Mindful of the current surge of corporate takeovers, Sears, Roebuck & Co. announced plans on Monday to sell its towering Chicago headquarters building, boost its stock price and put some zip back into its stores.
As part of a corporate revamping, the world’s largest retailer said it intends to buy back about 10% of its shares and sell businesses that do not directly serve consumers. Among those would be the commercial division of real estate giant Coldwell Banker, a Los Angeles-based unit that employs 4,700 people.
‘To Increase Shareholder Value’
“The strategy that we announced today is designed to increase shareholder value in both the long term and the short term,” Chairman and Chief Executive Edward A. Brennan said in a morning news conference at the 110-story Sears Tower, which at 1,454 feet is the world’s tallest building.
Real estate and retail industry sources speculated that the landmark building would bring at least $1 billion.
Sears said the changes announced Monday would make the company more appealing to investors by lifting its sagging profits, which have deteriorated primarily because of problems at its core chain of 825 department stores. At the same time, the company said retail customers too would benefit from a new “everyday low price” strategy.
However, many investment analysts and retail industry observers expressed skepticism about the plan, saying the steps announced by the 102-year-old company, which has diversified heavily into financial services since 1981, fall far short of the sweeping restructuring for which Wall Street has been clamoring in recent months.
“What they need is a restructuring, but this is just a slight editing of their strategy,” said Gary M. Giblen, a vice president at the Rotan Mosle investment house in Houston.
Kurt Barnard, publisher of the Retail Marketing Report newsletter in New York, agreed that the changes do not go far enough. “Sears has dabbled in this and dabbled in that,” he said. “But what are you doing with 825 department stores that are sitting there soggy like wet cornflakes? . . . They are continuing to flail.”
Owns Dean Witter, Allstate
Despite its scope and size--$48.4 billion in 1987 sales and 526,000 employees--Sears has been the target of conjecture that its lackluster performance would prompt a takeover attempt by a bold investor who saw opportunities for selling off portions of its extensive real estate and diversified financial industry holdings.
Those businesses include the Dean Witter brokerage and Coldwell Banker, both purchased in 1981, and Allstate, the highly profitable auto and home insurer founded by Sears in 1931.
Such a takeover, some speculated, could approach a lofty $30 billion, a figure that no longer seems outside the realm of possibility given the size of takeover attempts under way in the food industry, such as Kohlberg Kravis Roberts’ $20.3-billion stab at RJR Nabisco.
Brennan, at the news conference, said the company has not been approached about a leveraged buyout or a takeover. He said the strategy changes, approved at a hurriedly rescheduled board meeting Sunday, are not “a reaction to what’s happened in the market in the last couple of weeks,” but he acknowledged that the rumors and market activity did speed the announcement.
Over the last 2 months, Sears’ average trading volume has been 842,000 shares, but volume exceeded 1 million shares each day last week, with 5.4 million shares trading hands Wednesday. The value of the shares had risen substantially in recent days precisely because of speculation about a restructuring or takeover.
But investors reacted unenthusiastically to Monday’s announcement. In trading on the New York Stock Exchange, Sears’ stock closed down $1.875 at $41.75, with 2.4 million shares changing hands.
Asked in a telephone interview Monday afternoon whether the announced changes would be enough to fend off a takeover, Brennan said: “We think the moves we have taken address the short-term issues in terms of the liquefaction7 of some assets and buyback of stock. And, more importantly, we think the strategic direction addresses the long-term issue.”
These are among the steps planned by Sears:
- A sale of Sears Tower and relocation of 8,000 merchandise group employees to smaller, less costly facilities over the next several years. Brennan said the company would seek to relocate the employees elsewhere in the Chicago area. Six hundred headquarters workers will remain at the tower.
- A repurchase on the open market of as many as 40 million of the 380 million shares outstanding, by mid-1989. Money for the repurchase will come partly from sales of assets. Such a tactic has been used by many companies to bolster values by removing shares from the marketplace.
- A move to an “everyday low price” strategy for Sears’ retail stores and catalogue operation and a move away from the company’s traditional strategy of frequent sales. Brennan said money saved on promotional programs could be better used to lower prices on a regular basis.
- Rapid expansion of a “store of super-stores” concept, similar to the recent strategy of Montgomery Ward of setting up specialty stores within Ward’s stores that focus on particular product groups, such as consumer electronics. (Ward’s is run by Edward Brennan’s brother, Bernard.)
Sears said the actions announced Monday will result in a one-time after-tax charge of $425 million for the fourth quarter, not including the tower sale.
About a year ago, in response to widespread specialization in retailing, Sears embarked on a strategy of buying specialty operations that could enhance its core operation. Earlier this year, for example, it bought Western Auto Supply, one of the nation’s best-known auto parts chains. It is also experimenting with stand-alone stores focusing on a particular category, such as its Brand Central stores, which feature consumer electronics and appliances.
Brennan said the company will continue that strategy, looking in particular for stores through which Sears could broaden distribution of its own products or that could become part of the “store of super-stores” concept.
Addition of Brand Names
It has also begun adding more brand-name merchandise to its private label selections in an effort to widen its appeal. Brennan said customers can expect to see more branded merchandise.
John S. Landschulz, an analyst at Mesirow Financial Services in Chicago, praised the push toward branded merchandise and lower prices. “The more cost-conscious (and) brand-conscious, the better off they are,” he said. “They have put together a recipe for growth, which is the obvious ingredient lacking.”
Other observers noted that Sears’ core business suffered from the retailing industry’s move toward specialty stores starting in the early 1980s. Chains such as the Limited and the Gap lured away much of Sears’ mainstream clientele with greater selection and value.
“This is the era of segmentation,” said Joseph Scheines, a spokesman at the New York office of Kurt Salmon Associates, a management consulting firm. “Everybody’s got some little angle with which they try to set themselves apart. Sears’ segment for years has been the great undistributed middle, a segment that’s too large to swallow.”