At the Sears, Roebuck & Co. store in Merrillville`s Southlake Mall, expectant mothers and kids have been given a lot more space for shopping.
”We`ve brought maternity into this area, and we also have a play area with TV monitors that show children`s videos,” said store manager Earl Ellis. The newly redesigned shopping space is the centerpiece of Kids and More, one of the new ”power format” merchandising strategies launched earlier this year by Sears, the nation`s largest retailer.
The overall strategy calls for offering a wide selection of name-brand goods as well as in-house brands, sold at what Sears calls ”everyday low prices,” intended to compete better with discount and specialty store retailers.
Sears is planning ”power formats” in a number of product categories, including appliances and electronics; automotive; men`s, women and children`s apparel; home furnishings and furniture, marketed under special names such as Brand Central and The Men`s Store.
The Merrillville store, the first in the country to display the new children`s format, is also one of only three of more than 800 Sears stores around the country to have all the new merchandising formats in place.
Thus it is in the northwest Indiana suburb that Sears is getting its first lessons on how well the concept works when all the puzzle pieces are put together.
The retailer expects to have its men`s apparel format in all its stores by February and the Brand Central areas for appliances and electronic equipment in remaining stores by next summer, said Michael Bozic, Merchandise Group chief.
Sears officials are quick to note that the new merchandising strategy is only part of its recently launched corporate restructuring, aimed at cutting costs and making the retailer more competitive. The company is also trying to generate revenue growth through store expansion and by streamlining distribution and operations systems.
But as the Merchandise Group accounts for the bulk of company sales, it is the linchpin of the new strategy.
It hasn`t been easy going so far. After a surge in sales immediately following the much-advertised launch of the new merchandising and pricing formats, the retailer`s sales have continued to trail those of other marjor retailers.
In November, the month before the start of the critical holiday shopping period, Sears sales fell 1.3 percent, to $2.95 billion from $2.99 billion in November, 1988. Its comparable-store sales-results at stores open at least 12 months-were up just 0.4 percent. Comparable-store figures are considered the more accurate measurement of a retailer`s performance.
In its most recent quarterly statement, Sears earnings fell 15.5 percent from a year earlier, to $257.5 milion, or 75 cents a share. Sales were up 4.8 percent, to $13.2 billion.
To combat what Sears executives say is an inaccurate comparison of its performance with last year`s results, the retailer plans to start reporting sales based on its continuing lines, Bozic said, to avoid comparisons that include product segments that have been dropped.
The retailer`s executives blame the slow sales on continued sluggishness in the durable goods market, a key area for Sears. But critics say the sales reflect customer dissatisfaction with the new strategy.
Merrillville manager Ellis said the performance at his store proves the critics wrong, while teaching the lesson that increased selling space and a deeper selection of goods spur sales.
”The increased selling space makes a tremendous difference,” he said during a tour of the two-level store, noting that the children`s area is more than twice its original 11,000 square feet. ”In each category where we`ve got a new power format, we`re doing better sales than we projected,” he said.
Although he would not release specific figures, he said the new strategy has pushed the Merrillville store to the top of sales rankings in each of the new power format categories.
”Even with a Child`s World store opening nearby, we haven`t noticed any lessening of customer traffic,” he said. ”The power formats have
outperformed comparable departments at other Sears stores around the country.”
Ellis said the children`s apparel area has moved from sales decreases to increases since the new format was introduced. ”That`s also true in the women`s department. And in Brand Central, sales have been up more than 10 percent, with home electronics being the strongest area,” he said.
The women`s section makes it apparent that Sears is trying to upgrade its fashion look, with bright lights and snazzy displays of casual and fancy party dresses. ”A number of women shoppers have commented on how the store has more of a department store feel to it now,” Ellis said.
”After 23 years with Sears, I`m just starting to see some exciting things happening in the merchandising selection,” said Ellis, who has managed the Merrillville store for nine years.
The success at Merrillville has given Sears confidence in its new format, despite skepticism and criticism from many industry observers. It`s also the place where the retailer learned it had to do something about a major stumbling block to the program`s rollout-a lack of store space for expansion of the various product lines.
At Merrillville, the furniture department is conspicuous by its absence. Sears has moved the department out of the building to a new site, where it will test selling a wider selection of furniture in a free-standing location. A typical in-store furniture department at Sears is about 8,000 square feet, and Sears believes it needs five times that space to compete.
Sears` merchandising plans require enlarging many departments in existing stores and some testing of the free-standing store concept.
At the same time, Chairman Edward Brennan said Sears is going to review the chain`s commitment to furniture sales and possibly abandon it.
At best, overall response to the retailer`s new merchandising and pricing strategy has been mixed.
”It may be a lot but too late,” said Louis Stern, a professor of marketing at Northwestern University. ”Other companies were taking these steps 10 years ago.”
He and other retail analysts point out how discounters such as Wal-Mart and K mart as well as specialists such as Highland Superstores, which have much lower operating costs than Sears, have their own price offers.
Stern said the retailer is going to have to reduce its prices even more to meet or beat competitors. ”Sears` everyday low pricing is not at the level of discount firms,” he said.
Others say the retailer`s strategy is going to take time to develop.
”In the past, Sears was losing its share of market in many areas, and a lot of that loss had to do with its pricing,” said John Landschulz, a retail analyst at Cowen & Co. in Chicago. The new pricing format will help stem the loss of customers and should attract new ones, he said.
A recent report by Impact Resources, a consumer marketing firm based in Columbus, Ohio, found that Sears trailed other discount stores in the perception of offering the lowest prices.
”In other words, the percent of Sears shoppers who cite price as the reason for store choice is much lower than the percent of the competition`s shoppers who shop at that store because of price. Sears will have to earn this price recognition; evidence to date suggests they have not achieved this status at this stage of their new positioning effort,” the report concluded. In an effort to increase awareness of the new merchandising and pricing strategy, and to attract customers, Sears recently has increased its advertising. It`s also been running more sales promotions, something many shoppers thought it wasn`t going to do with the new format.
”Everyday low pricing” was not designed to mean an end to sales, just fewer sales. A reduction of sales is a way to cut operating expenses, Bozic said.
Sears` campaign to make buyers believe its prices are competitive suffered a blow last week, when New York Atty. Gen. Robert Abrams filed suit against the retailer, charging that the pricing strategy was simply a ploy to pull consumers into the store. He alleged that prices were not lower and in some cases were higher.
Bozic responded angrily to what he called ”malicious, distorted and untrue” statements. The attorney general`s investigation of Sears` pricing was based on about 14 items out of the more than 100,000 the retailer sells, Bozic said.
Sears` gross profit margins are down by ”tens of millions of dollars,”
proving the retailer has been selling its goods for less, he added.
Bozic said the increased sales promotions in recent weeks have been tied partly to clearing out merchandise in areas of business Sears is leaving, such as men`s suits and photographic equipment.
Getting out of these lines is also temporarily affecting store sales, Bozic said. ”These are items that traditionally do most of their business in the fourth quarter, particularly in December.” And, he added, the retailer is carrying 67,000 fewer items in its catalogue this year.
