Sears to drop catalog, cut 50,000 employees Retailer to close 113 stores

none in Md.

January 26, 1993|By Michael Dresser | Michael Dresser,Staff Writer

Sears Roebuck & Co. slaughtered the sacred cow yesterday.

The Chicago-based giant announced yesterday that it was sacrificing its 97-year-old general merchandise catalog, along with 50,000 employees, as part of a $1.7 billion effort to restore its crumbling retail empire to prosperity.

As part of the restructuring, the company will close 113 of its 859 Sears stores, but the 18 in Maryland will apparently be spared. Some layoffs can be expected in those stores' auto shops, however, because Sears is getting out of the general repair business.

Investors welcomed yesterday's announcement, pushing Sears stock to a 52-week high of $51.125 at one point in the day's trading on the New York Stock Exchange. The stock closed up $1.875, at $50.75.

"The news was a little better than what the market was looking for," said Thomas Tashjian, managing director of First Manhattan Co., citing the decision to eliminate -- rather than shrink -- the catalog as a sign that Sears executives were serious about facing up to the company's problems.

Others viewed the news, and the market's reaction, more cynically.

"The stock market loves to see employees fired," said Sheldon Grodsky, director of research at Grodsky Associates in South Orange, N.J.

In recent years, Sears has been moving aggressively -- if belatedly -- to shore up its formerly dominant retail franchise, which slipped to third place in U.S. sales behind Wal-Mart Stores and Kmart Corp. in 1991. Between February 1991 and April 1992, Sears eliminated 48,050 jobs, and last year it began to dismantle the financial services conglomerate it spent decades building.

Already Sears has taken steps to spin off its Dean Witter/Discover Card financial services division. Later this year, it will shed its Allstate insurance unit, and the Coldwell Banker real estate brokerage chain is up for sale as part of an effort to return Sears to its "retail core."

That core has been showing signs of rot in recent years.

In each of the first three periods of 1992, Sears' domestic merchandising operations have lost money. In the third quarter, Sears' earnings from financial services could no longer cover the retail red ink as the company skidded to an $840 million loss.

Even with such compelling evidence of what it called "chronic business problems," closing the catalog was a painful step for Sears.

The "big book," which will be discontinued after a final catalog is mailed out this spring, is in many ways the heart of the company. Long after it ceased to be a money-maker, it remained sacrosanct at tradition-bound Sears.

"This was a very difficult decision because the catalog is our heritage. It's how Sears started," said Arthur C. Martinez, chief executive of the Sears Merchandise Group.

But Mr. Martinez, the former Saks Fifth Avenue executive brought in last year to restore Sears retail business to its former eminence, pointed to the catalog's losses of between $135 million and $175 million in each of the past three years.

Market analysts applauded the move to jettison the catalog. "It's good move. It's a demonstration of support for Mr. Martinez," said Thomas W. Hoens, senior vice president of the Fitch Investors Service bond rating agency in New York.

But the demise of the big book brought a bitter reaction from other quarters.

"Sears' failure to act while new company after new company [moved] out into their catalog turf is a condemnation of management," said Maxwell Sroge, president of a catalog consulting firm in Chicago. "In my opinion, Ed Brennan, chairman of Sears, should have the courage to tender his resignation and leave with the 50,000 people he's firing."

Sears said it would eliminate 16,000 full-time jobs and 34,000 part-time jobs within the merchandise group, which employs nearly 350,000 of Sears' 435,000 workers.

About 40 percent of the staff cuts at Sears will fall on the catalog division, where 3,400 full-time and 16,500 part-time employees will lose their jobs. In 1991, the catalog accounted for 14.2 percent of Sears' $24.8 billion in total U.S. retail sales.

Sears will eliminate another 1,300 full-time and 4,600 part-time positions by closing the 113 stores, most of them small- to medium-sized outlets in small cities. The company also plans to cut 4,000 jobs through a voluntary early retirement incentive program for employees 50 or older with at least 20 years of service.

Another 5,000 cuts will be achieved through firing home improvement installers and delegating such tasks as hanging garage door openers to Sears licensees.

One notable casualty of the restructuring will be Sears Tire and Auto Centers, where business has been badly hurt after reports last year that Sears mechanics in California and New Jersey inflated bills by performing unneeded repairs.

The service cutbacks will let Sears cut another 4,300 full-time and 6,400 part-time jobs.

Mary Jean Houde, a spokeswoman for Sears in Chicago, said the service cutbacks were not related to the auto repair problems, but that assertion was met with scorn by Sears critics.

Besides the closings, Sears announced yesterday that it would sell off its 35 Pinstripes Petites women's specialty apparel stores, including outlets in Columbia and Gaithersburg.

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