Friday, February 26, 2016

Predicting Future Trends for Wal-Mart, Target, Kohl’s, and Kmart

http://www.cheatsheet.com/business/consumer-business/predicting-future-trends-for-wal-mart-target-kohls-and-kmart.html/

ood stamp funding has recently been cut by $800 million per year, or 1 percent, over the next five years. Considering that 20 percent of Wal-Mart’s (NYSE:WMT) shoppers are on food stamps, this should have a big impact on sales. As Wal-Mart has admitted, it’s likely to have a negative impact, especially after the end of the payroll tax cut (really, the end of a payroll tax holiday) last year. However, some other demographic stats for Wal-Mart might surprise you. While there is some interesting information on Wal-Mart, there is a lot of clarity onKohl’s (NYSE:KSS), Target (NYSE:TGT), and Kmart — a Sears Holding (NASDAQ:SHLD) subsidiary.

Predicting Trends By Age Group Demographics

The following stats are based on BIGInsights Monthly Consumer Survey. What might surprise you is that these stats are from February, 2012 — but there’s a reason for this. How can we predict future trends without looking at the effectiveness of past results? We’ll soon see if age demographics, as well as annual household income levels, have played a role in the successes or failures of these four retailers recently.

The biggest discrepancy for age group demographics is between Target and Kmart, and these trends strongly favor Target over the long haul. Of Kohl’s, Kmart, Target, and Wal-Mart, Target has the largest percentage of shoppers ages 18-24 (15.1 percent of its shoppers.) Additionally, 23 percent of its shoppers are ages 25-34, and 20.7 percent of its shoppers are 35-44. These are all higher percentages than Kohl’s, Kmart, and Wal-Mart.

Kmart is on the other end of the spectrum, attracting an older customer base. For Kmart, 24.2 percent of its shoppers are 45-54, 20.6 percent of its shoppers are 55-64, and 20.4 percent of its shoppers are 65 or older. With more than half of its customers 45 or older, long-term trends aren’t good. Consumers tend to spend less as they enter retirement.

The most important generation right now is the Millennials, since it’s the second-largest generation to Baby Boomers, and is going to have the most spending power for the next several decades. Without these consumers, Kmart will lose. Considering Kmart represents approximately 35 percent of revenue for Sears, this is bad news for Sears Holdings. Target attracts the youngest crowd of this group, which is a big plus for the long haul.

Predicting Trends By Annual Household Income

While 20 percent of Wal-Mart shoppers are on food stamps, that shouldn’t be an excuse for subpar sales performance. Why? It’s because 22.3 percent of its customers have an annual household income of $50,000-$74,999, and 11.1 percent of its shoppers have an annual household income of $75,000-$99,999.

Target attracts a higher-income consumer than Wal-Mart. For Target, 4.4 percent of its customers have an annual household income of $150,000 or higher, 12.7 percent have a household income of $100,000-$149,999, and 15.0 percent have a household income of $75,000-$99,999. But what really jumps out here is Kohl’s.

Kohl’s might be known as a department store that offers discounts on a broad range of merchandise, but it primarily attracts a fiscally strong consumer. For instance, 27.6 percent of its customers have an annual household income of $50,000-$74,999, 18.3 percent have an annual household income of $75,000-$99,999, and 13.2 percent of its customers have an annual household income of $100,000-$149,000. This doesn’t play a big role toward growth, but it does play a big role for sustainability.

Kmart is once again on the wrong side of the stat sheet. For Kmart, 14.7 percent of its customers have an annual household income of $15,000 or less (higher than Wal-Mart at 12.1 percent), 17.7 percent have an annual household income of $15,000 to $24,999 (higher than Wal-Mart at 12.8 percent), 16.1 percent have an annual household income of $25,000 to $34,999 (higher than Wal-Mart at 14.4 percent), and 19.8 percent have an annual household income of $35,000 to $49,999 (higher than Wal-Mart at 17.4 percent). Since these numbers are from February 2012, let’s see if they predicted what was to happen in the future.

Top-Line Performances

Over the past year, Wal-Mart grew its top line (revenue) faster than its peers, but only at a 0.97 percent clip. Selling food and being within driving distance for most Americans plays a significant role. Contrary to popular belief, Wal-Mart should continue to see top-line growth thanks to its geographical expansion in Canada, and its continued rollout of small-box stores (to compete with the dollar stores.)

