May 13, 2002, 12:00 AM

Sears to acquire Lands’ End in $1.9 billion deal

Direct merchant Lands’ End gets a store base while Sears gets a potential new customer base and some new direct marketing expertise. But analysts ask: Can Sears pull it off?

 

Lands’ End Inc. and Sears, Roebuck and Co. rocked retail with today’s announcement that Sears will acquire Lands` End for $1.9 billion in cash, in a deal that’s expected to close in June. Sears plans to introduce a selection of Lands’ End clothing products into some stores by fall and says it will complete the product rollout to stores by fall 2003. Sears’ stores will eventually carry not only Lands’ End clothing for men, women and children, but also accessories and home fashions. Lands’ End will continue to operate as a wholly owned subsidiary of Sears out of its Dodgeville, WI, headquarters, and continue to offer its products direct to customer thorough its web site and catalogs.

According to a statement from the companies, the deal will enhance Lands’ End’s and Sears’ customer-direct businesses, including online and catalog operations. But some retail analysts see the more immediate benefit as Lands’ End gaining a widespread brick-and-mortar presence through Sears’ stores.

“It opens up the marketplace for Lands’ End,” says Lois Huff, vice president of Columbus, OH-based consultants Retail Forward Inc. “Any national catalog or Internet retailer of soft goods needs to have a store presence because of all the issues associated with soft goods, such as trying on apparel. That’s not to say that you can’t have a successful business selling clothing only on the Internet or in catalogs, but you can’t have a high-growth business. They need to expose more people to the product beyond those who are comfortable buying it on the web or in a catalog.”

As for Sears, “The good news is that here’s an indication it`s doing something other than hunkering down,” says Sidney Doolittle, partner affiliate with Chicago-based retail consultants McMillan/Doolittle. “They`ve been reducing expenses, but that hasn’t added to their sales performance. They need to be showing signs of a new strategic direction that will provide some growth.”

With the deal, analysts say Sears will get a strong brand to expand its apparel offering – an area in which it’s been weak, particularly in women’s clothes – and to leverage in bringing new customers into its stores, who could potentially cross over as customers for other Sears products.

Lands` End also will contribute skills in customer relationship management and cross-channel retailing, consultants say. “There is a lot Sears can learn from a customer service perspective and also the ability to sell apparel. Though Sears hasn’t said they will be offering Lands` End on the web, eventually there’s no reason why they shouldn`t have Lands` End as part of the Sears offer online,” says Huff.

But the opportunity will bring challenges as well. “This has a lot of potential for both sides, depending on how Sears chooses to use the acquisition and if they are careful to build firewalls," Doolittle says. “One of the problems we and many analysts saw in some of Sears’ former retail ventures was that it Sears-ized the acquisitions and in doing so, brought more of a bureaucracy into cultures that were quite entrepreneurial.”

Doolittle is hopeful that such will not happen with Lands’ End. “I think Sears has learned,” he says. “They were careful in incorporating the Great Indoors, for example, into the Sears organization. I hope they will do the same thing with Lands` End: support its growth, learn from it, and possibly integrate some of its successful activities into Sears, and provide some of Sears` successful activities to Lands’ End.”

 

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