Sears tells Wall Street of strategy for rebound Retailer to focus on 'core customer'

February 12, 1993|By Ian Johnson | Ian Johnson,New York Bureau

NEW YORK -- Hoping to put a good spin on a disastrous year, TTC the top brass of Sears, Roebuck and Co. met Wall Street analysts yesterday to explain how the 106-year-old retailing giant will remake itself into a store where America wants to shop.

Although most of the session was spent reviewing previously announced measures, Sears officials said they would spend $4 billion over the next five years to refurbish 500 stores and retrain the sales staff. In addition, the 800-store chain is set to cut out most automobile repair work, allow non-Sears credit cards to be used in the store, and introduce more fashionable clothing.

"We're making decisions that we believe by the end of the year will result in a new Sears," Sears Chairman Edward A. Brennan said.

Officials used two strategies yesterday to convince their audience of 500 that Sears was not in a permanent decline caused by cut-rate retailers such as Wal-Mart.

Sears Merchandise Chairman Arthur C. Martinez, who spoke for the first time to the investment community after being hired away five months ago from Saks Fifth Avenue, said the company would divide its centrally organized 800 stores into regional groupings. This would allow it to act more freely to react to local conditions and tastes. Emphasis would be placed on ethnic tastes, Mr. Martinez said, with the growing Hispanic population given priority.

The merchandising has been split into three branches: apparel, home and auto. Statistics released yesterday by Sears, however, showed that the three are far from equal. Although apparel accounts for just 26 percent of revenues, it contributes 64 percent of profits, aside from the company's financial services unit. Apparel will now be given priority, Mr. Martinez said.

For the first time, Sears will also focus its operations on pleasing its core customer, whom Mr. Martinez described as a working woman in a family with a median income of $33,000. Most have limited discretionary income, so Sears would maintain its relatively conservative taste and low prices, he said.

"We aren't going to apologize or be defensive that our position is in themiddle," Mr. Martinez said.

The financial tact was presented by Edward D. Liddy, Sears' financial officer, who said the company's finances were not as bad as reported. Hit with losses last year of $3.9 billion, Sears previously said it would end its catalog business, close 113 stores and lay off 50,000 employees. In addition, it is selling its financial services division to gain cash and to sharpen its focus on retailing, its traditional business.

But 1992 losses included extraordinary charges, he said, such as implementing new accounting rules, paying for layoffs and covering heavy losses suffered by its Allstate insurance division from Hurricane Andrew.

Without the one-time losses, Mr. Liddy said, the company would have turned a $1.5 billion profit, up over 1991's $1.2 billion.

Analysts noted, however, that the profit would have come primarily from its financial services, which it is selling. With extraordinary charges excluded, its core business -- household merchandise -- fell to a razor-thin $38 million last year from a $235 million profit in 1991.

The analysts, who advise investors whether Sears stock is a good buy, seemed generally upbeat about the presentation. Even before it began, one brokerage upgraded Sears from a "buy" to a "strong buy." The stock closed up yesterday $1.50 at $51.50.

Other analysts said the company's plan to slim down and refocuson its department stores makes sense -- if it is implemented.

"It was a good presentation, but I've heard this before. What you do and what you say can be two different things," said Sally Schaadt, a retailing analyst with Fourteen Research Corp.

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