Sears to Shed Brokerage, Credit, Real Estate Firms : Business: Sell-off will take the company back to its retailing roots. Action expected to halve $38-billion debt.
Sears, Roebuck & Co., once the nation’s largest retailer before it fell on hard times, said Tuesday that it will sell its stock brokerage, credit card and real estate businesses, abandoning plans to be a one-stop shopping center for merchandise and financial services.
The Sears sell-off places the troubled No. 3 retailer among the ranks of business giants that have scaled back in recent years by selling operations unrelated to their main mission.
In Sears’ case that means going back to the basics of peddling goods from washing machines and automobile batteries to tools and children’s shoes.
The major restructuring plan, expected to halve the Chicago-based retailer’s $38-billion debt, would remake the company in an earlier image--its 1970s incarnation as a retailer with only a stake in the insurance business.
Consumers would not be immediately affected because the restructuring will not be completed until 1994.
When shoppers visit Sears at that time, they can expect to find Allstate still selling its insurance in the department stores, the company said, because Sears plans to keep at least 80% of its Allstate Insurance Group and offer the rest to the public.
Sears plans to sell most of its Coldwell Banker Residential Services operations--keeping only Homart Development Co., a developer and operator of regional shopping centers. The company will sell the entire Dean Witter Financial Services Group, which includes the Dean Witter Reynolds securities firm and the Discover credit card.
It is not known whether Sears will continue to house Dean Witter brokerages in its stores or how the sale ultimately will affect the more than 41 million holders of the Discover card.
The smaller Sears will focus its resources on its ailing retail group, which has been out-hustled and eclipsed by fast-growing chains such as No. 1 Wal-Mart and No. 2 K mart. Indeed, Sears Chairman Edward A. Brennan said Tuesday that the company is making the changes to become a more competitive retailer.
The stock market and industry analysts reacted favorably to the announcement. Sears stock jumped $3.375 on the New York Stock Exchange on Tuesday to close at $44.75.
“This is the most important step Sears has taken in the last 10 years,” said industry analyst Walter Loeb of Loeb Associates in New York. “They’re finally going to focus on their main business--retailing.”
Loeb said Sears can no longer rely on top-sellers such as the Diehard battery and Kenmore appliances. Instead, the company must boost apparel sales, he said.
“Customers frequently return to stores for ties, clothing and hosiery--not appliances,” he said.
Sears executives say they are counting on Arthur Martinez, who was selected as the chairman of the Sears Merchandise Group in August, to help rejuvenate the retailing operations. Martinez is the former vice chairman of Saks Fifth Avenue.
“The new (merchandising) chairman has not announced any changes yet,” said Sears spokesman Perry Chlan. “But in the coming month, action will be taken to make the merchandising group more profitable.”
Some analysts remain skeptical of Sears’ prospects.
“The merchandise group is in very deep trouble indeed, and it will take a very, very long time for it to turn around--if ever,” said Kurt Barnard, president of Barnard’s Retail Consulting Group, a New York-based consulting firm.
Despite two years of cost-cutting--the company has eliminated more than 48,000 positions, reduced annual costs by about $1 billion and pared its management structure--Sears still suffers from bigger expenses than many of its competitors.
Barnard said Sears’ operating costs are about 29% of sales, compared to about 15% at Wal-Mart and about 22% at Circuit City, which competes with Sears for consumer electronics and appliance shoppers.
Founded in 1886, Sears, Roebuck & Co. enjoyed decades of solid growth by serving a middle-class customer with a money-back guarantee. But recent years have brought the most change in the company’s long history.
Sears leaped into diversification by purchasing Coldwell Banker & Co. and Dean Witter Reynolds in 1981. The company introduced the Discover card in 1986. By 1988 it was clear that diversification was in trouble. Cost-cutting and a refinancing of Sears’ landmark Chicago headquarters followed.
Sears’ critics say that customer service has suffered in recent years. They say the company has lost touch with the blue-collar clientele that it served for more than a century and has misplaced the retail vision that made it the nation’s largest retailer.
The retailer’s image has been further tarnished by charges of unscrupulous repair practices at its auto shops in California and New Jersey. The company recently reached settlements in those states to reimburse unhappy customers who contend that needless or shoddy repair work was done on their cars.
In addition, the recession has hit Sears especially hard because beleaguered consumers have not been spending money on the furniture, refrigerators and other so-called “hard lines” that Sears stores emphasize.
Income from the merchandise group fell 33% to $95 million in the first six months of 1992 while sales inched up 1% compared to the same period last year. Overall, Sears had first-half income of $345.8 billion, a rise of 15.5% over the same period last year.
Sears shareholders have been clamoring for a change of direction for some time, observed Edward F. Johnson, director of Johnson Redbook Service, which tracks consumer trends for the Lynch, Jones & Ryan brokerage firm.
“They’ve been forced into this situation by the shareholders, who said: ‘Get off your fanny and do something or we’ll fire you.’ ” Johnson said. “Obviously people think the parts are more valuable than the whole.”
Stirred by lackluster financial returns, some Sears shareholders had been asking company management to divest non-retail operations. However, Sears executives said they were not pressured into the moves, adding that they decided to make the changes after studying the company’s structure for several months.
Sears’ divestiture plan is subject to favorable tax rulings, required regulatory approvals, market conditions and final approvals by the Sears board of directors. The sale, which is expected to raise $3 billion in addition to shedding debts, calls for the following:
* Selling a minority interest of up to 20% in Dean Witter and distributing the rest to Sears’ shareholders.
* Selling its Coldwell Banker Residential Services businesses, consisting of the residential brokerage and relocation businesses, Sears Mortgage Corp. and Sears Savings Bank.
* Making an initial public stock offering during the next 12 months of up to 20% in the Allstate Insurance Group. Sears would retain 80% or more of Allstate.
Together, Coldwell Banker and Dean Witter have assets of about $33 billion and combined debt of about $19 billion. Under the plan, that $19 billion in debt would be transferred from Sears to an independent Coldwell Banker and Dean Witter.
Unlike Coldwell Banker and Dean Witter, Allstate grew with Sears over the decades. Sears created the Allstate name for a line of tires that it sold in the 1920s, then stretched the line into auto insurance in 1931.
Although Allstate’s own debt faces downgrading from credit-rating agencies because of its huge losses from Hurricane Andrew, it is still regarded as financially strong. Standard & Poor’s Corp., cited that strength in its decision Tuesday to affirm Sears’ debt ratings.
One motive for selling part of Allstate--aside from getting cash--is to let the market put a price on its franchise as the nation’s No. 2 property-casualty insurer behind State Farm Insurance. Sears has been frustrated that Allstate’s value isn’t fully reflected in the company’s stock, said N. Richard Nelson, an industry analyst at the Chicago-based Duff & Phelps investment firm.
Times staff writer Tom Mulligan contributed to this story.
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