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Sears looks to the home
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November 8, 2000: 3:44 p.m. ET
New Sears CEO inspires confidence with future plans at analyst meeting
By Staff Writer John Chartier
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NEW YORK (CNNfn) - Sears, the nation's No. 2 retailer which has been struggling with disappointing revenue growth in its apparel lines over the last several years, will attempt to rev up its results with a new line of home improvement stores, new Chief Executive Officer Alan Lacy said Wednesday.
Meeting with analysts and reporters for the first time Wednesday at New York's Waldorf Astoria hotel, Lacy outlined his hopes for Sears' new Great Indoors home improvement stores. He also outlined plans to revitalize the struggling retail business, which accounts for $30 billion out of Sears' total $40 billion annual sales.
Sears (S: Research, Estimates) shares were up 40 cents to $30.67 in trading Wednesday.
 Lacy, 46, succeeded former CEO Arthur Martinez, who stepped down Oct. 1. He has headed up the retailers' credit division, which he is credited with turning profitable again, since 1994.
Until now, the tall, soft-spoken Lacy has kept a low profile, turning down interviews with the media and analysts to focus on the company's strengths and weaknesses.
At Wednesday's meeting, Lacy acknowledged Sears' lagging retail operations, demonstrated knowledge of all aspects of the business and talked up the new store concept. He didn't break any new ground, but perhaps more importantly, he inspired confidence among analysts.
"I think it was a realistic, pragmatic view of what the strengths and weaknesses of the company are," said Steve Kernkraut, a retail analyst with Bear Stearns. "He didn't break new ground with the initiatives, but directionally I think he set the stage for change, and I think by March or April of next year we'll see a change."
Building on its strong appliance business, Sears officially launches its new Great Indoors home improvement stores Thursday. Lacy told analysts he projects the new stores, which are set up as a one-stop shop for home improvement and remodeling, will annually rake in $50 million apiece.
Initially, four stores will be opened in Detroit, Cincinnati, Indianapolis, and Milwaukee. The company expects to roll out a total of 150 stores. The buildings are typically 120,000-to-130,000 square feet in diameter compared with an average of 85,000 square feet for a typical Sears store.
Although they focus on home improvement and remodeling, the Great Indoors stores have a softer touch in order to draw more women into the stores, Lacy said. Customers can remodel their kitchens and bathrooms either on their own or with the help of a consultant who can suggest anything from window treatments to wallpaper. But they can also get help for serious home improvements lumber, hardware and tools.
"The Great Indoors clearly is geared around home remodeling, re-decorating, so to some extent there's more economic linkage there than just daily life. But there's an awful lot of fashions and soft elements to this box that you don't have to be gutting your kitchen to go shopping there," Lacy said.
Lacy also said Sears' new Gold MasterCard is a high growth area for the company.
The card is targeted to the requirements of certain customers, Lacy said with a better annual percentage rate than the original Sears credit card. Currently, cardholders have a collective $1 billion in balances.
Shoring up retail
Although Sears has seen earnings per share growth of 16.4 percent between 1993 and 1999, its retail business has lagged behind. Retail margins topped out at 3.3 percent in 1999, above 1993 levels, but well below the 5 percent target the company had set for itself six years ago.
"We recognize that we really don't make enough money in our retail business," Lacy said. "If you look just at our retail segment we're not happy with our retail performance here."
The softness comes mainly in apparel. Lacy said there is little product differentiation from competitors such as Wal-Mart (WMT: Research, Estimates), J.C. Penney (JCP: Research, Estimates) and Kohl's (KSS: Research, Estimates) and a poor value perception by consumers of the fashion and quality of apparel offerings.
"We think in terms of pricing and assortment we have very good offerings," Lacy said. "But we have not been able to break through consumers minds in terms of value perception."
However, there have been some bright spots in the retail business such as in footwear and fine jewelry, on which Sears will focus more of its marketing energy in 2001, Lacy said.
And in hardlines, the strong appliance business continues to grow, bringing in $5 billion in sales a year. Lacy said he plans to use the appliance business as a model for improving the rest of the retail category.
Lacy announced several initiatives to improve the softlines business, most of which are continuations of previously announced policies. But coming from a company insider with Lacy's track record, Wall Street is once again confident.
 Those initiatives include improving product quality, style, and value, focusing on successful, popular items, supporting growth of private label brands such as Fieldmaster and continuing investments in product development and global sourcing.
"We were very impressed with Alan Lacy's presentation. He demonstrated an intimate knowledge of all aspects of the Sears business. That's one of advantages of hiring an insider," said Bill Dreher, a retail analyst with Robertson Stephens. "He has a very level-headed financial approach to the business, and as we get more development in the future, that news should resonate on Wall Street maybe stronger than it has in the past."
And that is just what the company was counting on in hiring Lacy. 
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