The Right Fit? Sears Buying Lands' End for $1.9B to Boost Sagging Apparel Line
The deal reportedly ends years of speculation regarding a possible merger as Lands' End considered opening its own stores while Sears fretted over its clothing unit, which has underperformed compared with its appliance and tool business. Though many analysts and catalog watchers called it a win-win situation, some expressed concern that Sears may trample the smaller Lands' End as decisions are made.
"At best, I would give it a 50 percent chance of being successful," said catalog consultant Dick Hodgson, president of Sargeant House, Westtown, PA. "From Sears' standpoint, they have never been good at capturing a soft goods business, and this would be a good way to go about it."
At first glance, the marriage seems a perfect fit. Sears gets immediate respect for its apparel division while Lands' End, which has seen its sales plateau in recent years, gains 870 retail outlets without any upfront costs. Online, Lands' End has a reputation for e-commerce innovation, and it shows: the company's Web site was responsible for 21 percent of its sales last year.
Sears' site focuses less on selling than on providing information. Links eventually will be established between the two sites, a Sears official said.
The Lands' End site "is very easy to use and had been one of the sites that have topped our Web usability benchmarking," said James Crawford, a retail analyst at Forrester Research, Cambridge, MA. "For Sears, they will hopefully take advantage of the technology on the site, helping the customer find the right product."
The transaction has been approved by both companies' boards and is expected to be finalized next month. Lands' End, which will become a wholly owned subsidiary of Sears, will continue to offer its product line through its catalogs and online. It also will keep its headquarters in Dodgeville, WI.
The biggest danger, Hodgson said, is if Sears overwhelms the "Lands' End mystique, which is built on top value for the money. The psychology in retail trade is just to make the next quarter come out OK, scale down on merchandise to take the price point down or throw out a sale. It just doesn't work that way in smart, soft goods direct marketing. The Lands' End quality and service level must be maintained."
Lee Lodes, a group director at branding consultancy Interbrand, New York, agreed.
"People would go to Sears to buy tools and walk by the clothing," he said. "Sears can become a destination for people looking for Lands' End merchandise, but they must properly manage the brand. It's clearly a step in the right direction. They also needed it to compete with Kohl's and retailers that have brought in brands."
Lands' End president/CEO David F. Dyer will continue to lead the Lands' End business and will report to Sears chairman/CEO Alan J. Lacy. Dyer also will assume responsibility for Sears' existing customer-direct business -- including sears.com, its catalogs and specialty merchandise -- which had sales of $500 million last year.
Sears, Hoffman Estates, IL, will begin placing Lands' End clothing this fall and expects to complete the rollout by fall 2003. At that point, nearly one-fourth of Sears' apparel space will come from Lands' End, carrying an assortment of clothing, footwear, home fashions and other accessories.
The acquisition allows Sears to leapfrog over much of its competition.
"Sears now becomes a very formidable player in the fashion apparel retail marketplace, and Lands' End gains exposure for its merchandise in 870 department stores around the country," said Kurt Barnard, president of Barnard's Retail Trend Report, Upper Montclair, NJ, who said the Lands' End look would fit nicely with Sears' new private label line, Covington, which it announced last month.
"It also is a very classic kind of look, so the two will dovetail extremely well," he said. "Sears is going to gain millions of new shoppers -- no question about it. [They will be] Lands' End customers who previously wouldn't have thought about setting foot in a Sears store."
Sears also wanted to up its ante in the direct sales business, as some analysts questioned whether officials regretted closing the "Big Book" catalog in 1993.
"We want to grow our customer-direct business, and we've also stated that we need to have a greater draw in our apparel area in order to position our full-line stores," Sears spokeswoman Peggy Palter said. "When we looked at Lands' End customers, they are virtually identical to our hard-line customers. We want to encourage this group to shop across the house."
Sears still targets niche categories with 13 catalogs and produces a toy "Wish Book" catalog for the holidays. Total circulation last year was more than 135 million, and the company has more than 130 million names in its database. During the fiscal year that ended Feb. 1, Lands' End mailed 272 million catalogs and has more than 33 million consumers on its mailing list.
The growth factor was the attraction for Lands' End, spokeswoman Emily Leuthner said.
"Lands' End, being in direct marketing, is limited to 10 percent of the potential of the entire base of retail," she said. "Lands' End has been considering ways to get into that other 90 percent."
When asked why Lands' End didn't establish its own retail presence, Leuthner said, "It never really hit the ground."
Mike Petsky, CEO of Petsky Prunier, New York, a direct marketing industry investment bank handling mergers and acquisitions, said he doesn't expect much cannibalization between the customer bases.
"It's been proven that between retail and catalog there is not that much cannibalization since there is a different customer profile," he said. "Lands' End is a notch or two above Sears, so I think one of the concerns will be if Lands' End will be brought down, but I don't think that's likely. Lands' End will help bring Sears up a notch or two rather than the other way around."