Sears Chooses Orchard's Format

Home Channel News, Jan 25, 1999 by Carol Tice

AT THE JOINT HEADQUARTERS for Sears Hardware and Orchard Supply Hardware stores in San Jose, Calif., there's a sense of purpose and optimism these days. After more than two years of experimentation following Sears, Roebuck & Co.'s purchase of Orchard in late 1996, the hardware stores division, under the direction of president Jerry Post for the past year, has settled on a single format and is ready to move forward with its expansion plans.

How the company chose that format provides a case study that highlights the salient features of Sears' corporate culture -- a desire for constant improvement, and a willingness to listen closely to customers.

Generally, when a retailer buys another retailer, the buyer simply makes over its acquisition in its own image. But instead of just rolling out its Sears Hardware format and staying on its previously announced schedule of expanding to 500 stores by the end of 1998, Sears Hardware executives -- then led by former division president Gary Crittenden -- decided they shouldn't proceed until they gauged customer input about the two different store types. In addition to operating the existing Orchard and Sears stores, two hybrids were unveiled, an Orchard Complete Hardware & Garden store type in Columbus, Ohio, and a Sears Hardware with some Orchard elements in Levittown, N.Y.

At one point, the company contemplated removing the Sears name from the entire hardware chain. Just 24 stores opened in 1997, while the company tested four different permutations of the Orchard and Sears formats in numerous consumer focus groups in different parts of the nation.

The message they heard from customers about these stores led them to a radical conclusion: their prime, fix-up and repair customers across the country liked the existing Orchard store layout and merchandise assortment better than the original prototype Sears Hardware store format. Consumers liked the broader selection Orchard's larger stores -- which are around 40,000 square feet --allowed. What they did like best about the 20,000-square-foot Sears Hardware stores were the strong, Sears private-label branded products, including Craftsman tools, Weatherbeater and Easy Living paints, Kenmore water heaters, and DieHard batteries.

"We talk a lot about our stores being a home fix-it type format, and essentially, the Orchard format did a better job of meeting customers' expectations," Post said. "The driver [for the decision] was what customers were telling us in terms of which format was best in satisfying their needs."

This willingness to take a look at its stores through their customers' eyes has kept Sears Hardware on track as it has grown to be the largest hardware-store chain in the country, ranking ninth in the entire retail home improvement industry on the NHCN Top 500 Last year with nearly $1.3 billion in sales and 255 stores. The chain has grown rapidly; it had only 78 stores, $316 million in sales and ranked 27th in 1994.

Despite its success, Sears was willing to admit it still had plenty of room for improvement. "I don't think they had the assortment right," said Wayne Hood, a retail analyst with Prudential Securities in Atlanta. "There were certain aspects of the Orchard Supply Hardware piece that have been a little bit more successful."

In choosing the Orchard format, Sears has decided it will essentially offer a third option for customers-- something bigger and better-assorted than a traditional hardware store, but not nearly so large as a warehouse home center.

Analysts who follow the company note that the end of Sears' period of experimentation with its two formats may have been hastened by Home Depot's recent announcement that it will try out a smaller, hardware-store format, set to debut in East Brunswick, NJ., in mid-1999.

"I think they're trying to go back to existing markets and fill in very quickly, to make sure [that] as Home Depot opens their convenience format, it doesn't hurt the Sears Hardware stores in a material way," said Hood of Prudential. The company's expansion plan confirms it is concentrating on expanding the Orchard chain within California, and adding new Orchard-style Sears Hardware stores mostly in its existing markets in the Northeast and the Midwest. The Orchard-branded stores in Columbus, Ohio, have been re-flagged back to Sears Hardware.

The company plans to expand steadily, adding 30 to 40 Orchard and Sears Hardware stores a year for the next two years. That expansion will be facilitated by two recently appointed executives.

When vp of hardware stores Steve Byers was promoted to a senior vp position at Sears' full-line department store division, Post decided Byers' old position should be split into two separate posts. In November, eight-year Orchard veteran Woody Gray became vp of Orchard Supply Hardware stores, while 23-year Sears veteran Pat Recktenwald was named vp-Sears Hardware stores.

"This gives us two very senior, experienced executives with the ability to spend a lot of quality time in the stores, being much closer to the customer," he said. "It's the only way to understand what our customers are looking for, and the only way we can improve. Through technology, I can look and see what our sales were in every store, by line. But I can't feel when customers are walking in and perhaps we are disappointing them."