Target wasn’t far behind over the past year, seeing top-line growth of 0.91 percent. Given its financially sound customer base (for the most part) and the youth of that customer base, long-term potential is good. Kohl’s “delivered” top-line growth of 0.20 percent over the past year. This fits the sustainability theory. Kohl’s will have to remodel more stores and get more popular brands in its stores if its wants to fuel its top line more. Sears Holdings suffered a 3.03 percent revenue decline over the past year.

If you look at a five-year time frame, Wal-Mart, Kohl’s, and Target delivered respectable top-line growth of 17.70 percent, 17.51 percent, and 13.59 percent, respectively. Sears Holdings’ revenue plummeted 17.27 percent. There are no growth catalysts for Kmart, and Sears stores don’t offer differentiation. It has stronger competitors for everything it sells.

Conclusion

While Target isn’t likely to perform well in the near future due to its massive data breach, you should keep it on your watch list. Thanks to customers with deeper pockets and a young customer base, long-term prospects are good. Wal-Mart and Kohl’s should continue to plod along, finding ways to deliver methodical top-line growth while delivering capital to shareholders in the form of dividends and stock buybacks. As far as Sears Holdings is concerned, it needs Kmart to succeed, and based on an aging and struggling customer base, long-term success doesn’t seem likely. Therefore, you might want to stay away from Sears Holdings.

Predicting Future Trends for Wal-Mart, Target, Kohl’s, and Kmart

Food stamp funding has recently been cut by $800 million per year, or 1 percent, over the next five years. Considering that 20 percent of Wal-Mart’s (NYSE:WMT) shoppers are on food stamps, this should have a big impact on sales. As Wal-Mart has admitted, it’s likely to have a negative impact, especially after the end of the payroll tax cut (really, the end of a payroll tax holiday) last year. However, some other demographic stats for Wal-Mart might surprise you. While there is some interesting information on Wal-Mart, there is a lot of clarity onKohl’s (NYSE:KSS), Target (NYSE:TGT), and Kmart — a Sears Holding (NASDAQ:SHLD) subsidiary.

Predicting Trends By Age Group Demographics

Predicting Trends By Annual Household Income

Top-Line Performances

Conclusion

More From Wall St. Cheat Sheet:

February 10, 2014

STORE INTERIOR BRANDING ANALYSIS: SEARS VS. TARGET

By Administrator In: Branding | Design Trends | Healthy by Design | Retail Design | March 31, 2011 No Comments

http://mindfuldesignconsulting.com/store-interior-branding-analysis-sears-vs-target/

To see full text of this news letter click HERE.

It has become my habit, which derived from my profession, to look and to analyze businesses’ ambiance, environment and branding techniques of every space I walk into. Walking into a neighboring Sears I kept asking myself, what is Sears missing and what does Target, which is located very close, have? What makes Target a success when Sears is suffering tremendously? Being an entrepreneur and an architectural designer I would like to discuss some design aspects that I personally think could be improved to lift up Sears’ image.

If you missed it, read our last news letter on How Happiness has become a new Trend in Commercial Interiors of large companies.

Here are 4 improvements I can point out which you can personally experience entering the two stores Sears and Target:

1. Signage

There is nothing more important in any business’ design than the design of good and professionally done signage! Signage at the local Sears has very subdued undefined colors and shape. It is scattered randomly around the store in different colors and doesn’t help us to find what we need. The truth is, it is not professional-looking and lacks any hint of creativity.

Signage at the local Sears has very subdued undefined colors and shape.

In opposition to the Sears store, Target has created very sharp, well-defined signage. We can immediately appreciate that Target researched their market, knows their own branding colors and is very aggressively using it.

Target’s signage is creative and fun to look at!

2. Colors and Images Used

Sears reminds us of a huge warehouse with no definition, pale colors and small, almost invisible images sprinkled around the store to get us excited about their products. But is it enough? Does it grab our attention and make us want to try on their clothes? I cannot say yes.

Sears’ interior colors are very bland and do not give any emotions to the customers. The images are very small and hang too high for us to even notice.

Target on the other hand is full of action! It is a well known fact that the color RED provokes excitement and suggests love. Images of happy people having fun additionally reinforce this message! Yes, I do want to be happy, I do want to look like that, I do want to shop here! These are all the subliminal messages we are getting while looking at the Target store’s interior. I also would like to point out the creative use of Target’s logo throughout the store. It’s everywhere! It’s even a part of their walls patterns.

