To improve sales, Sears needs to see a newer side

J.C. Penney has recovered, while Sears still struggles.
CHICAGO TRIBUNE
CHICAGO -- At a cocktail party at J.C. Penney Co. headquarters near Dallas, Chief Executive Allen Questrom told Wall Street analysts that his biggest competitors are shopping malls, Kohl's Corp. and specialty stores.
He failed to make any mention of the nation's largest department store chain, Sears, Roebuck and Co., Penney's closest competitor in shopping malls.
The surprising omission was intentional. Questrom isn't worried about Sears because the venerable chain continues to lose market share and is grasping for a turnaround strategy.
While Sears remains the king of appliances with its proprietary Kenmore brand, it hasn't been able to turn around its apparel fortunes.
Two stores, same problem
Despite Questrom's slight, Sears and Penney have much in common. It starts in the executive suite, a battle pitting Allen versus Alan. That's Questrom vs. Alan Lacy, Sears' CEO.
But the similarities go beyond that.
Both men took over in late 2000 with the same challenge: fixing retailers that had fallen out of step with shoppers, who were increasingly favoring off-mall giants such as Wal-Mart, Target and Kohl's.
When it comes to sales trends, though, Penney and Sears bear little resemblance to each other.
Penney, with annual revenue of $17.8 billion, has had three consecutive years of sales growth.
April numbers rose 5 percent, thanks partly to such exclusive products as the $30 Stafford cotton wash-and-wear shirt that Questrom donned at the cocktail party.
Sears, with revenue of $41.1 billion, is on pace for a fourth straight year of sales declines. The biggest drag on Sears year-to-date: slower-than-expected sales of clothing and home furnishings.
Penney stockholders have come out ahead as well. The price of their company's shares has risen 89 percent since the beginning of 2000.
Sears' stock has risen a more modest 37 percent, helped by the sale of its credit-card business and an aggressive stock repurchase program.
The tale of the two retailers illustrates how difficult it is for retail chains to reinvent themselves.
Making changes
Penney has chosen to become a better department store, retail consultants say. By sticking to its knitting, Penney has re-energized the goods that attracted shoppers in the first place -- clothing, bedding, towels and draperies.
Questrom summed up his strategy this way: Penney's mission is to provide "Neiman Marcus fashion at J.C. Penney prices."
Meanwhile, Sears has moved away from the department store label and is becoming more like a discounter. Sears Grand, its new prototype, illustrates the direction it is heading: liters of Pepsi, Cracker Jack and milk -- the convenience items that tempt shoppers at Target and Wal-Mart.
"In many ways, we've tried to move away from the traditional department store approach in service and the way we merchandise and present products," Lacy said.
Questrom has worked hard to bring a fresher look to Penney's fashions without alienating its loyal customers.
"We want to be a close second" when it comes to fashion trends, Questrom said. "People don't generally want to lead with fashion. But if they see something on TV or in the newspaper, they want to buy it."
Those efforts are paying off in higher sales and winning Penney friends on Wall Street.
"Questrom's team strikes us as singularly focused on key merchandising, marketing and tech initiatives," A.G. Edwards analyst Robert Buchanan said.
Focus on apparel
When Lacy took over, Sears' hard-goods business was at the top of its game. But Sears' apparel business was still struggling despite new private-label lines, redecorated stores and an award-winning advertising campaign for its "Softer Side."
Lacy promised Wall Street that he would apply financial discipline to the retail side of Sears as well. If a merchandise category didn't meet his hurdle rates for return on investment, they were gone. Sears stopped selling bicycles, wall-to-wall carpeting and cosmetics.
He applied the same hard-nosed approach to the collection of off-the-mall retail chains that Sears had created.
Lacy sold off National Tire & amp; Battery and has warned that he may be ready to walk away from the Great Indoors, Sears' well-received home decorating and remodeling chain, if its profitability doesn't improve.
But some of Lacy's most dramatic moves have come in the area where he has the least expertise: apparel.
Sears spent nearly $2 billion in 2002 to acquire Lands' End, the preppy catalog company best known for its khakis and polo shirts. It has since rolled out Lands' End's khakis and polo shirts to all 871 Sears stores nationwide.
Lacy also directed the overhaul of Sears' mish-mash of private-label apparel brands, killing most and replacing them with one classic line for women, men and children named Covington.
But the addition of Covington and Lands' End hasn't been able to cure Sears' ailing apparel business, which continues to struggle from the lack of a clear identity.
"The last 21/2 years have seen an enormous change in our company," Lacy said recently. Sears strengthened its hard lines, but "the apparel business has taken an enormous amount of work," he acknowledged.
Lacy must end 2004 on a sales upswing or risk losing his job, one retail observer said recently.
"I'd say, at best, he has until the end of the year," said Dave Novosel of Banc One Capital Markets Inc.