October 1 1995 by John Kador
Ask Arthur C. Martinez, the new chairman and chief executive of Sears, Roebuck and Co., any question that involves hard data-market share, projected sales, return on equity-and the engineer in him bubbles to the surface. He grins. He puts his hands flat on the table. He’s ready to crunch. But ask him about people issues-sharpening the skills of Sears’ front-line sales personnel, pushing buyers to be more aggressive in dickering with longtime suppliers, or anticipating fickle consumer tastes-and Martinez sits back. He tucks his elbows in. A veneer of weariness dulls his smile. Clearly, human beings are far less predictable than columns of digits.
The mood change is easy to decipher. In three years as chairman of Sears’ $33 billion retail division,
To a large extent, the answer lies outside the areas
“We have an extraordinary reputation for fair-dealing, quality, and value for the American customer,” he says, in an interview from Sears’ campus-like headquarters in
“Sears is taking gobs of market share from everyone,” says Kurt Barnard, president of Barnard’s Retail Marketing Report, a retail forecasting service in
The Sears, Roebuck and Co.
The competition in retail has never been tougher. Upscale department stores such as Marshall Field & Co. are slashing prices. Having snapped up Macy’s, Federated Department Stores remains on the prowl. In the mall-based retail market, Sears butts heads with J.C. Penney, which still has the edge in customer service and private-label apparel lines, industry observers say. Some analysts penalize Sears for its concentration in malls-sites that are apparel-driven and fading in popularity.
“The apparel market is in the toilet,” says Louis W Stern, a professor of marketing at
How difficult perhaps was underscored last year when Robert L. Mettler, Sears’ chief of apparel and home-fashions merchandising, told Business Week that instead of promoting $29.95 dresses, Sears is more likely to sell career outfits that “go all the way up to $100.” Clearly, such price points won’t encroach upon those of
Despite the headwind, Wall Street hands
It’s unlikely an insider could have turned Sears around as quickly as
An outsider’s most important advantage,
A math and science whiz,
The move was not universally heralded. Industry observers wondered how a cost-cutting technician would fare over the long haul. Though it’s early in the game,
How has your background in engineering helped you?
Engineering helped me to organize a thinking process: one that is analytical, and that identifies and resolves problems. Engineering is very much “push it out, design it, build it.” Understanding the art and science of marketing took me some time.
Was it difficult to come to Sears as an outsider and make changes?
When I came to Sears in 1992, I didn’t have to invent a crisis to create a willingness to change the status quo. The hardest job of all is to take a company that’s performing well and force people to think about how to do things differently. Clearly, there was no lack of crisis at Sears.
How is the Sears of today different from the Sears when you were brought in as head of the Merchandise Group?
We are a more focused company. A lot has been written about the cost-cutting I’ve done, but Sears’ enduring success will be its ability to create marketing and merchandising strategies that allow us to grow our market share at the expense of
our competition. Today, all our core businesses have gained in market share over the last 24 months. That’s very different from what I found in 1992, when the company was losing market share and relevance for the consumer.
‘TALES OF WOE’
If we were to sit down two years from now, what would you like to point to as a clear indication of success?
First, I would look at comparable store sales increases that are clearly meeting and beating our competition. Second would be whether we have increased our operating margin while doing that. Third, have we articulated and begun to execute a growth strategy that goes beyond our 800 mall-based stores? And last, are we relevant to the customer?
The retail market is congested: There are Wal-Marts, Kmarts, Home Depots, and Staples. Where does Sears fit in?
The Sears brand has a unique bond with our target customer: a franchise built on a 109-year reputation. We also fit in as the true, traditional department store, a general merchant in a world of increasing specialization.
What do you look for when you visit your competitors?
I look for how they’re presenting new ideas and new products. I also look at pricing; the value asset is so big today. I try to get a handle on how they are pricing their goods relative to our comparable goods.
How do you get feedback from your customers? What kinds of questions do you ask?
I ask department managers or sales associates what customers are telling them. I ask, “What’s working for us? What’s not working? What do they want to see more of? What brands are they asking for? Are we priced right? Are we in stock on advertised items?”
