Sears shores up its commitment to EDLP, streamlined operations - every day low price marketing strategy

Discount Store News, Nov 27, 1989

Sears Shores Up Its Commitment To EDLP, Streamlined Operations

NEW YORK - Next year, Sears executives expect profits and power format presentations to increase and gross margins to stabilize in the General Merchandise Group.

At the same time, Sears expects to expand the company's overall market share, improve operating margins and increase return on equity.

All of this is the result of Sears' streamlined operation, a by-product of its year-old everyday low pricing strategy and its efforts to become a low cost operator, according to Sears chairman and chief executive officer Edward A. Brennan, and Michael Bozic, chairman and ceo of the General Merchandise Group.

Addressing financial analysts in New York on Nov. 2, Brennan and Bozic reiterated Sears' commitment to the everyday low price strategy, a lean corporate operation and retail expansion.

"We are serious about becoming low cost everyday now that we are low price everyday. This low-cost commitment extends to buying, marketing and support functions as well as the organization in our stores, districts and regions," said Bozic.

In the coming year, Bozic said Sears will:

* Open 32 new stores and relocate 30 others, adding more than 1.8 million square feet of retail space; * Expand the current 50 percent selling space ratio to close to 70 percent; * Have Brand Central in more than 800 stores, up from 444; * Add 78 Western Auto and Tire America stores; * Implement an automotives strategy in Sears stores; * Increase square footage of the furniture department to between 20,000-and 40,000 square feet, up from 8,000 square feet; * Expand "Kids And More"; * Open Kuppenheimer men's suit departments within its Men's Store; * Rapidly expand The Men's Store; * Complete tests on women's apparel, hardware/home improvement and domestics power formats.

In addition, Sears will reduce the number of catalog merchandise distribution centers to six by nextfall, from 13 in 1987; and the newly formed Sears Logistics Services will provide distribution, transportation and home delivery services at "competitive costs."

For the fourth quarter and next year, Bozic said Sears is strengthening its TV advertising program and POS presentations to emphasize "great low prices everyday" and "no need to wait for a sale" promotions. He said Sears is building "urgency" into its advertisements.

Bozic said that customers have told Sears that while they prefer the low price everyday strategy they still want special buys. Sears is developing opportunitistic buys for 1990.

On the operational side, Sears has become leaner. The retail giant eliminated 1,500 management jobs, or about 25 percent of the total, plus over 1,100 non-management personnel. The number of retail regions were reduced from 24 to 10.

By the end of this year, Brennan said receivables for the Merchandise Group should total about $17 billion and Discover Card, $8 billion.

While these facts and others concerning Sears subsidiaries - Allstate, Dean Witter, Coldwell Banker - sound positive, sales and income at the nation's largest retailer remains sluggish.

In addition, Sears' weak performance has caused Standard & Poor's to place the retailer's Double A-minus senior long-term debt and A1-Plus commercial paper on its creditwatch surveillance list with negative implications.

Approximately $5.4 billion in securities is affected, S&P reported on Nov. 6.

S&P also said that Sears A1 commercial paper and single A-A1 certificates of deposit ratings of Sears Savings Bank are also on creditwatch negative "reflecting the potential impact of reduced credit quality at the parent company."

The triple-A rating on all Sears asset-backed securities and triple-A claims-paying ability ratings of such Sears subsidiaries as Allstate Insurance, Allstate Life Insurance, and PMI Mortgage Insurance Co. are affirmed.

S&P will reevaluate Sears' performance during the fourth quarter for improvement.

For the third quarter ended Sept. 30, Sears reported net income of $257.5 million, or 75 cents a share, compared with $305 million, or 80 cents a share, for the same period in 1988. Sales for the quarter rose 4.8 percent to nearly $13.2 billion from almost $12.6 billion during the same three-month period in 1988.

The General Merchandise Group recorded third quarter income of $82.9 million on sales of $7.59 billion compared to income of $110.5 million on sales of $7.49 billion last year.

For nine months, the merchandise group recorded income of $278.3 million on sales of $22.05 billion compared to income of $286.8 million on sales of $20.73 billion in 1988.