3. What is on SALE?

Sears has been practicing a very bad labeling system for years; people have to ask sales personnel about any discounts. How many times have you had an incident that the Sears product you thought was on sale is actually not when you got to the register? Sales signage at Sears is very small, almost unnoticeable, sometimes simply hard to figure out.

Sears Sales signage.

When something is on sale at Target, you will know right away! Not only does Target have huge signs hanging throughout the store, and not only are self-serving scanners placed on every corner of each department, but the staff actually wear the sales ads on the backs of their bright red t-shirts! Now, that’s marketing!

4. User Experience

What do we see as we enter the Sears store? What is the Sears store all about? How do people move through Sears? What do they see first, what second, etc? What do they buy on the way out? I think I will leave all these questions for Sears to figure out.

In the end I would like to give you my design idea for Mission Valley Sears. This is a simple Photoshop rendering I did to to show how a shopper’s experience could be improved by simply adding some aspects of branding and design to this Sears store. Please let me know what you think!

I’ve used Sears’ branding color for the signage and some accents on the floor. The ceiling could easily be painted to add that extra creative touch. I would illuminate the larger signs and make the sales signs to stand out more, again by using Sears’ bright red color from the logo.

If you missed it, read our last newsletter on How Happiness has become a new Trend in Commercial Interiors

If you would like to learn more about how to brand your business, read this book – “Branding By Interior.”

Here are some responses I received on this post from LinkedIn. Thank you everyone for participating!

Alex Newton • “Sears vs Target in Tennessee: Sears needs to drop mall anchors and move to free standing facilities. Additionally, Sears is looking more like Kmart everyday (fewer support, i.e. sales) associates. Sears has the ability to gain SUPER STORE status like WalMart and should study/apply that business plan. I can invision cross between WalMart & Home Depot/Lowe’s. Sears has a Home Improvement Company (Sears Holding) so bring it out of the dark for walk-in customers. Sears Holding sells home improvements (actual installations) which Lowes/Home Dept does not do or offer (that I’m aware of). Target is now offering limited grocery items (limited due to size of existing stores) which is a mistake. Still Target grabs you with popcorn when you enter (plus small eatery). WalMart has McDonalds. Sams Club has pizza. What makes a shopper eager to spend that a bite of food so you can spend more time (money) in the store. Sears needs to pay attention to McDonalds who is spending more money on associates to care for customers. I give Sears a failing grade at this point.”

Manda Wallbridge • “Fantastic article! I agree… on all aspects actually, and think that the proposed rendering that you did would be a tremendous improvement!”

Beppie Mostert LEED AP, CAPS, ASID • “Wonderful article, and I totally agree with your thoughts. The local Targets here in North County are also proactive and aggressive in their branding – reaching their market again and again. I totally avoid the Sears up here for those exact reasons. Your renderling is great and spot on! Hope someone high up at Sears is reading this and taking note.”

Nathan Grant • “Ekaterina, While you might be noticing the differences in design and creativity, I have seen this difference between these companies for years. If you really want to see a difference, another of the Sears brands, Kmart has been a disaster. I no longer go to Kmarts who basically should have the same idea as Target but they often have empty shelves, disorganized inventory and overall it is a terrible shopping experience. Hiring and maintaining a workforce that cares about their jobs and getting them to care about the store they work is is extremely important and to me, Target seems to get it when Kmart or Sears does not. Just my experiences and view.”

Jon Wainwright • ” The old saying..”You don’t get a second chance to make a good first impression” holds true with both K-Mart and Sears. K-Marts are not as clean at Target Stores…even Wal-Mart has cleaned up their stores..better lighting,wider aisles and customer service representatives more visible. Sears has become the modern day Woolworth….they haven’t done much to enhance/improve their stale image….the old BRANDING “Sears…where America Shops” no longer is true. Value and quality of Merchandise hasn’t kept up with their competitors. Target has done a great job in name recognition,clean stores,helpful customer service and closing outdated stores and building the Super Targets…it becomes clear after visiting one of their new stores why Wal-Mart needs to step up their game.”

A Case Study on Sears versus Target and Divergent Responses – Blame the Market Environment or Command Your Performance

http://www.wiglafjournal.com/corporate/2012/10/blame-the-market-environment-or-command-your-performance-a-case-study-on-sears-versus-target-and-divergent-responses/

harting a winning corporate strategy is rarely an easy task, and 2012 has been particularly difficult for executive decision-making. Yet difficult times do not get executives off the hook for poor performance. A case in point: Sears (SHLD) is floundering while Target (TGT) is advancing. What is driving the significant divergence in performance between these two competitors? Is a role reversal possible in the next 18 months?

