Recharging Sears

By Maryanne Murray Buechner

Wall street blessed the marriage of tools and turtlenecks last week when Sears, Roebuck & Co. announced it will buy preppie-apparel maker Lands' End for $1.9 billion in cash. Both stocks moved up on the news--a rarity at a time when investors are justifiably wary of big mergers. Executives of the two companies emphasized that Sears, now strongest in products like auto batteries and wrench sets, will get a chance to revive its tired apparel department while Lands' End, which has thrived as a catalog and online merchant, will get to hang its wares in 870 Sears stores across the country.

But there's another promising angle to this deal that its promoters seem almost shy about, perhaps because of investor aversion to anything related to dotcoms. Despite its dowdy image, Sears, like Lands' End, has quietly mastered the art of pleasing what marketers call "multichannel" customers--those who use a combination of stores, catalogs and websites. Sears has used its website effectively not only to sell goods for mail delivery but also to drive traffic into its bricks-and-mortar stores, say, when a shopper at sears.com checks out the features and price of a freezer and then heads to the store to look the thing over and close the deal. More than 30% of Sears' online purchases are picked up at the store, and once there, about one-fifth of those shoppers end up making unplanned purchases, according to Sears' research. Sears.com contributes directly or indirectly to about $1 billion of the company's $41 billion in annual sales, according to spokeswoman Ann Woolman.

Lands' End customers also tend to be multichannel. Buyers might spot a swimsuit they like in the chain's colorful catalog, then go to landsend.com to order it by simply punching in the product number. Nearly 20% of those who shopped at the website during the last two months of 2001 used this catalog-linked "quick order" feature, reports NetRatings senior analyst Dawn Brozek. Lands' End is an innovator in other online features, including a "virtual modeling" function that lets shoppers build a 3-D screen image of themselves and "try on" items. Online orders accounted for more than $300 million of its $1.6 billion in sales last year, and are growing three times as fast as catalog purchases. With only 16 discount outlets and one test store, Lands' End has minuscule bricks-and-mortar sales.

Once the companies are merged (which is expected by June), they will have a chance to take their multi-channel strategy to a new level. Lands' End shoppers could order shirts and shorts online or by phone and pick them up immediately at their local Sears store. Or they could have the clothes delivered and, if they didn't fit, exchange them at Sears. "This synchronization of multiple sales channels is absolutely the future of retail," says John Champion, a vice president at Kurt Salmon Associates, a consulting firm in Atlanta. The future may already be here: according to Nielsen/NetRatings, for every dollar spent online for apparel in December 2001, an additional $1.63 was spent offline as a direct result of the online visit.

Traffic to sears.com is three times that to landsend.com so the latter site should get a boost when the two are linked. The two companies, when joined, will have the added advantage of accessing each other's customer files. Sears has data on 130 million customers, Lands' End on 30 million. Sears sends out 25 million credit-card statements every month--an easy way to distribute special offers on, say, a Lands' End golf shirt. "The two companies' strategies have been very different, but if they can leverage each other's strengths, you'll have a very powerful combination," says James Crawford, retail analyst for Forrester Research. Of course, that's what everyone said about AOL and Time Warner, so perhaps some caution is in order.

Facing increased competition from the likes of Wal-Mart and Target, Sears CEO Alan Lacy hopes that offering Lands' End products in Sears stores will help attract new, more upscale customers (particularly women) while encouraging regular patrons who buy only automotive goods, appliances and tools to add sweaters and shirts to their shopping list. Sears plans to stock only selected goods from the Lands' End catalog, starting with a few items in time for the 2002 holiday shopping season.

Addressing concerns that Lands' End--a much smaller but well-established retailer known for quality, value and outstanding service--would be swallowed up by the big Sears chain, Lacy emphasized that Lands' End would remain a distinct brand and continue operating independently under current CEO David Dyer. "We want Lands' End to be Lands' End," Lacy says. The plan is to feature Lands' End clothes on sears.com but not vice versa. Dyer will assume responsibility for all direct-to-customer operations, including sears.com

An informal sampling of longtime Lands' End customers indicates that Lacy may have a lot of persuading to do. Some are worried that the link with Sears will cheapen Lands' End. "What is a clothing manufacturer if not image--and they're about to kill their image," says Nicole Gueron, 33, a lawyer from New York City who describes herself as an "off-and-on" customer of Lands' End for the past 15 years. Marietta Caiarelli, 59, a nurse from St. Louis, Mo., says she hopes the Lands' End quality and service she has come to depend on don't suffer. "My heart sank when I heard the news," she says. "I thought, It will never be the same again."

Sandra McKeveny, 55, a mother of three from Pelham Manor, N.Y., buys from both Sears and Lands' End but says she has rarely walked through Sears' apparel floor. She acknowledges that while it might be nice to be able to touch and feel a Lands' End shirt before buying it, she will probably still just order from the catalog. She concedes, however, that now that she knows Sears will be stocking Lands' End goods, she might "wander off" to that department the next time she stops in for an appliance.

--With reporting by Joseph R. Szczesny/Detroit

With reporting by Joseph R. Szczesny/Detroit