Sears strengthens hardware position - Sears, Roebuck & Co

Discount Store News, Sept 2, 1996 by Richard Halverson

CHICAGO -- Despite showing its "softer side" to women customers, Sears Roebuck & Co. has no intention of abandoning its hardware roots, chairman and ceo Arthur Martinez vowed during the keynote address he gave at the National Hardware Show last month.

In fact, Sears plans to be operating 500 freestanding hardware stores by the turn of the century, on top of 115 now and 170 by the end of 1996, Martinez told his audience, and Sears will continue to build on its Craftsman and DieHard brand name franchises.

As if to underscore his remarks, Sears announced the day after the Hardware Show closed that it has agreed to acquire the Orchard Supply Hardware Store chain, based in San Jose, Calif., for $415 million, including the assumption of $130 million in debt.

Sears will operate Orchard Supply's 61 stores as a subsidiary with its own management, but will re-merchandise them to include Craftsman and DieHard private label merchandise. The stores, which measure 40,000 sq. ft., or double the size of Sears Hardware stores, will keep the Orchard Supply name.

In announcing the acquisition, Martinez said, "By combining the strengths of Orchard and Sears Hardware stores, we will accelerate the growth of our successful off-the-mall hardware business."

Orchard, which began life 1930s as a farmers' cooperative of prune growers, operates its 61 units mostly in Northern California, but plans to open 60 more in Southern California.

Sears will gain a higher profile in the California market, Martinez added, by extending the power of its Craftsman and DieHard brands to Orchard's "high-performance locations." Sears has no freestanding hardware stores in California and hadn't planned to open any there until 1998 or 1999.

Even without the Orchard acquisition, Sears planed to open 100 hardware stores next year and 125 each in 1998 and 1999, Martinez said.

Orchard Supply is known for strong lines of plumbing and electrical, and Martinez said that Sears Hardware stores have to beef up offerings in those categories to build on the chain's tools and paint strengths.

"Hardware is the strongest and oldest Sears franchise," Martinez said, and American consumers have a high degree of confidence in the quality and integrity of Sears hardware items.

Referring to his success in turning around Sears--while retaining its "Searsness"--Martinez emphasized, "We're still on a journey. We're not there yet."

The reinvention of Sears continues, he said. "We're always tinkering."

Success can be an enemy, Martinez said. "This is no time to relax or slow down."

The off-the-mall growth strategy in hardware, auto parts stores (under the name Parts America) and Homelife furniture stores is intended to complement mall store sales by gaining market share through convenient store locations, he said.

Sears' hardware growth strategy is to cluster stores in major urban markets such as Philadelphia, Chicago and Indianapolis, he said. Once Sears gains economies of scale in a market, it will move on to others, Martinez added.

As for "Lessons for the '90s," his keynote topic, Martinez said, "You can win through culture," with people in a culture who care.

At the same time, he acknowledged the difficulty of changing a corporate culture. "Try it some time.

"Arrogance is a deadly sin," he warned. "It almost did in Sears."

For those who might have to turn around a company, as Martinez did Sears: "Avoid incremental thinking." A project like revamping Sears "requires bold, courageous thinking," he said.

"Make a commitment to a common goal," he recommended, and then "over-communicate those goals" to all employees.

In a parting shot, Martinez reminded his listeners: "All wisdom does not reside in the corner office."