Target (red) and Sears (blue) 5 Year Stock Performance

Bad Market Environment

2012 has offered continued economic malaise, stretching from the Unites States to Europe, China, and much of the rest of the world. Growth is slow and uneven with many sectors still retreating.

Politically, the waters have been murky, with a few outright failures of governance, leaving a wide wake of doubt. The US promises an uncertain election followed by a potential self-imposed self-destructive fiscal cliff. Europe has proven indecisive in failing to curb excessive government structural spending, ensure reliable banking oversight, change policies which discourage entrepreneurship, and balance austerity with sound investments. Even China is going through its own leadership succession with the expected rise of Xi Jinping to the presidency, with all the uncertainty and restraint which this momentous occasion brings.

These huge uncertainties are set against a backdrop of continued growth of mobile internet access that threatens to disintermediate long-reliable distribution channels through showrooming and cultural shifts that threaten the historic strengths of well-known brands and demand patterns.

Any executive could cite any of the above plus a number of other exogenous factors as reasons to delay investments, delay hiring, or explain poor performance. And yet, despite this challenging environment, we see some executives making investments, hiring, and driving growth. Hence, there is evidence that hiding behind the cover of a bad market environment is an insufficient excuse for avoiding difficult decisions, especially when peer competitors are able to address these challenges and thrive.

In other words: Life it tough. Get over it. Now go do something positive.

Target

In 2011, Target Corp. earned revenue of $69.9 billion and averaged retail sales of $280 per square foot-year across their stores. In the first quarter of 2012, same-store sales were up 4.4%. In the second quarter of 2012, same-store sales were up 3.1%. These are decent results considering that the US economy grew only by 1.85% in the first half of 2012.

Target is investing in new stores and new store formats on top of opening 21 new stores in 2011 and along with plans to enter Canada in 2013. A new urban twist on their brand, CityTarget, opened in Chicago, Los Angeles, and Seattle this summer with promising results, and talks with several other major cities are underway. With new stores come new hires.

What is driving this growth at Target? A strong customer acquisition and retention strategy.

For over a decade, Target has delivered affordable fashion in a strategy they currently describe as “Expect More. Pay Less.”
In the past few years, Target has expanded its offerings to include household essentials, food, and pet supplies – giving customers more reasons to shop at Target.
Target has worked with branded-good manufacturers to deliver exclusive items to reduce showrooming.
It has joined other department stores in adopting the store-within-a-store format in a few areas to improve the customer experience.
Target’s reward program offers 5% discounts on all purchases to encourage customer loyalty.

This strategy dovetails with the business philosophy that states that a firm exists to serve customer needs profitably. From this philosophy flows the executives’ mandate to understand customer needs, develop approaches to meet their needs, and invest in those that it can meet profitably.

Sears

In 2011, Sears Holdings earned revenue of 41.5 billion and averaged retail sales of $148 per square foot-year across Sears outlets, and $118 per square foot-year across Kmart outlets. With roughly similar revenue to Target but half the revenue per square foot of retail space, Sears Holdings requires roughly twice as much property to earn equivalent revenue. In the first quarter of 2012, same-store sales were down 1.0% at Sears and 1.6% at Kmart. In the second quarter of 2012, same-store sales were down 2.9% at Sears and 4.7% at Kmart. These results are anemic in comparison with the national economic growth over the same period, and simply paltry relative to Target’s returns.

What is driving this decline at Sears?

Edward S. Lampert, Chairman and controlling shareholder of Sears Holdings, describes his five pillar strategy for Sears as:

Creating lasting relationships with our customers by empowering them to manage their lives
Attaining best in class productivity and efficiency
Building our brands
Reinventing the company continuously through technology and innovation
Reinforcing “The [Sears Holding Corporation] Way” by living our values every day

We have seen some action on each of these points, but the efforts have been woefully underperforming, as Mr. Lampert himself appears to acknowledge.

Of these five points, Lampert claims that technological investments occupy most of his time but it appears that cost cutting is the real driving force of change. Past headlines have focused on Sears’ planned discharge of 1,200 stores. Recent financial reports have highlighted a $544 million inventory reduction. September’s headlines regard Sears’ decision to have employees select medical insurance from an online marketplace. Each of these is more closely related to efficiency improvements than any of the other identified strategic pillars. Operational efficiency improvements are a necessary part of business, but they alone will not drive growth.

