Restructuring at Sears Roebuck & Co. (1992-03)
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Case Code: BSTR105 Case Length: 27 Pages Period: 1992 - 2004 Pub Date: 2004 Teaching Note: Available |
Price: Rs.500 Organization: Sears Roebuck & Co. Industry: Retailing Countries : USA Themes: Corporate Restructuring |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Sears Under Arthur Martinez
When Martinez took over as the head of Sears' merchandising group, he observed that employee morale was low and the company lost track of changes taking place in the external environment and how its competitors were managing their businesses. He also observed that Sears lost focus of its customers. Commenting on the situation in Sears, he said, "We lacked peripheral vision. We had no grand view of the world beyond us. We were suffering from cultural insularity, which prevented us from understanding what other people do to solve their business problems." After taking over as the head of the merchandising group, Martinez along with top managers of the group analyzed the group's business. He found that though the retail stores were facing a lot of problems, they enjoyed 3 core strengths on which Sears could turn its business profitable again...
Troubled Credit Card Business
According to reports, by November 1997, the outstanding payments on credit-cards were around $393 million, which was 44.6% increase over the 1996 figures. In addition to the credit card outstanding payments, Sears also faced lawsuit for adopting aggressive credit card debt-collection methods, violating US bankruptcy laws. It was also reported that Sears had provided around $475 million as compensation to customers who sued the company for its aggressive credit-card debt-collection practices. Many analysts pointed out that most of the purchases at Sears were done through its credit card. They also pointed out that while retailers such as J.C. Penney were implementing stringent rules while issuing new credit cards, Sears' rules were not stringent. Analysts felt that increasing purchases on the Sears credit card made the company vulnerable to the interest swings and increasing personal bankruptcies...
Troubled Retail Businesses
Analysts pointed out that in addition to problems in the credit card business, Sears had other problems too. The apparel line of Sears was not attracting customers and it failed to keep up sales though its initial sales were promising. Commenting on the company's performance in 1998, Martinez said, "As a company, we had many things to be proud of last year. But frankly, [it] was not as good as we had come to expect." Analysts also attributed the slow down in Sears' sales to increasing competition from discounters and other retail stores...
Sears Under Alan Lacy
Analysts opined that Lacy inherited a strong company with $1 billion surplus cash, which could be re-invested in the company. However, they pointed out that the company faced problems related to stagnant growth and increasing competition in the retail industry. Analysts opined that stagnant growth rates increased uncertainty about the company's future prospects. When Lacy took over the reins of Sears, he was under pressure to bring improvement in the company's performance.
Turnaround Far From Complete
Though, Sears reported increased net income in 2002, analysts were quick to point out that the company's revenues from merchandise division were only $35.7 billion - a fall of 0.2% from 2001 revenues. Though Sears attributed fall in revenues to the restructuring of the full-line stores, analysts were skeptical about the company's restructuring plan. They further pointed out that most of the revenues came from the credit card division...
Will Sears Turnaround?
Most analysts were willing to give more time to Lacy to turnaround the merchandise business. They pointed out that the Citigroup deal freed $3 billion bad debt provision for the company, resulting in after tax profits of $4.5 billion. The deal also saved around $200 million annually for the Sears retail division, as Citigroup would not be charging Sears for short-term 0% finance offers. Sears also spent around $1 billion for share buy back in the 2003-second quarter. Analysts pointed out that decreasing outstanding shares would increase Earnings-per-share (EPS). Analysts predicted that Sears stock price might reach $50 by early 2004....
Exhibits
Exhibit I: Profiles of SEARS' Competitors
Exhibit II: A Note on SEARS' Catalog Business
Exhibit III: Consolidated Income Statements (1994-1998)
Exhibit IV: SEARS Stock Movement During 1994-2003
Exhibit V: Consolidated Income Statements (1999-2002)
Exhibit VI: A Note on American Retailing Industry
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