybrid format as well as renovations of 100 stores each year.

While the Grand stores are exciting concept that offers customers many benefits, some observers claim that they will not be enough to save Sears. One analyst commented that "Sears has not fixed its core business. What they've done is play musical chairs with the management and worked on financial engineering - buying back shares, selling the credit portfolio, cutting costs like crazy - but not dealing with the core problem." Defenders of the Grand stores retort "[Critics] have not been to one, so they do not know what we are trying to do. We are trying to grow this company so that we can bring Sears to places we have not been before." Who is right? Customers will make that decision with their dollars.

1- Develop a positioning statement for the new Sears that would be broad enough to cover all the types of Sears stores.

2- In your opinion, is the claim "Sears is not a discounter" valid? Why or why not?

3- How successful do you think the Grand stores will be? Explain. Who is its competition?

4- How successful do you think the Grand stores will be? Explain. Who is its competition?