Private equity firm Apollo Global Management will take Rackspace private in the all-cash deal.
(Page 3 of 4)
When it’s ready to take advantage of Lands’ End’s online expertise, Sears will have some issues to address, analysts say. One is whether Sears will integrate the Lands’ End web platform with Sears.com’s. Without some kind of integration, argues consultant Calvin, one potential problem will be having two shopping cart systems, making shopping in multiple categories difficult and potentially turning off customers seeking convenience in shopping.
The offline challenge
Customers in this year’s holiday shopping season may overlook such problems due to the newness of the arrangement, but shoppers may eventually expect the convenience of purchasing in multiple categories with one shopping cart, she says.
A parallel in Sears’s online merchandising strategy can be found in Kenmore.com, where shoppers can research and pick out an appliance. But when the Kenmore.com shopper is ready to buy, she links back to a shopping cart at Sears.com.
Sears has no immediate plans to combine the Sears.com and
LandsEnd.com shopping carts, focusing for now on keeping LandsEnd.com a distinct Lands’ End site while leveraging the Lands’ End brand in Sears stores, the company says.
Some say that, since the two online operations are working just fine as they are, the more pressing issue is presenting the Lands’ End brand in Sears stores. In-store merchandising represents a new challenge for Lands’ End, which other than about 17 outlet centers has never had a store presence. It had been seeking a store strategy as a means of growth beyond web and catalog sales and now it has its chance to make it work.
“Lands’ End has done well in offering alternative shopping channels through the catalog and the ‘Net, or a combination of the two, and now we’ll see if it can fit in the third leg of Sears stores,” says Ulysses Yannas, a retail industry analyst with investment research firm Buckman, Buckman & Reid, New York.
The assortment challenge
The biggest issue that faces Lands’ End and Sears in the area of store merchandising is making sure that stores get the right product assortment. It’s one thing to stock a variety in a distribution center where aggregated demand comes from across the country. It’s a completely different issue to make sure that the Sears stores in Peoria and Port Ritchey get the right mixes for their local markets. Lands’ End has no experience in stocking stores, although it does have extensive knowledge about what sells when in which parts of the country that it could apply to stores.
“Lands’ End has tremendous experience in what sells by mail order and on the web, but not about what sells on the floor,” Calvin says. “They’ll have to experiment and see what sells off the racks.”
Similarly, if Lands’ End does succeed in bringing new customers to Sears, Sears may find product assortment a challenge since it has little experience in merchandising apparel to those customers. But at the same time, analysts note, Sears isn’t exactly a newcomer to apparel sales. “People say Sears can’t sell softlines, but it does sell a lot of apparel-over $8 billion every year,” says Stern of McMillan/Doolittle. “It’s not one of their strengths, but it’s not like they’re Home Depot and just put apparel in their stores.”
Sears executives acknowledge that product assortment will be a learning experience. They say that is why Sears is introducing Lands’ End clothing to a limited number of stores to start.
And so observers caution against deeming the Lands’ End acquisition a failure if the first year is less than sterling. “Great merchandisers don’t guess, they experiment. This first season will be not just introducing Lands’ End into the stores, but experimenting as well,” Calvin says.
Almost as big a question is quality. For one thing, analysts wonder, can Lands’ End maintain the quality of its products while its manufacturers boost their output to supply Sears’ stores?
Quality assurance was built into the planned launch in Sears stores, Karen Centner, vice president and general merchandising manager for e-commerce and international for Lands’ End, says. “The plan to ratchet up the store count from 184 this November to 870 next fall/winter was conceived to give our vendors the time needed to increase their manufacturing capacity while maintaining Lands’ End quality assurance standards,” she says. “It takes a very long time for a mill to produce fabrics that we like and for a manufacture to cut and sew or knit a garment that we like that meets our standards and quality specifications. We have a very large staff in our Quality Assurance Division that teaches our vendors about our quality requirements, and enforces them.”
But then once the product is in the store, can Sears maintain Lands’ End’s high quality image when it places merchandise next to the less expensive Covington brand? “That will be a challenge but Sears does have strong experience in marketing brands like Craftsman within the tools category,” Calvin says.
Even as Sears fits Lands’ End into its retailing strategy, it plans to leverage the upscale Lands’ End customer base to benefit its credit card program. While it’s re-developing its retail strategy, Sears has relied on financial services to keep the company afloat. Many times in the 1990s, the Sears credit card operation was the only profitable business. And even today, the $435 million profit in this year’s first six months represented 59% of operating income. Sears says it plans to market credit services to Lands’ End’s base. But Yannas of Buckman, Buckman & Reid warns that, in the current economy, even high-income consumers may be stretched financially and prone to delinquency.
Lands’ End clearly plays an important role in Sears’s future. And Sears leaves no doubt about the value it places on its new brand. Of the $1.9 billion purchase price, it allocated $836 million to goodwill for the benefit it expects from “leveraging Lands’ End’s brand name across the retail and credit business,” Sears said in a financial statement following the acquisition.