Sears cuts more workers, considers dropping catalog - Sears, Roebuck and Co

Discount Store News, March 4, 1991

Sears Cuts More Workers, Considers Dropping Catalog

CHICAGO -- Here's the latest on Sears' efforts to regain its former retailing pre-eminence.

Sears has increased to 33,000 the number of jobs it will cut by the end of the year as it tries to further reduce its costs and become more competitive with rival full-line and specialty retailers.

Chairman and president Edward A. Brennan, for the first time, has indicated that Sears may drop its catalog division and even its furniture operation, both currently unprofitable businesses. Last month, he specifically denied that Sears would close its $4 billion catalog business (see DSN, Feb. 18, pg. 3).

But the retailer, so far, hasn't carried out the business restructuring into separate merchandising and financial service companies that some Sears watchers had speculated would be announced at last month's board of directors meeting.

The Sears board did approve the expanded job-cutting move. It added 9,000 jobs to the previously announced 24,000 full and part-time positions the company will eliminate, with almost all of the cuts taking place in the troubled Merchandise Group.

It didn't make any changes in Sears' top management, although trade reports indicated that about a quarter of the 13-member board are sympathetic to the idea of replacing Brennan.

The board's two-day, 20-hour meeting came as:

* Sears seemed to lose its place as the nation's top retailer to Wal-Mart, falling to No. 3 behind Kmart. Sears merchandise sales last year amounted to $31.99 billion, trailing Wal-Mart's $32.6 billion and Kmart's $32.1 billion.

However, Sears figures include sales from its catalog, specialty stores and credit businesses, while Wal-Mart's volume includes Sam's Wholesale Club sales and Kmart's results include Pace Membership Warehouse, Payless Northwest and other businesses.

Which company will wear the mantle of top full-line store retailer will have to await each chain's final audited business segment sales report. * Michael Bozic resigned as president and chief operating office of the Merchandising Group. Last fall he was replaced as chairman of the group by Brennan, who took over day-to-day direction of Sears' retailing operation.

Brennan, under pressure from Sears' board, took over as Sears' top merchant in August 1990 to personally manage the retailer's turnaround. Security analysts have faulted Brennan for failing to revive Sears' fortunes while his brother, Bernard Brennan, has transformed Montgomery Ward into a power retailer.

Sears watchers had speculated that the board would replace Brennan at its February meeting, possibly with Philip J. Purcell, chairman and chief executive of the retailer's successful Dean Witter Financial Services Group. The group's income last year rose 40.3%, while the Merchandising Group's earnings fell 36.2%.

Purcell a decade ago had been a key executive in the Sears think tank then charged by former chairman Edward R. Telling with mapping out new growth directions for the company. Telling also picked Brennan as his successor. * The company's debt continued to be downgraded by rating agencies. Fitch Investors Service lowered its rating of $2.7 billion of Sears senior debt to `BBB' from `A,' citing "continued deterioration" in the company's retail operations and "a $700 million cost reduction program which is unlikely to materially improve profitability in the foreseeable future."

Last month Standard & Poor's downgraded about $10 billion worth of Sears senior debt from A to A. It also lowered the senior shelf debt on the Discover Credit Corp., Sears' charge card subsidiary, to A from A .

Sears tumult hasn't discouraged Brennan, whose attitude seems to be to stay the course previously laid out for the retailer.

Brennan offered some ideas about Sears' future in a Wall Street Journal interview a few days after the company released its sales and earnings results and the board concluded its two-day meeting. The interview was his first public discussion of Sears' plans in half a year.

Brennan said Sears would continue to cut costs and acknowledged that the catalog and furniture businesses could be closed if they don't become profitable operations.

In a last-ditch move to revive the catalog division, Sears last month launched a major radio and print advertising campaign for the Big Book. It also named Alfred Goldstein, specialty merchandise manager, to head the catalog division, succeeding Bozic who had been responsible for the operation.

Expansion of the HomeLife furniture venture was put on hold late last year while Sears studies the operation and the best format for the business. It ended the year with seven free-standing HomeLife units and about 30 in-store departments.

On the positive side, Brennan said Sears can speed up its revenue growth by continuing to add name brands and fashion merchandise so that the retailer would become "a powerful specialty merchant in each of our businesses."

But he said phasing power formats into all Sears stores would take about a year longer than originally announced, with the new format chainwide by 1994, rather than 1993. This year, only 120 to 130 units would have the new look.