Wayward Ward’s on New Retailing Road

In its long, rocky history, Montgomery Ward & Co. has zagged when other retailers zigged.

After World War II, it hoarded cash against the threat of another Depression while Sears and Penney’s bought new stores and boomed. Years later, it was forced to replace and upgrade worn-out stores while other companies expanded their selling space. Sales and earnings lagged at its free-standing stores and locations in second-rate malls while competitors soaked up strong gains in quality shopping centers.

Now, having been ordered by its parent, Mobil Corp., to shape up so that it can be shipped out from under the oil company’s umbrella, Ward’s is aligning itself with today’s “ziggers”--the specialty stores that are the hottest segment in retailing.

“We’re calling ourselves a value-driven specialty store,” Ward’s President Bernard F. Brennan said.

With such remarks, Brennan spotlights a phenomenon that has other retailers scrambling as well. Led by chains such as Toys R Us and the Limited, specialty stores have become the envy of an industry struggling with fierce segmentation and competition.

Torrance Store One of New Breed

To better position itself, Chicago-based Ward’s is touting a “stores within a store” concept, which features seven specialty departments: apparel, home care, electronics, appliances, home furnishings, recreation equipment and automotive goods and services. With the openings this year and next of several prototypes--including Thursday’s opening of the newly remodeled, 110,000-square-foot store at Del Amo Fashion Center in Torrance--Ward’s is intent on winning a broader customer base without alienating its traditional middle-America customers.

“The concept is to offer compelling merchandise at good prices,” Brennan, 47, said Thursday.

Brennan foresees that the specialty-store strategy will ultimately make Ward’s “a store that people think of first. We’re tired of being an ‘oh, by the way’ store that people go to when they can’t find something somewhere else.”

Even if the plan succeeds, the retailer, which ranks sixth in the nation among general merchandisers, will continue to be well behind its traditional rivals--Sears, Roebuck, with $38.8 billion in sales last year, and J. C. Penney, with $13.5 billion in

revenue. But Brennan is convinced that this is the way to go if Ward’s is to make itself attractive to a buyer or strong enough to withstand a spinoff in two or three years--the time that Mobil has allotted for a turnaround. From all indications, Mobil is not likely to provide any more big bail-outs, as it has in the past.

As Ward’s stores begin to look more upscale, some observers say the company runs the risk of confusing customers. But Marvin Stern, Ward’s executive vice president for merchandising, said: “We worry a lot about our main customer base. We have no intention of disenfranchising that customer.”

‘Country Casual’ Look

At the Torrance store, customers will immediately notice changes in the home furnishings section, which in the past was heavy on big dining room and bedroom sets but now features upholstered couches and chairs with a “country casual” look. In apparel, such designers as Jack Mulqueen and Andre Oliver are now featured next to private labels.

Gone are the old round racks jammed with goods under harsh lighting. In their place are modular groupings and Plexiglas walls, track lighting and bold, primary colors. In the children’s and leisure departments, toys and sports equipment are contained in high-tech racks that look like scaffolding on wheels and make it a snap to move displays around.

In electronics and appliances, Ward’s prominently displays the names of national brands in addition to its private label. In these areas, “if you’re not in brand names, you’re not competitive,” Brennan said.

‘Very Effective’

John Landschulz, a retailing analyst with Mesirow & Co. in Chicago, believes that Ward’s is headed in the right direction. “The new presentation is very effective because it capitalizes on color, packaging and convenience but also very subtly presents value and yet gives the customer the chance to upgrade if he chooses,” Landschulz said.

Brennan said the 316-store company will closely monitor sales at full prototype stores in Torrance, Annapolis, Md., and Lombard, Ill. In addition, he is keeping his fingers crossed for an even bolder experiment--the opening of smaller, limited-merchandise stores near major malls in Chico, Calif.; St. Charles, Ill., and Lubbock, Tex. These feature only home furnishings, electronics, appliances, automotive goods and services and, except in Chico, apparel.

Once again, incidentally, the old-line merchandiser finds itself late off the starting blocks. Sears--run by Brennan’s brother Edward--and Penney’s are both way ahead on “store of the future” strategies designed to improve product mix and presentation.

Clearly, Mobil would be delighted to shed its problem child, which the oil company bought for $1.8 billion in 1976 when it was awash in cash from the run-up in oil prices. By 1979, Ward’s earnings had plummeted to $73 million, down from $119 million in 1977. By the next year, the retailer had tumbled deeply into the red, and it didn’t turn a profit again until 1983. Last year’s meager profit of $53 million was on $6.5 billion in sales.

Throughout this period, Mobil kept reaching deeper into its pockets, eventually pumping $609 million into the company. But in May, Mobil threw up its hands, announcing that it would take a $500-million write-down on Ward’s and get it into shape to sell.

All along, Mobil’s prime consideration in the Ward’s purchase was “strategic diversification” rather than profitability, but “it has been a disaster by anyone’s account,” said Bruce Lazier, an oil industry analyst at the New York office of Prescott, Ball & Turben, an investment firm.

In June, Ward’s recruited Brennan to fill the vacancy left by Stephen L. Pistner, who had resigned abruptly in January. Brennan had left the No. 2 spot at Ward’s in 1983 to head Household Merchandising, a division of Household International that recently agreed to be purchased in a leveraged buy-out.

After stepping back in at Ward’s, Brennan soon decided to eliminate two highly unprofitable and inefficient units: the 44-store Jefferson Ward chain in Florida and Philadelphia and the 113-year-old catalogue operation.

The moves freed up $1 billion in working capital and will result in more than 5,000 layoffs, reducing the company’s employment to 73,000. Perhaps more important, Brennan said, elimination of the catalogue operation will help the company keep its merchandise more current. “The same buyers were buying for both the catalogue and the stores,” Brennan said. “The catalogue’s conservatism carried over.”

Despite a disappointing year so far in retail sales and the threat of a Christmas characterized by heavy price cutting, Brennan is optimistic about Ward’s chances two or three years down the road. “We would like to be competitive within the industry, with a return on equity of 12% to 15%,” he said. Last year, Ward’s return on equity was 4%. It has a long way to go.