Hoffman Estates, Feb. 27--Taking steps to shake its heritage as a mall-based retailer, Sears, Roebuck and Co. said Thursday that revenues at its first Sears Grand store have exceeded expectations, according to the Chicago Tribune.
But profit margins at the freestanding general merchandise concept are "still not what we'd like," Sears Chief Executive Alan Lacy said.
It was the first time Lacy spoke about profitability of the Sears Grand concept, which sells everything from appliances to milk and is intended to compete against Wal-Mart Stores Inc. and other big-box rivals. Sears, which has 870 full-line stores in traditional shopping malls, needs to find sales channels that help lower costs and improve returns.
"We're very pleased with what we've seen so far and think we have something that will help us grow our overall store base," Lacy said at a Bear Stearns conference Thursday in New York.
The first Sears Grand opened in a suburb of Salt Lake City in September. Three more are scheduled to open this year. A fifth will open in 2005.
Product lines that have struggled in the mall-based stores, including apparel and home fashions, have been doing well at Sears Grand, Lacy said.
He also said the concept "is an important format to help us relocate existing smaller stores." Sears has been looking to improve profits at its 300 smallest mall-based stores. Options include moving some, closing others or converting them into Sears Grand.
But Sears said it first needs to get Sears Grand right. Lacy said the company expects to improve the concept with the opening of each of the five stores.
"The expense structure is still not right," he said. "The store operates very differently than a full-line store so we're still learning."
That's not a surprise, one expert said.
"The concept is to boost the number of trips to the store, but moving more into food carries a lot of risk," said Steven Keith Platt, director of Platt Retail Institute, an industry think tank.
"It's hard to differentiate and is a low-margin business. You're competing with Wal-Mart and supermarkets, so the focus and shift to food has already been done and will threaten Sears' margins."
But if Sears Grand's bottom line isn't up to snuff yet, neither is Sears traditional stores.
"We also had margin issues in full-line stores," Lacy said. "We were not pleased with apparel sales and gross margin management broadly speaking in the (fourth) quarter."
Sears' traditional sweet spot is hardlines, such as appliances, but soft goods, particularly apparel, has struggled. Home fashion, things like bed and bath products, also "has been a tough one for us to get right," Lacy said.
Among other things, he said Sears will expand the number of stores that carry its proprietary Lucy Pereda clothing line, geared to Hispanics, from 227 stores currently to 463 stores. Sears also will phase out computer and film camera sales in stores.
Sears recently announced plans to revamp its electronics and home fashions departments. Lacy said Thursday those changes will occur in 116 stores this year and also include the children's department.
Overall, he said, "2004 will be a good year for us." He added that margins will get better and "we'll be in a position in 2005 and beyond to show more organic growth as well."
