Sears hopes upscale brands will halt lengthy sales slide

Lands' End clothing, KB Toys among names on which it is banking

December 20, 2003|By Lorene Yue and Susan Chandler | Lorene Yue and Susan Chandler,CHICAGO TRIBUNE

Claudia Miller is becoming a Lands' End junkie.

The 52-year-old resident of Homewood, Ill., shelled out more than $360 on Lands' End's preppy apparel in a three-day period.

But she didn't pick up the phone. She traveled to Sears, Roebuck and Co. stores in the Chicago suburbs.

"I have always liked Lands' End products, but it's too hard to buy from a catalog. It's sizing. My husband is very particular about how his clothes fit," said Miller, who works as a librarian. Now that Sears carries Lands' End for men, she can pick up a few things for her spouse and return them without the hassle of a UPS pickup.

As the holiday season hits the busiest shopping days, stories like Miller's fill Sears executives with hope that the chain can turn around an almost relentless two-year decline in sales.

A good holiday performance would be particularly welcome this year because, for the first time in decades, Sears has only its retail business to count on. It sold off its highly profitable credit-card business in the summer.

"I think this is a very important fulcrum to see what the new Sears looks like and what earnings it will generate," said Heather Brilliant, retail analyst with Morningstar Inc. in Chicago.

Aside from the Lands' End presence throughout the chain and new hip-hop apparel lines in a few stores, Sears doesn't have all that much new to show customers this holiday season, retail experts say.

Instead, the Illinois-based chain is counting on more in-store KB Toys boutiques and an extensive inventory of DVD players - three times normal levels - to help it pull out a same-store sales gain in December, which would be the first in six years.

On top of that, experts add, it's not clear what Sears' longer-term strategy is. Does it want to nudge its merchandise and demographics slightly up market, a strategy that the nearly $2 billion acquisition of Lands' End plays into?

Or does it want to be a serious contender in the discount arena? That seems to be the game plan behind Sears Grand, the company's new free-standing store format, which mixes soda and chips with Sears' more traditional mix of casual apparel and appliances.

Either way, Sears Grand isn't going to provide a boost to Sears' bottom line this year or next because there is just one store open in a suburb of Salt Lake City. By the end of 2004 there will be four stores, a drop in the bucket compared with Sears' nearly 870 mall-based department stores.

"It's an experiment they have a lot of hope for," said Sid Doolittle, retail analyst with Chicago's McMillan/Doolittle. "But let's say it's absolutely fabulous, it still won't make a dent in Sears' volume."

The best thing Sears may have going for it is a recovering economy.

A resurgence of hiring, rebounding consumer confidence and a lingering wealth effect from summer tax refunds should result in a spending spree that hasn't been seen in several years, economists say.

Industry leaders such as Wal-Mart Stores Inc. and Target Corp. are expected to turn in strong performances. Expectations also are high for J.C. Penney Co., which is getting out of the drugstore business and generating some fashion buzz with new, less expensive lines.

Sears is playing its cards close to the vest, declining to give target numbers and saying it has a "cautious outlook" for the holidays.

Sears Chief Executive Officer Alan J. Lacy is a little more forthcoming. "We have better products and better customer service. It's been a lot of hard work," he said in a recent interview. "I feel good about where we're positioned."

Lacy has some things to feel good about, retail experts agree.

Sears has cleaned up its private-label Covington classic clothing line, which didn't present a consistent fashion message when it made its debut in September 2002.

The stores also are doing a better job of showcasing Lands' End's higher-priced apparel and conveying that it is a step up from Covington in quality and price.

But other things continue to be worrisome, including customer service. In an effort to reduce overhead, Sears cut staffing sharply and moved to centralized checkout counters last year, emulating the layout of Kohl's stores.

It will be hard to judge Sears' progress by its year-end numbers. The company is in the process of revising its 2003 earnings outlook to reflect the loss of its credit card division, which will subtract roughly 40 percent of operating profit and 6 percent of revenue.

Wall Street analysts expect Sears to post earnings of $4.74 to $5 a share for 2003, excluding one-time items, which is on par with Sears' current guidance. That would be a 10 percent increase from 2002 when Sears earned $4.29 per share. The numbers are mostly comparable because credit was part of Sears until early November.

Investors' expectations are lofty.

Sears stock closed yesterday at $46.37, up 37 cents. That was far from its 52-week low of $18.25. Sears' shares began climbing after the company announced its plan in late March to sell its credit-card business.

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