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Sears to add 30 appliance outlets
Worried that home-improvement chains are stealing market share, Sears, Roebuck and Co. will expand the number of its appliance and electronics outlet stores over the next two years by nearly 70 percent.
Calling it a quick and inexpensive way to plug holes in its lineup, the largely mall-based retailer plans to open as many as 17 outlet stores this year and another 13 in 2005 in strip shopping centers across the country.
Hoffman Estates-based Sears, whose 870 traditional department stores are losing business to more conveniently located rivals, currently has 45 outlets selling overstocked, discontinued and returned electronics, appliances and home and garden products at discounts of up to 50 percent.
The addition of another 30 outlets comes as Sears faces greater pressure to open new stores in a retail industry building few malls. While Home Depot Inc. and Lowe's Cos. opened a total of 250 big-box stores in 2003 and are making appliances a staple, Sears opened only about two dozen stores, and most were independently owned franchises in smaller markets.
The new stores will be called Sears Appliance Outlet. The existing stores, now called Sears Outlet, likely will be renamed. Sears has local outlet stores in Elgin, Melrose Park, Crestwood and Darien.
The outlet store expansion is Sears' latest effort to make its bread-and-butter products more accessible to shoppers.
In early 2004, the company announced plans to add appliances by year's end to all 163 of its free-standing Sears Hardware stores. Last year, in its 870 mall stores, Sears started stocking more lower-priced white goods.
"We want to expand our position in the appliance value segment by positioning the outlet channel as a viable alternative to home centers," said Karen Peters, Sears' director of outlet stores.
Sears is the nation's biggest appliance seller, with 2003 sales up 3.7 percent. But sales increases at Lowe's and Home Depot reached the double digits last year.
In addition, Sears, once a top 10 player in the electronics industry, now ranks 11th, with 2003 sales slipping 8 percent, according to industry publication Twice (This Week in Consumer Electronics).
Through the new locations, Sears hopes to stem the erosion in electronics as well as appliance sales.
Low-cost format is expandable
Stores will be "about 25,000 to 35,000 square feet in strip-center-type locations, and we typically sign a five-year lease so it allows us to expand pretty quickly with a relatively low-cost format," Peters said.
A former Sears executive who asked not to be named said it could be a sign that the company is having problems selling clearance goods in its mall stores, which average about 91,000 square feet.
Sears disputes that notion. It says it merely wants to appeal to shoppers willing to buy scratched or dented washing machines or stoves that were returned because the customer didn't like the color.
Sears also denied more appliances are being returned, which would feed the need for more outlets.
"I wouldn't say we're getting a lot more" returned merchandise, Peters said. Asked where the additional inventory will come from, she said, "we'll also do special purchases with some vendors to supplement our inventory."
Sears said its outlet stores appeal to rental property owners and cost-conscious first-time home buyers. "Our customers are willing to drive about 19 miles to get to us," Peters noted.
One retail expert believes that the new stores could appeal to the classic outlet-mall shopper: an upper middle class consumer wanting premium brands at a bargain, real or perceived.
Jim Robisch, senior partner for Indianapolis retail consultant Farnsworth Group, said he has seen appliances at Sears outlets that were priced higher than a Best Buy and only a shade below Sears' full-line stores.
But "maybe malls are no longer attracting the market they want for their markdowns," said Robisch, also a former research director for the National Retail Hardware Association.
Outlets have unique appeal
"It might be an above-average value shopper that doesn't shop malls or doesn't shop Sears in malls, so by going to strip centers and putting out an outlet sign," Sears might succeed in luring new customers, he said.
The former Sears executive believes outlet stores should be reserved for catalogers and manufacturers. While Sears faces pressure to open stores, "most retailers prefer to clear slow sellers in-house," he said. "It generates traffic."
Steve Smith, Twice editor in chief, said the key to Sears' outlet expansion is putting enough distance between the specialty format and mall stores.
"If they don't cannibalize the existing store base, they'll pick up sales," he said.
In another appliance move, Sears announced Wednesday the acquisition of a San Diego supplier of high-end appliances and designer fixtures to the contractor industry. The company, Standards of Excellence, has six California showrooms.