TIME: Almanac 1995

home *** CD-ROM | disk | FTP | other *** search

/ TIME: Almanac 1995 / TIME Almanac 1995.iso / time / 022591 / 0225200.000 < prev next >

Wrap

Text File | 1994-03-25 | 8.6 KB | 172 lines

<text id=91TT0397> <title> Feb. 25, 1991: Mr. Sam Stuns Goliath </title> <history> TIME--The Weekly Newsmagazine--1991 Feb. 25, 1991 Beginning Of The End </history> <article> <source>Time Magazine</source> <hdr> BUSINESS, Page 62 Mr. Sam Stuns Goliath </hdr><body> 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. </body></article> </text>