Customers need a reason to shop at Sears again. The Shop Your Way Rewards program of Sears is a good move, but it is not unique nor will it suffice. Similarly, relying on the sales of Kenmore and Craftsman won’t improve the utilization of retail space considering the category-level sales of these items are lackluster. As for the aforementioned technological investments, these may take a few years to prove effective in creating and capturing customers. Hence, on the customer-facing aspects of Sears’ strategy, there is nothing compelling.

Potential for Role Reversal

The analysis above highlights the current success of Target and the current shortcomings at Sears, but must it stay that way? 18 months should be sufficient time for Lampert’s current turn-around strategy for Sears to deliver results considering he has run the company for several years now. Is it possible for a Sears to match or even out-compete Target in the next 18 months?

Everything is possible, but such a reversal is highly improbable. Sears’ strategy is simply not compelling and their current performance reflects their strategic deficit. In contrast, Target’s strategy is sound—fraught with risk, but sound. Target’s performance reflects its ability to execute its strategy. With Sears, we see a leadership blaming the bad market environment. By contrast Target’s leadership has accepted the challenge and risen to the occasion.

To improve the chance of positive results from Sears, a radical change in strategy is required. This new strategy must involve investing in efforts which will increase customer engagement and assume the risks associated with these investments. In absence of a major strategic shift, bankruptcy becomes the more likely long-term outcome. Many have speculated that Mr. Lampert is secretly pursuing a strategy of extracting value along the path of decline, which involves slowly selling off parts of the combined firm. From Mr. Lampert’s actions and statements, this does not appear to be his desired strategy.

Assuming the slow path to dissolution is undesired, we are left with one question: Mr. Lampert, are you able to formulate, finance, and execute such a shift; or is it time to swallow your pride, cut your losses, and let others run the firm?

References

Target 2011 Annual Report and 10-K.
Sears 2011 Annual Report and 10-K.
Sears Holdings Reports Second Quarter 2012 Results. http://www.searsholdings.com/invest/
Revenue per square foot taken from RetailSales.comhttp://retailsails.files.wordpress.com/2011/09/rs_spsf.pdf
Talley, K. (2012, May 01). “Sears Offers Optimistic Sneak Peek of Earnings.” Wall Street Journal (Online), Retrieved from http://ezproxy.lib.depaul.edu/login?url=http://search.proquest.com/docview/1010392544?accountid=10477
Talley, K. (2012, Aug 03). “Corporate News: In Retail, Pockets of Strength — July Sales Were Mixed, with Macy’s, Target and Gap Performing Well; Some Teen Stores Fell Short.” Wall Street Journal, pp. 3-B.3. Retrieved from http://ezproxy.lib.depaul.edu/login?url=http://search.proquest.com/docview/1030831369?accountid=10477
Zimmerman, A., & Talley, K. (2012, Jun 01). “Corporate News: Mom Gives Retail a Lift — Sales in May increased 3.9%, But Economic Clouds Linger.” Wall Street Journal, pp. 5-B.5. Retrieved fromhttp://ezproxy.lib.depaul.edu/login?url=http://search.proquest.com/docview/1017942790?accountid=10477
TEXT-S&P: U.S. GDP Growth Likely to Slow in Second-half 2012 http://in.reuters.com/article/2012/09/21/idINWNA591120120921
Bustillo, M., & Mattioli, D. (2012, Feb 24). “In Retreat, Sears Set to Unload Stores.” Wall Street Journal, pp. 1-A.1. Retrieved from http://ezproxy.lib.depaul.edu/login?url=http://search.proquest.com/docview/923176865?accountid=10477

Note of holdings: At the time of writing, the author is not currently a direct consultant to nor investor in any of the firms listed in this article.

Can Sears Reinvent Itself?

http://cs.furman.edu/~pbatchelor/mis/additional_cases/Sears.htm

Sears, Roebuck and Co. used to be the largest retailer in the United States, with sales representing 1 to 2 percent of the United States gross national product for almost 40 years after World War II. Its legendary Big Book catalogue was considered the primary (and sometimes the only) source for everything from wrenches to bathtubs to underwear. During the 1980s, Sears moved into other businesses, hoping to provide middle-class consumers with almost every type of banking, investment, and real estate service in addition to selling appliances, hardware, clothes, and other goods.

