Sears Says It Will Buy Lands’ End

Sears, Roebuck & Co. said Monday that it will acquire Lands’ End Inc. for $1.9 billion in cash, adding the direct-to-consumer retailer’s classic apparel and accessories in a bid to boost Sears’ long-suffering apparel division.

Sears Chief Executive Alan J. Lacy said Lands’ End will continue offering its line of conservative and dependable fashion, luggage and home furnishings via the Lands’ End catalogs and Web site. In addition, Sears will begin offering select Lands’ End items in some of its 870 department stores by this year’s holiday season, with a full roll-out by fall 2003.

Some analysts cautioned that the purchase could be risky and pricey. Sears is offering $62 a share for Lands’ End stock, a 26% premium over the 90-day average price of $49.03. This for an upscale brand that could lose some of its following through an association with the more moderately priced Sears.

But other analysts were cautiously optimistic, noting that the more upscale brand, with a clear following, could only help Sears broaden its appeal.

“Martha Stewart’s cachet wasn’t lessened by going to Kmart,” said Bernard Sosnick, a retail analyst with Fahnestock & Co. in New York. “It’s a terrific idea; it gives them a very well-established brand that differentiates Sears from other retailers.”

In recent years, many discount and moderately priced retailers have had considerable success adding exclusive national brand names into their stable of goods. Kmart’s biggest success in an otherwise sinking retail chain has been its Martha Stewart line. Target Corp. is the only national seller of the Mossimo brand of sportswear.

In separate news Monday, Martha Stewart Living Omnimedia Inc. said Sears’ Canadian unit will be granted exclusive rights to sell the homemaking queen’s retail products north of the border.

The long-rumored Lands’ End deal is Sears’ biggest move to revamp its soft goods, which have lagged behind the company’s tools and appliance sales. Although Sears has been able to woo middle- to upper-income Americans into its stores for top-of-the-line appliances, it has had trouble converting those customers into buyers of higher-margin soft goods, such as clothing and footwear.

Lands’ End adds what Lacy calls a “premium” brand, with a higher-income target customer and strong brand recognition. One of the company’s big hopes is that upper-income customers who already shop Sears for high-end appliances will add clothing to their purchases.

“We have a clear objective to improve the relevancy, consistency and quality of our soft-lines offerings,” Lacy said. “The acquisition of Lands’ End represents an important element and step toward achieving this vision.”

Lois Huff, vice president at consulting firm Retail Forward, said that although the acquisition offers some opportunities for Sears, it is not a clear-cut winner.

Lands’ End goods, at higher prices than many Sears shoppers are accustomed to, might not tempt Sears’ current customers or bring in new, younger patrons who are used to buying Lands’ End products in catalogs or online.

“The more likely scenario is that you aren’t likely to see a transfer of Lands’ End shoppers into Sears,” Huff said. “That customer would have some image issues with transferring their clothing buying to Sears.”

Lands’ End, founded in 1963, last year reported revenue of $1.6billion and has more than 8,300 employees.

Lands’ End will maintain its headquarters in Dodgeville, Wis., under Chief Executive David Dyer, who also will oversee the Sears direct-to-consumer business, including catalogs and Sears.com.

Suburban Chicago-based Sears, which last year reported revenue of more than $41 billion, said the deal will have no material effect on 2002 or 2003 earnings, with an expected revenue gain in 2004. The company’s stock buyback, however, will likely slow from its pace during the first quarter, when Sears bought back 2.5% of outstanding shares for a total of $427million.

Shares in Sears rose 19 cents to close at $52 on the New York Stock Exchange. Lands’ End shares gained $10.71 to $61.73, also on the NYSE.