Sears strikes back: venerable giant adopts low-price, brand focus

Discount Store News, Nov 21, 1988 by Laura Liebeck

Sears Strikes Back

Venerable Giant Adopts

Low-Price, Brand Focus

CHICAGO -- Despite adopting a discount store-type everyday low pricing strategy for its 825 stores, Sears still is shunning the "D" word.

The nation's largest retailer, which this month unveiled sweeping changes in its merchandising strategy, flatly denied it is transforming itself from a general merchandise department store into a discount store operation.

Edward Brennan, chairman and chief executive officer, and Michael Bozic, chairman of Sears' merchandising group, told analysts in New York earlier this month that Sears will not become a discounter even though the Chicago-based chain will:

*Slash prices throughout its stores;

* Prune and eliminate lines;

* Reduce sales promotions;

* Roll out more power departments in the image of Brand Central, Sears' new consumer electronics and appliance superstore department introduced earlier this year in 13 stores in Indiana and Kentucy.

"It is not our intention to reformat as a discounter," said Brennan, adding that Sears competes "by lines" and not by items, as many discounters do. With the new pricing strategy and other cost-cutting measures, the behemoth retailer will be competitive with discount stores, department stores and superstores, said Brennan.

The adoption of the everyday low price strategy is part of an overall restructuring recently announced by Brennan to improve the retailer's profitability, buttress its stock price, thwart a possible takeover, and compete more effectively, particularly against discounters such as K mart and Wal-Mart and specialty chains like Circuit City.

Sears will also sell the famed Sears Tower, relocate thousands of employees to less costly offices and trim operating costs and employee rosters. Sears also will sell the Commercial Division of its Coldwell Banker Real Estate Group and the group life and health insurance business of its Allstate subsidiary.

Sears made the announcements on the heels of disappointing third quarter sales (see story, this page).

"We want to be a value-driven, category-dominant store," said Bozic, adding that Sears will be known for giving customers "your money's worth and a whole lot more."

Many retail industry observers expressed skepticism of Sears' ability to compete with discount chains on a price basis in view of its higher overhead and comparatively higher product distribution costs (see story, page 1).

Neither Brennan nor Bozic would pinpoint when the cost-cutting measures would be implemented nor give specific details about Sears' everyday low price strategy.

Also unclear is how the new strategy will affect the pricing and positioning of Sears' well-known, exclusive private labels--Kenmore, DieHard and Craftsman.

Sears began testing its everyday low price strategy early this fall in Wichita, Kan. Sears already uses everyday low pricing in its power tool lines and early this year implemented that policy in tires.

Creating power departments that will more directly compete with discounters and specialty retailers is another key to Sears' new program.

Sears will rapidly expand Brand Central--its new appliance and consumer electronics superstore department that features national name brand goods. It will roll out one store a day, one market at a time, beginning early next year (see DSN, Aug. 22, 1988). Brennan projected Sears will have about 400 such departments by the end of 1989.

Similar superstore formats will be deployed throughout the store. Some will be spun off a freestanding units.

Sears is committed to creating power departments in a number of categories including automotives lawn, garden and patio, children's apparel, men's and women's apparel, home fashions, and carpeting, said Philo Holland, national manager of public affairs, general merchandise.

Already, Sears is testing a new superstore strategy in four of its automotive departments--renamed Tire America of Sears--in Richmond, Va. This format reflects the marketing program of the Tire America division of Western Auto, which Sears acquired early this year, along with the retailer's DieHard car battery label and other name brand automotive products.

Coming early next year will be a carpet superstore format, featuring popular name brand carpet labels in addition to the Sears private label.

Details about Sear's other superstore concepts are extremely sketchy. The new children's department will incorporate some of the characteristics of Sear's new McKid's specialty store, combining apparel and toys, but will be bigger and include more features, said Holland.

Sears will make room for these new superstore departments by trimming inventories and reducing backroom storage space by 10 percent, said Bozic.

Brennan declined to identify line that would be broadened, eliminated or pruned, but did outline these changes:

* At Brand Central, binoculars and cassettes were cut from the product mix;

* Tire America of Sears relocated a variety of products to the hardware department, including battery chargers and car jacks, and eliminated state inspections, oil changes and muffler services;