This diversification tore Sears away from its core business, retail sales. Sears has steadily lost ground in retailing, moving from the Number 1 position to Number 3 behind discounters Wal-Mart Stores, Inc. and Kmart Corporation. Sears had been slow to remodel stores, trim costs, and keep pace with current trends in selling and merchandising. Sears could not keep up with the discounters and with specialty retailers such as Toys R Us, Home Depot, Inc., and Circuit City Stores, Inc. that focus on a wide selection of low-price merchandise in a single category. Nor could Sears compete with trend-setting department stores.

Yet Sears has been heavily computerized. At one time it spent more on information technology and networking than other noncomputer firms in the United States except the Boeing Corporation. It was noted its extensive customer databases of 60 million past and present Sears credit card holders, which it used to target groups such as appliance buyers, tool buyers, gardening enthusiasts, and mothers-to-be with special promotions. For example, Sears would mail customers who purchased a washer and dryer a maintenance contract and follow up with annual contract renewal forms.

Why hasn't this translated into competitive advantage? One big problem is Sears' high cost of operations. Nearly 30 percent of each dollar in sales is required to cover overhead (e.g., expenses for salaries, light bills, and advertising) compared to 15 percent for Wal-Mart and about 21 per cent for Kmart.

In 1991, retail operations contributed to 38 percent of the corporate bottom line. The rest of the merchandising group's profits came from the lucrative Sears credit card. Strategies that worked well for competitors fizzled at Sears. J.C. Penney successfully refocused its business to emphasize moderately priced apparel. Everyday low pricing, the pricing strategy used by Wal-Mart and other retailers, bombed at Sears because the firm's cost structure, one of the highest in the industry, did not allow for rock-bottom prices. Everyday low pricing has become "everyday fair pricing" supplemented by frequent sales.

Sears' catalogue sales also stagnated. While the Sears Big Book catalogue, founded in 1887, had the largest revenues of any mail-order business, sales had not been profitable for twenty years; and the catalogue had lost ground to specialty catalogues such as those of L. L. Bean and Lands' End. On January 25, 1993, Sears stopped issuing its famous "big book" catalogues, closed 113 of its stores, and eliminated 50,000 jobs. In order return to its core business and recapture its leadership in retailing, the company also disposed of its Dean Witter securities, Discover credit card, Coldwell Banker real estate, and Allstate insurance subsidiaries.

To help turn Sears around and refocus on retailing, CEO Edward A. Brennan hired executive Arthur C. Martinez away from Saks Fifth Avenue in September 1992, naming Martinez his successor as Sears Chairman and Chief Executive Officer two years later. Martinez ordered the company to combine its half-dozen disparate customer databases to find out who was really shopping at Sears. It turned out that Sears' biggest shoppers were not men looking for Craftsmen tool belts but women aged 25 to 55 with average family incomes of $40,000 who were in the market for everything from skirts to appliances.

Under Martinez, Sears stopped trying to sell everything and started focusing on seven core types of merchandise--men's, women's and children's clothing, home furnishings, home improvement, automotive services and supplies, appliances, and consumer electronics. The company is rearranging its merchandise displays to resemble those of more upscale department stores, with more attention to women's apparel, which is considered a highly profitable segment of merchandising. Sears is also offering special merchandise in each store geared to its local customer base. And it is relieving managers and clerks of some reporting and administrative tasks so they have more time to actually sell. Beginning in 1996 every employee's compensation included a measurement for customer service. Sears realized that it could not compete with discounters such as Wal-Mart Corporation on price alone and focused on building a competitive edge through superior service.

Sears embarked on a $4 billion five-year store renovation program to make Sears stores more efficient, attractive, and convenient by bringing all transactions closer to the sales floor and centralizing every store's general offices, cashiers, customer services, and credit functions. New Point-of-Sale (POS) terminals allow sales staff to issue new charge cards, accept charge card payments, issue gift certificates, and report account information to card holders. The POS devices provide information such as the status of orders and availability of products, allowing associates to order out-of-stock goods directly from the sales floor.

Some stores have installed ATM machines to give customers cash advances against their Sears Discover credit cards. Telephone kiosks have been installed throughout the Sears retail network. Customers can use them to inquire about service, parts, and credit, check the status of their car in the tire and auto center, or call the manager.

Customer service desks have been largely eliminated. Sales personnel are authorized to handle refunds and returns, eliminating the need for two separate staffs. If a customer forgets his or her charge card, he or she can obtain immediate credit by telling the cashier his or her name and address and presenting identification. Streamlining of patterns of work in back rooms and loading docks also trimmed staff and create savings. These changes also increased the ratio of selling space to nonselling space at Sears, so that an additional 6 million square feet of space could be used to generate revenues.

