How would you turn around Sears?

Times have been tough for Sears Canada. The numbers tell the story: Over the last year, same-store sales decreases at Sears ranged from 4.9% in the fourth quarter of 2002, to a dismal 14.1% in the first quarter of 2003. Meanwhile, total revenues for Q2 2003 were $1.468 billion versus $1.593 billion in the same quarter last year, down by 7.8%. But Sears is doing its share of damage control by introducing new brands, which are supported by advertising, and adopting a cleaner look.

Times have been tough for Sears Canada. The numbers tell the story: Over the last year, same-store sales decreases at Sears ranged from 4.9% in the fourth quarter of 2002, to a dismal 14.1% in the first quarter of 2003. Meanwhile, total revenues for Q2 2003 were $1.468 billion versus $1.593 billion in the same quarter last year, down by 7.8%. But Sears is doing its share of damage control by introducing new brands, which are supported by advertising, and adopting a cleaner look.

The most recent news from Sears was the introduction of the Martha Stewart Everyday line, which was added to the department store’s roster of brand names in early September.

Vincent Power, director of corporate communications for Sears Canada, says Sears brought in the Martha Stewart products to appeal to the company’s target customer of shopping enthusiasts – women 25 to 55 who seek moderate price points.

Sears also conducted surveys with consumers before and after Stewart’s infamous legal troubles to gauge how they felt about the line of home and garden products, along with its connection to the maven of home decor. ‘The majority said they wanted the line,’ says Power. ‘[Customers were] willing to separate her personal legal issues [from the product].’

Thus, TV ads by BBDO Toronto and in-house newspaper inserts alerted customers to the launch of Everyday, continuing a trend which has recently seen Sears promote its exclusive and private-label brands, such as Jessica, Nevada and Kenmore. So far, sales of Martha Stewart Everyday have been positive; customers scooped up 100,000 units of the collection even before the official Sept. 7 launch.

Sears is also undergoing a makeover in terms of its retail environment and customer communications. Based on research findings, the company is opting for a cleaner, more consistent look in its stores, which began with a redesign of two locations in August at Mississauga, Ont.’s Square One and Polo Park in Winnipeg. Wider aisles, clear sightlines, centralized escalators and more visible customer service centres (with placement near fitting rooms) are all part of the new Sears. Three more concept stores will be converted this year – one in Ontario and two in Quebec, with more to follow next year.

Likewise, the traditional Sears communications of catalogues and newspaper inserts have also been streamlined for a cleaner look. Flyer pages are less crowded and easier to read, says Power, while the company is issuing fewer catalogues this year compared to last to avoid unnecessary repetition of product lines that don’t change over the year. ‘We’re not going to go away from advertising, flyers and catalogues, but we want to make the whole thing easier. Ease of shopping is now reflected, not only in our inserts, but our stores as well.’

Power admits it was a rough year for Sears – aside from factors such as SARS and a winter that lasted well into April, the company had a surplus of inventory which had to be marked down, resulting in non-profitable sales. ‘External factors have not been the most desirable when it comes to selling retail,’ says Power. ‘But we’ve taken a lot of steps to remediate the things that needed to be fixed – like the levels of inventory, and the look of our stores. We got through the whole Eatons to Sears conversion. Now, we’re positioning ourselves to get that top-line growth.’

Strategy asked three industry pundits for their input on whether Sears is on the right path to achieving this goal.

Lindsay Meredith, marketing professor, Simon Fraser University, Vancouver

Sears is under a lot of pressure. The game has been redefined. The department store of Canada was a historically developed general store that came out of the early 1900s. You’re just trying to defend too much territory if that’s the model you’re going to stick with.

Sears has a battle on its hands. But I don’t think Sears, any more than The Bay, ought to throw in the towel. There’s a market niche that is still traditional, that respects quality, that is risk-averse, that does not want high-pressure selling tactics, that does not want a highly specialized, ‘we only do mattresses’ operation like Sleep Country Canada. [Sears has] a good, long history of customer loyalty. Sears has to go after those [loyal customers] and chase them down with phone calls and direct mail and start building it up from the grassroots again.

It’s going to be an older shopper Sears is looking at, which is not the best shopper in the world. But you can still do good business with those 45s and 50s who are redeveloping the house and with whom you still have a track record. Needless to say, it sure doesn’t hurt to come out with some really hot price points on a few things either.

David Brodie, retail analyst, Research Capital Corp., Toronto

I don’t think that the department store model is obsolete.

Wal-Mart has 50% share of the department stores in Canada, so all the other players only have half the market between them. Wal-Mart is proof that the department store format has viability; with a high level of sales per foot, it is very productive.

So, it’s not the format that’s the problem, it’s about figuring out how to make the format work. [Sears has to] find ways to get customers coming back more frequently – to get them coming back once a week.

[Regarding Martha Stewart Everyday], it didn’t perform very well for Zellers. But, while there have been questions swirling around about Martha Stewart and her whole empire, from my perspective, I don’t see it as anything that can hurt Sears.

It will be just another retail experiment for the chain. It’s not a huge risk factor because at retail you’re constantly experimenting to see if certain merchandise lines find favour with customers, and you keep adding and subtracting new ones. It’s not a company-maker or -breaker.

Wendy Evans, president, Evans & Company, Toronto

Sears has positioned itself very well in terms of its multi-distribution channel strategy; it has its brand central, it has its Whole Home furniture, it has online – and it is amongst the leaders online. And then it also has the department stores. That format is a challenge and there is too much space in some of the stores for its productive lines.

The department stores in general have been trying not to chase sales to such a great extent and they improved their profitability, but it also impacts the top line. The strategy of not going on sale as often but providing good value on a consistent basis is sounder than the high/low [strategy].

Sears’ foresight in opening up Whole Home – because home has certainly been the strong hot spot in retail sales for the last couple of years – was a very good move.

[In terms of communications, Sears should be] stressing its own brand – to let customers know that there is a predictable assortment there and that they’re going to find what they’re looking for. Sears has always been predictable, so it mustn’t lose that.