Century-Old Sears Faces Upstarts : Discount, Specialty Chains Challenge the No. 1 Retailer
Sears, Roebuck & Co., founded 100 years ago to market watches, has much in common with the nation that for generations has pored over its catalogues.
It is huge, complex, still growing and still changing.
But it’s also facing increasing competition from large discount and specialty chains after years of virtually unchallenged dominance.
And following a wave of diversification into financial services and real estate, Sears may be undergoing an identity crisis, stretching itself too thin, some analysts say.
“Just because Sears has money and can bludgeon itself into these businesses doesn’t mean it will be a financial success,” said Howard Stein, chairman of the investment firm Dreyfus Corp. in New York.
Edward A. Brennan, chairman and chief executive officer of Sears since January, responds: “Flexibility is important. . . . Sears cannot stand still.”
Founder Richard W. Sears was a railroad agent at North Redwood, Minn., when he decided in 1886 to try selling a crate of unwanted pocket watches. A year later, after he moved his company to Chicago, Sears was joined by Alvah C. Roebuck, a Hammond, Ind., watchmaker who repaired the watches Sears sold.
Scored in Retailing
The company thrived first as a mail-order house, then hit it big in retailing, growing into the nation’s biggest retail company.
It now owns the nation’s largest real estate broker, Coldwell, Banker & Co.; the fifth-largest investment company, Dean Witter Reynolds, and the nation’s second-largest insurer of homes and automobiles, Allstate, which Sears founded in the 1930s.
But merchandising still accounts for the bulk of Sears revenue--$26.5 billion of $40.7 billion in 1985. Allstate provided $10.4 billion, Dean Witter $2.9 billion and Coldwell Banker $900 million.
Company officials say three-quarters of all adult Americans shop each year at Sears, which has 799 general retail stores, 2,361 catalogue sales locations and 386 specialty stores in the United States, Canada and Mexico.
In a bid to meet the retailing challenge head-on, Sears has revamped 278 full-line retail stores into “Stores of the Future.”
The new approach marks an attempt to shed Sears’ blue-collar image and appeal to a white-collar clientele, acknowledged Arnold Stein, a 30-year Sears veteran who has managed one of the updated stores for two years.
Higher Sales Volume
“Since we started them in 1983, the Stores of the Future have had 4% higher sales volume than our other retail operations,” said Stein, who oversees the 312,000-square-foot Sears store in the Chicago suburb of Aurora, Ill.
Departments have been reorganized, pulling together lines of merchandise that once would have been sold in different parts of the store.
Curving aisles pull the customer along from department to department.
Name brands are much more in evidence than in former years, when Sears concentrated on house brands.
“One specific image problem they have is that Sears is known as a man’s store,” said Monroe Greenstein, retail analyst at the investment firm Bear, Stearns & Co. “They’ve had trouble selling the women’s lines, but they’re working on it.”
Stein said Sears has gone beyond that, even with its house brands.
“Our Cheryl Tiegs and Stephanie Powers lines have great consumer recognition and heavy sales,” he said. “And our Yvonne Goolagong line of women’s sportswear is one of the hottest in the industry.”
On a tour of the store, Stein pointed out the computerized sales counters on central islands, noting, “You can buy a nightgown, a can of paint and a television set all at the same counter.”
High-Tech Marketing
Downstairs are the computerized counters of Allstate, Dean Witter and Coldwell Banker, with giant electronic screens on which customers can call up advice and suggestions tailored to their needs.
Even in this modernized store, Stein said, many of the 400 employees are Sears veterans.
The chain has a history of employee loyalty, he said, referring to the popular profit-sharing plan that shocked the business world when it was launched in 1916 by then-Chairman Julius Rosenwald. Rosenwald bought into the business in 1895 by forgiving Sears’ debt for some ready-made suits.
“You can say that 99% of Sears managers and executives have come up through the ranks,” Stein said.
There have been exceptions--most notably Gen. Robert E. Wood, who came from archrival Montgomery Ward & Co. in 1924 and pried Sears out of its mail-order-only mold.
An early master of demographics, Wood saw the population shifting to the cities after World War I and in 1925 talked Rosenwald into experimenting with retail stores.
By 1931, store sales took a permanent lead over mail-order income.
And, even though Sears had failed in efforts to sell cars, Wood was sure Sears could successfully sell car parts, services and insurance.
Entered Broadcasting
He even pushed Sears into broadcasting for a while, introducing such singing stars as Gene Autry.
Sears ran Chicago radio station WLS--the call letters stood for “World’s Largest Store”--from 1924 until 1928 and kept a 49% interest until 1935.
The station helped Sears sell a lot of radio sets.
Wood also predicted the shift of Americans to the suburbs after World War II.
While Montgomery Ward played it safe, building no new stores between 1945 and 1958, Wood ordered Sears’ biggest expansion, mainly in suburban belts where the “baby boom” he forecast had its strongest impact.
But the biggest single week of the expansionism that Wood personified came 12 years after his death, when Sears acquired Dean Witter and Coldwell Banker in December, 1981.
In Brennan’s view, those moves continued the tradition Wood pioneered.
But there are those who think Sears has gone too far.
Sears reported net income of $1.3 billion in 1985, down from $1.45 billion in 1984 and about the same as 1983. Net income for its merchandising group was reported at $766 million in 1985, down from $905 million in 1984 and $781 million in 1983.
Pointing to the company’s flat retail profits and the growing market share of its discount-chain competitors, some analysts contend that the new fields are too complex and too competitive.
Some see additional risk in Sears’ new Discover credit card, introduced in January, which is accepted by a variety of other companies and which customers can use in their transactions with Sears’ new financial services network.
Card Proves Successful
But Greenstein, who was skeptical in April, said recently that “the Discover card is doing far better than they dreamed. They already have 4 million cardholders.”
And Brennan defended the burst of diversification in a recent statement at the 110-story Sears Tower.
“Our products and distribution systems are on target for the needs of today’s consumer,” he said, “and we have evolved in a way that preserves our flexibility in an uncertain environment.”