Sears has been moving its suppliers to an electronic ordering system similar to that described for Baxter Health Care. By linking its computerized ordering system directly to that of each supplier, Sears plans to eliminate paper throughout the order process and hopes to expedite the flow of goods into its stores.

Sears further tightened its grip over the business by building an even larger database for its Sears Credit and Home Services businesses. It consolidates information on 90 million households, 31 million Sears Card users, transaction records, credit status, and related data. Sears hopes to use this information to provide even more finely targeted database marketing. The database houses Sears' Strategic Performance Reporting System (SPRS), helps the company manage pricing and merchandising for its 1950 North American stores.

Until a few years ago, Sears merchandise buyers lacked reliable information on precisely what customers were buying at each store. They could not view anything more specific than each division's daily performance. Management relied on 18 separate systems that often contained conflicting and redundant pricing information. Today, any authorized Sears employee can use SPRS to look up any sales figure by store, by area, by item, right down to the size and color of a sweater. Sales can be analyzed by item or product category, by individual store or company wide. Sales of items advertised in newspapers for a specific day can be tallied so that Sears' 1000 buyers and managers can know what hot-selling merchandise to replenish right away. Buyers can compare current performance of merchandise with that of the previous week or the previous year. The data can be displayed in a number of different ways, including pie charts or graphs.

The Sears charge card, with over 32 million accounts, is the fourth-largest credit card operation in the United States, serving nearly half the households in the United States. Sears' credit card business generates almost half of corporate profits. About half of all purchases made in Sears stores are made with the Sears credit card. Starting in 1993, Sears aggressively courted new credit card customers, doubling the rate at which it issued new credit cards to more than 6 million per year. The increase in credit helped fuel Sears' rising store sales. Although Martinez claims that Sears did not reduce its standards for determining credit-worthy customers, Sears attracted too many high-risk customers, and many of its new credit card customers defaulted on paying their bills. Steve Goldstein, who took charge of Sears Credit in 1996, invested in technology to bring Sears' risk-management systems up to the level leading-edge credit card issuers, such as Citicorp.

Troubles mounted in early 1997. Some cardholders in Massachusetts sued Sears over the intimidating methods it used to persuade bankrupt customers to pay their credit card balance. Sears wound up paying $475 million to settle lawsuits in all 50 states. Later that year, bad-debt charge-offs for uncollectible credit card accounts skyrocketed to over 8% of Sears' receivables, twice the level of two years earlier. Goldstein's group could not properly analyze the delinquent accounts. Although teams of people worked day or night, Sears' computer systems still weren't state of the art and analysis that should have taken a few hours took weeks. Goldstein resigned in December 1997.

To stem the rising loan losses, Sears cut back on new credit accounts to 4.2 million. But as the credit business was reined in, retail sales flattened out. Sales at Sears stores open at least one year only rose 1.1% during 1998, when the retail climate was very strong and competitors posted an average sales increase of 4.4%.

Martinez hoped the Internet could play an important role in Sears' turnaround. Sears set up a separate Internet division with 50 employees on its campus in Hoffman, Illinois. The mission of this group was to make Sears the "definitive source for the home." Consumers can use the Sears Web site to purchase appliances, automotive parts, apparel, housewares, tools, lawn and garden accessories, and other merchandise online. The Web site also features capabilities for customers to arrange for repair service online.

Sears is using Internet technology to develop a system that will let suppliers check the status of their invoices. Sears wants to give vendors access to SPRS so that they can check the sales of their products and provide just-in-time inventory service. It is also working with Sun Microsystems and other technology companies to create home appliances and services that use the Internet.

Sears has acted as if it is showing some progress. In January 2002 the company announced that during that year it would add 15 new stores, so that it would have about 900 nationwide, and it would remodel 50 others. At the same time it announced that it would stop selling and installing carpets to free up more space for more profitable products such as appliances. This action also allowed the company to eliminate 1,500 jobs.

In May 2002 Sears announced it was purchasing catalog and Web retailer Lands' End, the highly impressive direct-marketing company. In 2001 Lands' End reported a net profit of $66.9 million on sales of $1.6 billion---a margin of 4.3% (compared with Sears' profitability of only 1.8%). Lands' End CEO will manage Sears' online and catalog businesses, and Sears will gain access to Lands' End's customer file of about 30 million families. Sears also hopes this acquisition will give its apparel products a more stylish look. Sears planned that by the end of 2002 Lands' End good would be sold in 180 of its retail outlets. The two companies have very different cultures in addition to the major differences in their businesses. Lands' End is considered top notch in its customer service. For example its return policies can't be beaten, while the company answers e-mails within four hours. It also is a much younger and more nimble company than is Sears. Many question the ability of the two companies to benefit significantly from the merger. Moody's Investors Service lowered its rating on Sears debt as a result.

