Sears Reinvents Itself, but What Exactly Is It? (Published 2003) (2024)

At a time when economic hard times have eroded sales for retailers large and small, Sears, Roebuck is reinventing itself as a retail company -- without the cushion of its credit card business.

Sears announced yesterday that it would put its credit card business, begun during the Depression, up for sale. The company says that its plan is well timed to reduce its $28.5 billion debt and to increase value for shareholders at Sears, which posted a 28 percent increase in retail income last year. Others say the approach is risky because it pits Sears, still in search of a strong public image, directly against retail behemoths like Wal-Mart, Target and Home Depot, not to mention fast-growing chains like Kohl's and the industry veteran J. C. Penney.

The decision to part with the credit business, which the chairman and chief executive, Alan J. Lacy, lauded in October for the ''tremendous financial flexibility'' it gave Sears, represents a marked shift in strategy. The credit division produces 60 percent of the company's earnings, and has long been a buffer against the unpredictability of retail. With its Sears cards and Gold MasterCards, it not only generates income from borrowers, but also promotes spending with generous terms like zero percent financing and accounts that are not considered uncollectible until 240 days have gone by -- a third longer than the typical bank credit card.

Some industry experts now wonder what the Sears of the future -- with its credit card cushion stripped away -- will resemble, both in appearance and performance against competitors.

For some time, the company has been trying to develop what its ads call its ''softer side,'' meaning clothing, housewares and goods other than tools and appliances. The purchase of the catalog giant Lands' End 10 months ago, for $1.9 billion in cash, was one step in that direction, and was also seen as a way of getting another kind of shopper into Sears.

Still, such a strategy means competing with Target, Wal-Mart and other retailers that have a head start on similar efforts.

''Sears faces a lot of pressure from a lot of quarters, and it doesn't clearly stand for any one of those areas,'' said Lois Huff, a senior vice president for Retail Forward, a Columbus, Ohio, consulting firm. ''Lands' End is great, but it's not enough.''

Along with Lands' End, the other clothing brands highlighted at Sears include Dockers and Covington, a private label. Lands' End is supposed to represent the high end of consumer choices, and to draw in baby boomers and others formerly conditioned to buying it through the Lands' End catalog. The line began appearing in Sears stores in November, and was widened to more than 200 stores this month.

But while Lands' End may bring a different clientele, some experts fret that it will alienate the traditional Sears shopper. Others say the introduction of better clothing highlights the dreariness of the other Sears offerings.

''It is straddling a lot of fences,'' Ms. Huff said. ''It's not a Kohl's. It's not a Wal-Mart.''

The attempts to attract new customers are often hampered by location: many Sears stores are in malls, which have fallen out of favor with younger shoppers. ''What used to be great anchor locations for grandma and grandpa have become the worst possible locations for young adults,'' said Burt Flickinger III, managing partner of the Strategic Resource Group, a consulting company.

Sears has also been plagued by the downdraft in sales encountered by many retailers who built stores at shopping malls a generation ago. While Sears has remodeled many stores, analysts say that a new prototype may be necessary to improve sales.

At a store in San Bruno, Calif., yesterday, evidence of Sears as a work-in-progress was everywhere. Sales at the store, one of the nation's busiest under normal circ*mstances, have slowed as a result of a renovation under way, sales clerks said. The shoppers who braved the conditions gave the merchandise mixed reviews.

''They do not have the clothing brands I like,'' complained Sylvia Flores, a 50-ish antique dealer from San Bruno, saying that what Sears sells is aimed at ''an older set.''

The sales staff seemed friendly and eager to please. One shopper, in search of a garbage can, was directed to the Target next door. The Lands' End department, occupying its own section, was empty except for one shopper, while the appliance departments, tools and housewares were busy.

Where Sears has earned praise from analysts is its successful integration of its Internet presences with actual stores. With the purchase of Lands' End, it re-entered the catalog world to a degree; the Lands' End catalog was said to be a possible way of promoting Sears products. Each company advertises the other on its Web site, although Lands' End merchandise is more readily accessible through the Sears site than Sears is through Lands' End.

To be sure, Sears has reinvented itself in the past. It began life as a catalog company, only to abandon the catalog in 1993. It prided itself on its specialties in tools and appliances, then began to build a business in clothing and other soft goods in the 1990's. It opened hundreds of retail stores, then began a foray into financial services that ended with the sale of those businesses, also in 1993 and also to pay down debt.

Though an important earnings generator in recent years, Sears' formidable credit operation has hit some rough spots. The Gold MasterCard was introduced in 2000 and Sears has become the second-largest issuer of the cards, after Citibank, which is a possible buyer of the Sears portfolio.

But in October, the new card's prospects dimmed after Sears' chairman and chief executive revealed that the company would need an additional $222 million to cover uncollectible charges for the third quarter. Most of that was traced to the MasterCard. At the same time, Mr. Lacy, said the company's head of credit had been dismissed for ''credibility'' problems. That executive, Kevin T. Keleghan, has sued Sears, contending breach of contract, and Mr. Lacy, contending defamation.

A spokesman, Ted McDougal, said the company had considered selling the credit division three other times since 1994. This time, interest seemed high, and with the Sears share price having fallen to around $24, shareholders seemed likely to appreciate it, too. While no decision has been made, proceeds from a sale would probably be used to reduce debt and buy back stock as well as pay a dividend to shareholders, Mr. McDougal said.