Lacy Gives Inside Look On Sears

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NEW YORK -- It was a rare moment yesterday at the National Retail Federation's Shop.org annual summit for attendee retailers to probe Sears, Roebuck and Co. chairman/CEO Alan Lacy's thoughts on e-commerce.


Unusual for a leader of such stature, Lacy was candid about his $40 billion company's recent achievements in direct marketing, the most recent being the summer 2002 acquisition for $1.9 billion of apparel direct marketer Lands' End. Due diligence for that purchase acknowledged a key difference.


"Lands' End has a northern climate bias and does not have a multicultural customer base," Lacy said in the keynote session. "Sears has a southern climate bias and a multicultural customer base."


Still, as of Sept. 8 and a little more than a year after the acquisition, Lands' End apparel and gear are available nationwide in all Sears stores.


Also, the Sears and Lands' End customer files were compared to weed out overlap. Some files were moved to Lands' End, especially large and petite sizes.


Implemented in a phased manner, the integration gave Sears time to register which stores quickly gravitated to selling Lands' End merchandise. The in-market experience was invaluable.


Efforts are on to deliver more products at point of sale that are sold online. This is true as much for the Lands' End division's apparel as it is for Sears' hard-line products like tools and household appliances. The challenge, of course, is how to stock more items at store level.


Sears itself has undergone a serious repositioning in the past two years. Merchandise assortment has changed, as has the cost structure. New management is in. For example, Bill Bass moved from Lands' End after the sale to head both landsend.com and Sears.com.


"It's all about moving away from our department store culture and realizing our best customer was off-mall," Lacy said.


A difficult moment for Sears came when it realized that it was in two businesses: retail and lending. So in July it agreed to sell its hefty credit card business for $3 billion to Citigroup.


"We sold it to create equity value for our shareholders," Lacy told a packed room of e-commerce executives.


The Sears credit card business has 60 million accounts and $30 billion in assets. Sears will partner with Citigroup to handle the credit accounts.


Not that Sears needed cash. It generates $1 billion in free cash flow yearly.


In the same bottom-line-driven spirit, Sears.com last year for the first time pulled in a profit. Millions of dollars were poured into the site since its launch in 1997. En route, the retailer invested in IT, infrastructure and new call centers.


Lacy admitted that Sears board members rarely spend much time discussing Sears.com or online issues.


"We're consciously silent about it," he said. "People are focused on our full-line stores, and we had a big credit business. Once you talk about those two, there's not much capacity left."


So, the much larger Sears stores business gets more attention. But it helps to note that the online arm is in profit.


"Supporting the business from an investment standpoint is much easier," Lacy said.


Besides, kinks in the multichannel operation need working out. When asked about Sears' buy online, pick in-store policy, Lacy admitted that problems exist.


"It was very difficult," he said. "We didn't have a lot of systems tie-in. A lot of it is done manually in our stores ... the online channel thinks the item is in store, but the associate has to find the product and tag it for the customer and communicate it online."


Obviously, this manual involvement takes associates away from their regular chores in-store, "but 90 percent of the time we'll able to find the product and get it to the customer," Lacy said.


Sears.com lists 3,500 models of appliances online. And it is making it an integral part of the store associates' job to participate online and push sales to that channel, if necessary.


The Internet is not an end to itself for Sears. Through online marketing, it is a means to drive offline sales. In fact, the multichannel advantage is the best way for subordinates to sell CEOs on the value of investing more online.


"We have over 4 million preferred e-mail [opted-in] customers," Lacy said. "We're using it increasingly to market Sears, not just Sears.com."


He is not fazed much by spam. Sears customers want to hear from the brand, he said.


Lacy's prophetic skills were also tested at the Shop.org show. He was asked for his expectations of this holiday season.


"It'll be a better season than last year," he said. "That said, I don't think it'll be robust -- the economy, unemployment's still high. The impact of the [Bush] tax changes is new. I do think the online channel is going to be spectacular. But for the rest it'll be very, very tough."


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