RETAIL MERCHANDISING Sears hopes new Lands' End line and economy will boost its sales

The chain hopes to reverse a two-year decline in sales.
CHICAGO TRIBUNE
CHICAGO -- Claudia Miller is becoming a Lands' End junkie.
The 52-year-old resident of south suburban Homewood, Ill., shelled out more than $360 on Lands' End's preppy apparel in three days.
But she didn't pick up the phone. She traveled to Sears, Roebuck and Co. stores in Calumet City and Orland Park.
"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.
Full of hope
As the holiday season heads into high gear, stories like Miller's fill the hearts of Sears executives with hope that the Hoffman Estates, Ill.-based 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. Its highly profitable credit card business was sold off this 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 Lands' End throughout the chain and some new hip-hop apparel lines in a spattering of stores, Sears doesn't have all that much new to show customers this holiday season, retail experts say.
Instead, Sears 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 sales gain in December, which would be the first in six years.
Long-term strategy unclear
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 upmarket, 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.
The best thing Sears may have going for it is a recovering economy.
Holiday sales for November through January should rise a robust 6.5 percent to 7 percent this year, according to Carl Steidtmann, chief economist with Deloitte Research in New York.
Experts anticipate that industry leaders such as Wal-Mart Stores Inc. and Target Corp. will 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 has cleaned up its private-label Covington classic clothing line, which didn't present a consistent fashion message when it debuted 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. "Before, the assortment did not lead up to Lands' End," Doolittle said.
Customer service worries
But other things continue to be worrisome, including customer service. In an effort to reduce overhead, Sears dramatically cut staffing 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 earn $4.74 to $5 a share in 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 still part of Sears until early November.
Investors' expectations are lofty.
Sears stock is trading around $56 a share, close to its 52-week high and far from its 52-week low of $18.25.
The big challenge remains convincing younger customers that Sears has something new and exciting in the apparel section and persuading middle-age shoppers to give Sears a second look.
Some have doubts
It's the same obstacle Sears has tried to overcome for a decade. Some see that as an almost insurmountable task.
"The joke is, if Sears is selling Armani suits for $200, people wouldn't go into Sears," said Dave Novosel, an analyst at Banc One Capital Markets in Chicago. "Sears is known for top-quality merchandise, not necessarily fashion."