TIME: Almanac 1993/TIME Almanac 1993.iso/time/022591/0225200.000

Text File | 1992-08-28 | 8.3 KB | 174 lines

                                                                                BUSINESS, Page 62

Mr. Sam Stuns Goliath


After a century as the giant of U.S. retailing, Sears loses the
top spot to folksy, hard-charging Wal-Mart

By JANICE CASTRO -- Reported by William McWhirter/Chicago and
Richard Woodbury/Bentonville


    With its Regency furniture, rich wood paneling and
commanding view of Chicago's skyline, the executive floor of
the 110-story Sears Tower is a monument to the company's
glorious century as America's favorite store. Now those days
are gone. When Sears' 13 directors gathered last week in the
spacious, peach-carpeted 68th-floor boardroom, the reports they
faced were overwhelmingly bad. A mammoth increase in
advertising had scarcely budged sales. Profits were way down.
The Christmas selling season was the worst in 15 years. One
piece of news especially seemed to mock the setting's regal
grandeur. Sears, officially, is no longer America's largest
retailer. The new king: Wal-Mart, a onetime backwoods bargain
barn that, according to late figures, has pulled past Sears in
North American sales. K mart, advancing steadily but less
spectacularly, edged up just behind Sears, leaving the former
leader an uncertain No. 2.

    While worried Sears directors were seeking solutions in
Chicago, Wal-Mart founder Sam Walton, 72, was working in his
spartan little office at headquarters in Bentonville, Ark.
(pop. 11,000). Starting  at 7 every morning, well-scrubbed,
energetic employees scurry through the drab two-story building
whose Formica desks and battleship-gray walls belie the
company's immense profitability. Before long, a crowd of
would-be suppliers begins forming at the front door: vendors
carrying trunks and cases of products, hoping to interest
Wal-Mart buyers in their toothpaste, panty hose, toasters and
hundreds of other products. Wal-Mart buyers are notoriously
tough bargainers, so sales representatives prepare their
pitches carefully. Wal-Mart has plenty of room to grow --
shoppers in 15 states, mostly in the Northeast, have yet to see
one store. The chain got started in 1962 much the way Sears
did decades earlier, by targeting far-flung small towns and
underserved rural areas. Stocking everything from cosmetics and
record albums to shirts and lawn furniture, Wal-Mart developed
a loyal core of customers devoted to fast, friendly service and
consistently low prices.

    Wal-Mart advanced on one market after another, building
regional clusters of stores no farther than a day's drive from
huge warehouse hubs. While other large retailers were allowing
service to deteriorate, Wal-Mart stores were stationing a
friendly greeter at the front door to welcome customers. The
headquarters' down-home feel is real enough, but don't look for
rolltop desks and clipboards. Walton -- Mr. Sam to his 350,000
employees -- invested in a state-of-the-art corporate satellite
system that has enabled the company to perfect round-the-clock
inventory control so that the products customers want are
nearly always in stock. In Bentonville a computer center the
size of a football field controls the widespread operations,
tracking inventory, credit and sales via a Hughes satellite.

    Wal-Mart's relentless efforts have yielded remarkably rapid
growth. Just 10 years ago, company sales of $2.4 billion were
less than 12% of Sears'. But in the past three years, while
Sears' North American retail sales (including those from 131
Canadian and Mexican stores) have grown only 14%, from $28
billion to $32 billion, Wal-Mart's have doubled, from $16
billion to $32.6 billion. Sears' overhead expenses still
consume 29% of sales, and K mart's 23%, but Wal-Mart's burn up
only 16% of sales. Wal-Mart workers are more productive than
Sears': they generate an average of $95,000 in sales per
employee, in contrast to $85,000 for Sears employees.

    Sears executives bristle at comparisons with Wal-Mart. Says
a spokesman: "We compete with Wal-Mart on only 30% of the goods
we sell." Maybe that's part of the problem. Critics say Sears
management has lost touch with its customers and its mission.
As a result, several retail expansions during the past few
years have failed. Examples:

    -- Sears is determined to upgrade and expand its fashion
lines, but in stores better known for Kenmore washing machines,
Craftsman tools and Weatherbeater paints, women's fashions have
suffered a persistent image problem. Says Kurt Barnard,
publisher of the Retail Marketing Report: "Ask the average
woman if she would care to wear a Sears Roebuck cocktail dress.
It's an oxymoron."

    -- Sears also stumbled two years ago with McKids, a venture
with McDonald's that ran a string of 47 stores featuring
children's fashions and toys. The idea seemed sound, but the
stores were badly organized and overpriced. Last week Sears
shut the stores, though it will carry the clothes and toys in
some Sears outlets.

    In contrast to Wal-Mart's high-stepping esprit de corps, a
debilitating siege mentality and lackluster follow-through
afflict Sears, according to employees and managers. No effort
to revitalize Sears' competitiveness, they say, is likely to
succeed until management communicates a clear vision for the
company. Says a closely informed source who did not wish to be
named: "Why are we always ending up with these losing
propositions? We arrive at a strategy, but not everyone in the
organization adheres to it. They hedge. There's a lack of
buy-in, and you never come out with anything coherent. A lot
of the new stores look disjointed. They tend to become
confusing places to shop. The bureaucratic culture is an
enormous part of the problem."

    Sears' weighty troubles sit on the shoulders of chief
executive Edward Brennan, 57. Last week, emerging after 20
hours of deliberations with his board during two days, he
announced that 9,000 more Sears employees must be laid off by
December, bringing total job cuts this year to 33,000, more
than 8% of the firm's 394,000 merchandising staff. The Sears
board is divided as to whether Brennan should join their ranks;
at least 4 of the 13 directors are said to be leaning toward
new management. Admits a Brennan confidant: "We're in serious
trouble. We needed to make some radical decisions that haven't
been made. It's chaotic. We don't know what's going to happen."

    The turmoil at Sears partly reflects the wrenching
consolidation affecting all large retailers. The U.S. has too
many big stores, and many of them no longer offer the mix of
products and services customers want. The gulf war and
consumer-spending cutbacks in the face of recession have made
matters worse. K mart has held up better than most, upgrading
merchandise and overseeing costs through an inventory-control
system that is even more elaborate than Wal-Mart's and rates
as the industry's most sophisticated program. K mart's pressure
on Sears will not relent anytime soon. Other major chains are
failing. Last week Los Angeles-based Carter Hawley Hale (which
owns the Broadway, Emporium and Weinstocks chains) sought
Chapter 11 bankruptcy protection. At the same time, the U.S.
Department of Commerce reported that retail sales fell 1.5% in
December and an additional 0.9% in January.

    But the problems at Sears run deeper. Long seen as a
reliable source of values across a vast range of goods, from
sheets and dresses to power tools and tires, Sears still enjoys
considerable customer loyalty. But increasingly it has come to
be viewed as stodgy and poorly managed. Says Carl Steidtmann,
chief economist of Price Waterhouse's Management Horizons
retail-consulting group: "The level of customer service has
deteriorated. You'd be glum too if you saw your friends getting
laid off and if you were worried about your own job security."

    One exception to that disappointing recent pattern is the
rousing success of the Discover credit card. Launched in 1986,
Discover is carried by 38 million shoppers. Cardholders can use
it to shop at 1.2 million stores and restaurants other than
Sears, including a chain that may seem surprising: Wal-Mart.
Most businesspeople might refuse to accept a credit card issued
by their principal competitor. Not Sam Walton. He wants to make
shopping at Wal-Mart as easy as possible -- and if Sears wants
to help, well, that's fine with him.