In October 2002 Sears warned that its third-quarter profit would be below Wall Street expectations because its credit card business appears to be "losing steam." It is clear that the size of its unpaid credit card debt has been growing rapidly. In October the company also appointed a new CIO, Garry Kelly, who was given the task of addressing Sears' fragmented information technology.

Can the Internet help Sears to turn around? Will Sears be able to prosper without easy credit? After Martinez arrived, Sears had a measure of success in lowering its margins and increasing same-store sales. The question is whether Sears can sustain this momentum. Its operating expenses are still high compared with industry leaders. Market research indicates that Sears continues to be the destination of choice for lawn mowers, wrenches, washing machines, and other "hard" goods -- and its tools and appliance businesses are posting large sales gains. But Sears has not yet secured itself as a place for fashionable women's clothing. It is too early to measure the impact of the acquisition of Lands' End on its apparel business. Some critics believe that future earnings growth will flag once the company completes its remodeling program and that Sears remains vulnerable to aggressive discounters. CEO Alan J. Lacy, who succeeded Martinez, wants to emphasize Sears as a one-stop source of popular consumer brands rather than focus too much on price. Can Sears' reinvention keep the company competitive now and in the future?

Sources: Sources: Carol Sliwa, "Sears CEO Says Company will Standardize Technology," Computerworld, January 20, 2003; Kim S. Nash,"Sears: The Return on Returns," Baseline, January 17, 2003; Ari Weinberg, "Sears Chisels Out a Better Quarter," Forbes, January 16, 2003; Joanne Derbort, ""Sears' New CIO Starts with Lands'End," Baseline, December 1, 2002; Linda Rosencrance, "Sears Buying New Laptops, Wireless Hardware for Repair Technicians," Computerworld, October 20, 2002; "Sears Warns that Profits Will be Lower," New York Times, October 8, 2002; Constance L. Hays, "Sears to Buy Lands' End In a Deal That Unites Pants and Power Drills," New York Times, May 14, 2002; "Sears, Roebuck Plans to Open 15 Stores," New York Times, January 8, 2002; Amy Merrick, "Fashion Victim: Sears Apparel Sales Keep Unraveling," The Wall Street Journal, April, 30, 2001 and "Sears to Shut 89 Stores and Report Big Charges," The Wall Street Journal, January 5, 2001; Calmetta Coleman, "Sears CEO Wasts No Time Putting His Brand on Stores," The Wall Street Journal, November 6, 2000; Bernhard Warner, "Sears Has AOL," The Industry Standard, March 14, 2000; "Sears, Sun Microsystems Working on Internet-connected Home," Sears Public Relations, January 6, 2000; Joseph P. Cahill, "Sears's Credit Business May have Helped Hide Larger Retailing Woes," The Wall Street Journal, July 6, 1999; Julia King and Thomas Hoffman, "Sears Launches Do-It-Yourself Site," Computerworld, April 19, 1999; Gene Koprowski, "The Harder Side of Sears," Software Magazine, January 15, 1998; Patricia Sellers, 'Sears' Big Turnaround Runs into Big Trouble," Fortune, February 16, 1998; Daniel Gross, "Remodeling Sears," CIO Magazine, December 1, 1996; "Yes, He's Revivied Sears. But Can He Reinvent It?" The New York Times, January 7, 1996; John Foley, "Sears'Data Store Grows," Information Week, June 24, 1996; Susan Chandler, "Sears' Turnaround Is for Real--For Now," Business Week, August 15, 1994; and Stephanie Strom, "Sears Eliminating Its Catalogues and 50,000 Jobs," The New York Times, January 26, 1993.


1 .		Evaluate Sears using the competitive forces and value chain models.

2 .		What management, organization, and technology factors were responsible for Sears' poor performance?

3 .		Evaluate Sears' new business strategy under Martinez and Lacy. What management, organization, and technology issues are addressed by this strategy?

4 .		How successful is Sears' new strategy? What role do information systems play in that strategy?

5 .		To what extent have information systems provided competitive advantage for Sears? Explain.

6 .		How important is the Web in Sears' strategy? How might the Lands' End acquisition help the company? What problems does it present Sears?