Restructuring at Sears Roebuck & Co. (1992-03)|Business Strategy|Case Study|Case Studies

Restructuring at Sears Roebuck & Co. (1992-03)

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Case Details:

Case Code : BSTR105
Case Length : 27 Pages
Period : 1992 - 2004
Organization : Sears Roebuck & Co.
Pub Date : 2004
Teaching Note : Available
Countries : USA
Industry : Retailing

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"Arrogance is a mortal sin. It almost did us in."

- Arthur Martinez, CEO - Sears Roebuck & Co., in 1997.

"We've had some lack of clarity and focus in assortments. And I think at the end of the day we had just not--in some shape or form--been able to get the right kind of relevance to customers in this category."

- Alan Lacy, CEO - Sears Roebuck & Co., in 2000.

Decade of Restructuring

The US retailing giant - Sears, Roebuck & Co., (Sears) has been undergoing restructuring spanning over a decade. Starting in 1992, the restructuring efforts continued through the early 2000s. However, the restructuring initiatives failed to improve the performance of its merchandise division.

Sears experienced downturn in its retail sales right from the 1970s. The problem aggravated in the early 1990s when Sears registered its biggest ever loss in the company's history in 1992 - $3.9 billion with the merchandise division reporting a loss of $2.98 billion. In the same year, Sears hired an outsider - Arthur Martinez (Martinez) to head its merchandise division. Martinez initiated drastic changes in the merchandise division, which resulted in the division recording profits in 1994. However by the mid 1990s, Sears was in trouble again, this time due to increasing credit card delinquencies. It also faced law suit for its credit card debt collection practices. Many analysts suggested that the company should divest its credit card business.

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However, some analysts pointed out that as around 60% of the company's retail revenues came from sales through Sears' card, divesting the credit card business might affect its sales. Analysts attributed Sears' falling retail sales to its outdated retail formats, lack of right mix of store assortment and poor marketing strategies. Amidst failing restructuring initiatives, Alan Lacy (Lacy) took over as the CEO of Sears in 2000.

Soon after he took over as CEO, Lacy introduced new retailing formats in the company's full-line stores and exited from the cosmetics business. In October 2001, a three-year restructuring plan was announced to boost productivity and revenues of the company to achieve operating profits of $3 billion by 2004. In a surprise move in April 2003, Sears announced its intention to divest its credit card business. This decision attracted a lot of criticism from analysts. They were of the opinion that disposing the credit card business would increase pressure on the retail division and Lacy would be under tremendous pressure to show quick results. The question that was bothering analysts and Sears' top management alike was whether Sears would be able to turnaround its ailing merchandize division.

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