World

Apparel missteps take toll at Sears

Services and ShoppingClothing, Accessories, and ShoesScienceCompanies and CorporationsWal-Mart Stores, Inc.InventoriesE-Commerce Industry

When Sears, Roebuck and Co. bought Lands' End in 2002, the retailer explained that the preppy clothing line had a strong following across several key categories.

Two years later, Sears is scaling back the brand for children, recognizing that parents are reluctant to spend $24 on a pair of Lands' End shorts when the private-label Covington brand is on sale for $8 nearby.

Selling clothing, it turns out, still isn't child's play for the Hoffman Estates retailer.

The nation's biggest department store chain suffered disappointing earnings in the second quarter due largely to weak apparel sales. The results even prompted one Wall Street analyst, during a July conference call with Sears' executives, to ask if the retailer should stop selling clothing altogether.

Sears acknowledges that its missteps--including shortages of spring clothing in both classic and trendier lines--are getting to be a pattern.

"This has been a hard slog," Sears Chief Executive Alan Lacy replied to analyst Michael Exstein.

Others take a more jaundiced view: "The company seems fated to make the wrong bet on apparel time and time again," said Carol Levenson, research director for Gimme Credit Publications Inc.

"We fear that after a quarter in which management blamed weak apparel sales on the lack of fashionable merchandise in its stores, the company will load up on ponchos and bright colors just when these fads are fading," she said.

The clothing difficulties come at an inopportune time for Sears.

September marks the one-year anniversary of Lands' End being carried in all 870 Sears stores.

Sears also will start selling a full assortment of clothing over its Sears.com Web site starting next month. Currently, the only clothes offered online are school uniforms or pieces linked to specialty catalogs.

"We're excited about it," said Gwen Manto, Sears' apparel general manager. Even with the limited attire on Sears' Web site, "clothing" gets the third-highest number of clicks--after "search" and "appliances."

But Internet apparel selling has been tough for even the mightiest merchant. Wal-Mart Stores Inc. recently announced it would take another stab at online clothing after an earlier effort failed.

And Wal-Mart sells more clothing than anyone else.

Relatively few shoppers, in contrast, spend most of their clothing budget at Sears, according to Retail Forward. In a survey of shoppers from November through June, only 2 percent of respondents identified Sears as the place they spent the most money on apparel, the researcher found. Named most often, at 21 percent, was Wal-Mart.

"I'm a great believer in a company sticking to what it does well," Gimme Credit's Levenson said. "Sears hasn't been able to differentiate itself and succeed in apparel for years."

But, she and others add, it's highly unlikely Sears will punt on apparel.

For one thing, clothing profit margins surpass those of other goods. Gross margins for clothing stores are 42.4 percent, according to a study released in March by the U.S. Census Bureau. That compares with margins of 27.8 percent for electronics stores and 24.7 percent for general merchandise stores.

Also, apparel brings people into stores more frequently than durable goods such as appliances.

Finally, while the heart of Sears is such hard goods as Kenmore appliances, Craftsman tools and DieHard batteries, its clothing sales are nothing to sneeze at.

The $36.4 billion retailer sells $4.5 billion in apparel annually.

Putting that in perspective, its clothing sales alone are nearly double Marshall Field's total sales of $2.6 billion.

In a nutshell, Sears has too much invested in apparel to cut and run. But it has yet to master it.

Nowhere are the shortcomings more notable than with its flagship Lands' End line. Historically, the brand was sold mostly through catalogs and the Internet. It's also a relatively pricey line for Sears.

"We've had some price-value issues, most notably in the kids' area," Lacy said last month. So "we've cut back kids, broadly speaking, mostly in infant and toddler."

Still, demand for Lands' End in general varies depending on location. Sears' solution: Starting this fall it will edit inventory store by store.

"In the top 300 stores, we'll put additional product in," Lacy said. "In the bottom 300, we'll reduce it."

The overhaul is welcome news to Sears' analysts and shoppers.

In a March 30 report about Sears, Goldman Sachs pointed out the wide range of prices for boys' shorts.

The report also noted that "Lands' End was not always merchandised with integrity, that some categories were on heavy clearance."

Shopping at his local Sears in Tucson, Ariz., in January, James Tenser, principal for Internet consultant VSN Strategies, noticed that "Lands' End seemed to be interspersed with other apparel," making it tough to find.

Sears says it has since improved the presentation of Lands' End.

As for Lands' End's more established sales channels, Sears disclosed that catalog and online sales for Lands' End were "soft" in the first half of 2004. That was blamed on the weather, a decrease in catalog circulation and cannibalization by stores. Sears won't say how much Lands' End catalog sales are down.

Still, Sears has a spirited defense of its $1.9 billion purchase of Lands' End and its broader decision to stick with apparel.

"The customer tells us they want Sears to be a broad-line merchant," Lacy said.

He also points out that 70 percent of Lands' End sales occur at full price in stores and that demand for older children's apparel--particularly the brand's outerwear--is selling well.

Lacy noted that, in the top 300 stores, Lands' End sales exceed $200 a square foot. He didn't disclose Lands' End per-foot sales in the 570 other stores. Nor did he say what sales were generated by products that Lands' End replaced other than that they are better.

"Generally speaking, we're pleased with how the business is performing," Lacy said.

He added that Sears ultimately will realize "very good success" in apparel overall.

He points to freestanding Sears Grand stores. Clothing sales at the fledgling format are "remarkable." So far, sales at Sears Grand are exceeding expectations by 30 percent, with apparel among the strong performers.

Apparel chief Manto attributes the improvement partly to the "enhanced" shopping experience at Sears Grand.

But until Sears has enough stand-alone stores to move the sales needle, it needs to improve apparel at the mall. "We have fallen short of our customer's expectations, yet we're focused on fixing those issues and we're in a good place for fall," Manto said.

Sears soon will roll out Structure, a fashionable men's line it bought from the Limited. Also on the way is A Line, a trendier women's brand made exclusively for Sears by Jones Apparel Group.

Sears also recently disclosed three other additions. Liz Claiborne will make an active wear line called Curve for Sears only. Russell Kemp, a national brand, will be stocked. And designer Harve Bernard will put his imprint on Sears' in-house Laura Scott line.

Sears' disappointing second-quarter results did produce one bright spot: Its trendier clothing line, Apostrophe, enjoyed a 20 percent sales increase.

But solving apparel problems at Sears is more than about the product.

"The problem seems to be in execution. Sears itself has noted issues related to inventory, a missed spring selling season, and Lands' End positioning problems in the stores," said Steven Keith Platt, director of Platt Retail Institute.

Regardless of how it gets there, he said, "in the final analysis, Sears must succeed in apparel."

Copyright © 2014, Los Angeles Times
Comments
Loading