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Sears: A Wal-Mart wannabe?
The retailer hopes big box stores will lure shoppers. But industry watchers say Sears is no Wal-Mart
July 17, 2003: 8:58 AM EDT
By Parija Bhatnagar, CNN/Money Staff Writer

NEW YORK (CNN/Money) - Sears' sales haven't grown in almost two years. So why is the department store chain -- better known for its tools and appliances -- opening new stores even bigger than a Wal-Mart supercenter, and offering fresh milk, cookies and a snack bar?

It's a gamble -- and, in the eyes of some industry observers, a bad one.

"This is mad," said Howard Davidowitz, chairman of New York-based national retail consulting firm Davidowitz & Associates Inc.

"Sears is a $40 billion business but with $28 billion in debt," said Davidowitz. "It has posted some of the worst comparable sales over the past few years, a decline on average of about 7-to-8 percent a year. So what are larger stores going to do for them?"

Sears' sales at stores open at least a year -- a key retail measure known as same-store sales -- have declined for 21 consecutive months.

Much of the company's sales angst comes amid fierce competition from discounters such as Wal-Mart (WMT: down $0.67 to $56.65, Research, Estimates) and Target (TGT: up $0.25 to $39.14, Research, Estimates).

In fact, Target recently bumped Sears (S: up $3.22 to $38.20, Research, Estimates) and moved ahead as the nation's No. 4 retailer, with Sears at No. 5. Wal-Mart, the world's largest retailer, heads the list with total sales of $246 billion in 2002.

And even though its stock has jumped 81 percent this year, some investors may be starting to question the gains. Short-selling activity recently crept back near its second-highest level of the year. Shorts borrow stock and sell it, hoping to buy it back at a lower price and profit if the stock declines.

The other problem for the retailer is its locations. Sears stores typically anchor regional malls, but U.S. consumers aren't shopping like they used to, and visits to the nearby department store or mall are fewer and further between, industry experts said.

So Sears has a game plan -- it's called Sears Grand. The new store concept is freestanding stores away from the malls.

(Click here to read about Sears' struggle to hold on to its appliance dominance.)

The stores are larger, ranging between 150,000 and more than 200,000 square feet in selling space, larger than the current selling space at its existing stores of between 90,000 and 95,000 square feet.

The smallest Wal-Mart supercenter is about 110,000 square feet, while Target stores are about 126,000 square feet in size.

Sears Grand will also sell additional products such as milk, cookies and soda, beauty and health-care products, DVDs and greeting cards.

Five stores due by 2005

Sears isn't disclosing the cost but said that it expects to open five stores as part of its pilot program by 2005. The first Sears Grand opens this September in Salt Lake City. The company currently has more than 870 stores nationwide.

"Fewer regional malls are being constructed these days. Therefore, we had to consider off-the-mall locations to ensure the growth of our full-line stores," said Linda Blakeley, spokeswoman for Hoffman Estates, Ill.-based Sears.

Blakeley added that Sears doesn't plan to shutter any existing stores to accommodate the new free-standing locations.

"It's hard to estimate the exact cost of the pilot program but I expect Sears' overall capital expenditure this year to be largely in-line with last year's figure of about $1 billion," said Heather Brilliant, analyst with Morningstar.

Davidowitz, however, thinks the idea is awful. But he concedes that the retailer is acting out of necessity.

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"Look at Wal-Mart. What draws shoppers there are the food and beverage items, or the consumables. So I understand what it is trying to do, but I still reject it," said Davidowitz.

"These stores are so huge that the overhead expenses will be enormous," he added. "The big risk here is that no one comes to the party. If this too fails, it will be another nail in the coffin."

George Whalin, retail consultant and president of Retail Management, agrees. "Sears wants to be Wal-Mart so bad they can taste it, although the company hasn't had great success with innovation," he said.

"Sears' hardware stores aren't doing great and there are rumors it may be looking to sell its NTB tire stores. I'm not sure if they can pull off Sears Grand," Whalin added.

Unlike a Wal-Mart supercenter, which sells fresh food, dairy and meat, the food assortment at Sears Grand is expected to be limited mostly to dry foods like chips and other snacks.

Nevertheless, Wal-Mart said it is taking notice of Sears' latest venture. "We're always looking over our shoulder and watching our competition," said Tom Williams, spokesman for Wal-Mart.  Top of page

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