October 31, 2002, 12:00 AM

Sears looks for Lands’ End’s big push

In Lands’ End’s early days, it turned to guidance from a Sears veteran. Sears’s acquisition this year of Lands’ End turns the tables.

When Lands’ End Inc. was struggling as a start-up direct merchant in the 1960s, it received timely help from a gentleman named Tom Filline, perhaps the leading direct merchandising expert of the day and the man who had run the entire mail-order operation of Sears, Roebuck and Co. “We’ll always owe a huge debt of gratitude to Tom,” says Lands’ End co-founder and former chairman Gary Comer. “He taught us how to merchandise product, how to structure lines, when to take chances. He was the priceless ingredient that happened to be in the right place, at the right time, when we needed him the most.”

Today those words from Lands’ End’s 25th anniversary yearbook could easily be flipped as coming from Sears and directed at Lands’ End executives. It has been more than three decades since the former boating products cataloger set sail in Chicago in the shadow of Sears, then the country’s largest retailer and leading direct merchant. Now Lands’ End has emerged as a key player in the multi-channel future-store, web and catalog-of the lumbering and now third-largest retailer.

The importance to its future that Sears places on Lands’ End is clear. Not only did Sears pay a hefty $1.9 billion in cash for Lands’ End, which posted $1.6 billion in 2001 revenue, but it placed the senior management of the Dodgeville, Wis.-based company in charge of all direct merchandising operations. Lands’ End CEO David F. Dyer now also is executive vice president of Sears Customer Direct, overseeing all online and catalog operations, and reporting directly to Sears CEO Alan J. Lacy. “That’s an acknowledgement that Lands’ End is further ahead in direct merchandising today than Sears,” says Neil Stern, partner with Chicago-based retail consultants McMillan/Doolittle. “It’s rare in an acquisition to see the acquired company maintaining a leading role.”

And, indeed, Sears needs Lands’ End’s expertise as never before. Now based in the Chicago suburb of Hoffman Estates, the 116-year-old company continues to strive for the appropriate image and product assortment to present to consumers. Several years ago it quit its position as the preeminent direct merchant after killing its anything-you-want retail catalog, and it has repositioned itself in fits and starts as a merchant of a unique selection of offerings.

Replicating success

But finding and building a new position has been difficult and costly. While Sears has striven for a new identity, many upscale shoppers turned to competitors such as J.C. Penney while consumers in search of bargains flocked to Wal-Mart and Target stores. And while Sears has remained primarily in large shopping malls, where it must compete directly against scores of specialty shops as well as rival department stores, retailers like Target Corp., Best Buy Co. Inc. and The Home Depot Inc. have taken the Wal-Mart route in setting up shop in smaller super-center strip malls, where they are the big gorilla and face little if any competition.

Sears has responded by focusing on an assortment of products that will bring it the most profitability. “What Sears has done differently from other retailers is focus on what they can sell at a higher profit margin,” says Duif Calvin, a San Francisco-based retail consultant.

The importance of those products is underscored in Sears’s financial reports. Sears reported that sales of appliances and tools rose at double-digit rates in September while companywide sales fell 3.1%. Sales in all categories but tools and appliances were down.

Those poorly performing categories included apparel, which industry analysts finger as a missing link in Sears’s effort to revive its merchandising. But now with Lands’ End in the family, Sears finally has a leading high-end apparel brand to fill out its product categories. And with Lands’ End’s highly recognized expertise in online technology and merchandising strategies, Sears is positioned to continue its efforts to move its in-store strengths to the web.

Some analysts expect Sears will try to replicate in apparel what it created in tools and appliances. While over the years Sears has cut out of its merchandise mix such items as bicycles and blankets, it built up key categories of tools and appliances by adding national brands to its popular house brands. In tools, its Craftsman brand is joined by national brands such as Crescent, Black & Decker and Cooper Tools. And in appliances, its Kenmore brand is joined by GE, Maytag, Whirlpool and others. In both tools and appliances, Sears can say that it is the only retailer offering these entire collections, because no one else sells Kenmore and Craftsman brands.

Although Sears won’t dress up apparel with a selection of brands as complete as in the other categories, it expects apparel lines to offer a comprehensive selection for its traditional customer base-anchored by Lands’ End at the high end. “Lands’ End is the Craftsman Tools of apparel,” Calvin says.

The next generation

With Lands’ End apparel and accessories going into 184 Sears stores this month in time for holiday shopping, Sears’s efforts to cross-merchandise Lands’ End with its new Covington apparel line-the new private label Sears has substituted for a slew of prior house brands-and other products, will be put to an early test. Analysts expects Lands’ End will fill only 15-20% of in-store space in apparel and related accessory departments because its higher prices-such as $128 for a wool-cashmere jacket, compared to a $69.99 wool Covington alternate-may not appeal to traditional Sears shoppers.

Despite the higher prices of Lands’ End’s clothing, Sears is taking a strategy of not being fashion-forward like rivals J.C Penney Co. Inc., R. H. Macy & Co. and, on the mass merchant side, Target. Instead, it has chosen to hang its apparel fortunes on the classic casual style of Lands’ End, which follows a strategy of offering a broad selection of practical, high-quality seasonal items most popular with adults who are more concerned about quality and comfort than in the latest attention-grabbing fashion.

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