When you’re in an airport or on an airplane, do you ask strangers about their attitudes toward Sears?
I’m not a big fan of that. [Laughs.] I won’t say I would dread it, but I wouldn’t like sit next to someone for three hours, hearing their tales of woe.
Sears was a big supporter of the North American Free Trade Agreement. Have your expectations been borne out?
We benefited nicely until the Mexican devaluation, because NAFTA began to open Mexican borders to
What are your plans for Sears globally?
We are going to stick to the three countries in which we currently do business:
You eliminated the “Big Book” because it was not making money. Now you have about two dozen niche catalogs that are in the black. How do you account for that?
We’ve completely changed the economic model of our catalog business. We’ve effectively outsourced most of the merchandising and fulfillment, which has variablized all our catalog costs. We have no infrastructure and no investment; we transferred the risk to our partners and reaped some handsome rewards.
Are you committed to maintaining a debt-free strategy? If so, how are you financing the $4 billion capital-improvement program?
Out of our own cash flow. Our debt-free status gives us an opportunity to think about choices for the future, but it’s not a stake in the ground. Prudent use of leverage at the right time would be appropriate, whether it’s supporting growth strategies or share repurchase or ultimately changing our dividend payout situation.
Resistance is a natural human reaction to change. How has your tolerance level for people’s resistance changed over the years?
I am less tolerant of any overt or covert resistance to change than I was a few years ago. We need to get this business moving and keep it moving. Anyone who doesn’t understand that the pace of change in this business has increased will not find me very tolerant.
BRENNAN; From Architect TO Deconstructionist
When Ed Brennan, 61, Sears’ chairman and CEO, announced in November 1994 that he intended to retire within a year, he didn’t go quietly. Instead, he coupled his announcement with another that effectively split Sears, Roebuck and Co.’s $33 billion core retailing business-the Merchandise Group-from its 53-year-old, $21.4 billion insurance concern, Allstate.
Coming on the heels of a successful corporate restructuring begun in 1992, which eliminated the company’s nonstrategic financial and real-estate businesses, the Allstate spin-off was a fitting denouement. Indeed, the irony was thick: As one of several architects who built Sears’ diversified portfolio of retailing and financial services in the 1980s-arguably a failed experiment-Brennan became its principal deconstructionist. “1 wasn’t sitting there in the 1980s, saying, ‘I don’t think this is the right strategy, and I’m going to take it apart some day,’ he says. “That thinking evolved over time.” In fact, Brennan initially resisted the dismantling of Sears, only to come around in the face of the conglomerate’s abysmal performance in the early 1990s.
Before his retirement last month, the gravel-voiced Brennan, a 39-year Sears veteran, sat down with CE editors to discuss the restructuring that helped Sears lift operating profits to $890 million in 1994, a significant turnaround from 1992′s losses of $2.9 billion.
What forces pushed you to spin off Allstate?
No. 1, the investment community had not recognized the value we created in the financial-services business. No. 2, building those businesses caused us to take on enormous debt-about $52 billion or $53 billion. Third, we weren’t doing well in our core merchandising business. Today, the investor base wants more of a pure play, a pure retail stock, than one that’s 50 percent insurance.
Is Sears competitive with giants such as Wal-Mart and Kmart?
Yes. But you have to look at the overall assortment; we overlap on some merchandise and price points. We also carry merchandise they don’t, and price points they don’t.
Does being price- or cost-competitive ensure success in today’s overstored retailing arena?
We have one enormous advantage in that three-quarters of the American public shops at Sears at least once a year. That means that if you do things well, those customers will purchase more often.
You are handing over the reins of a completely restructured company. How do you feel about that?
We have a relatively young, and very solid, management team in place. Arthur Martinez, who I recruited more than two years ago, is looked upon by everyone in this industry as one of the real stars. In terms of debt, our balance sheets are strong. And, finally, we’re doing well and have momentum in both businesses.
John Kador, a freelance writer based in Geneva, IL, reports on business and information-technology issues.