BUSINESS WATCH

Anchoring a retail giant’s future

Peter C. Newman August 18 1986
BUSINESS WATCH

Anchoring a retail giant’s future

Peter C. Newman August 18 1986

Anchoring a retail giant’s future

BUSINESS WATCH

Peter C. Newman

This month the 75 outlets of Sears Canada Inc. begin to accept DISCOVER credit cards, pointing the way to their eventual transformation into financial supermarkets.

Sears’ U.S. parent company has achieved spectacular success with the DISCOVER system (run from Delaware through Greenwood Trust), selling not only insurance, mortgages, stocks and other financial services, but airline tickets and hotel reservations as well. Such one-stop shopping would require enabling legislation in this country, but the decision to honor the DISCOVER card is a first step.

It’s all part of a Sears Canada growth plan that includes the refurbishing of existing stores, the opening of four new units in the next 12 months (Owen Sound, Ont., New Glasgow, N.S., and Sorel and LaSalle, Que.) and medium-range plans for an eventual 45 new mini-department stores in Canadian towns with populations in the 35,000 range. “We’ll move as quickly as is practical,” I was told by Richard Sharpe, the company’s chairman and CEO. “We have our own in-house architectural staff and store design people. As the sites become available, we will probably handle four or five of these new stores a year.”

Sears’ Canadian operating results have attained spectacular levels in recent months, and although Sharpe and his management team received much of the credit, an equal partner has been the company’s new computer installation, one of the most powerful IBM mainframes in the country. The machines, located off Jarvis Street in downtown Toronto, can handle 75 million instructions per second, divided into thousands of concurrent tasks. The data to support these programs is stored in Sears’ private communications network which has a storage capacity of up to 200 billion characters. The most interesting aspect of the mega-installation is that security of access is so tightly guarded that even Sharpe can’t wander in to inspect it. “I have the right passkey and the plastic card with the correct combination to get through the first wave of doors,” he says, “but to be admitted into the actual computer room you have to put your hand on a plate, and the machine reads your palm. It won’t accept my handprint because I really have no good reason to go in there.”

But Sharpe has been using the computers to re-examine the selling patterns of every one of the more than 100,000 items stocked on the shelves of his stores. “The problem,” he says, “was that buyers were putting goods out without ever being involved in the selling process. So we just stopped everything and examined the marketing details for every item we handle, right down to each size and color.”

Out of that study came many new

merchandising concepts, including something called “the store of the future,” with the first prototype conversion now on view at Sears’ Square One outlet in Mississauga, Ont. Its main innovations are “sales centres,” constantly manned by four cashiers who handle goods from any part of the store and the stocking of “action lines”—that is, concentrating on specific, fast-moving kinds of merchandise.

The strategy seems to be working so well, Sharpe says, that Sears now I

boasts the industry’s highest GMROII (that’s gross margin return on inventory investment, which is how department stores keep score). “Eaton’s doesn’t publish figures of course,” notes Sharpe, “but when Freddy opened the Eaton Centre, he admitted they were targeting to achieve $234 a square foot in their women’s wear areas, and I just filed that one away because we were then getting $300 per square foot in our women’s wear department—though I suspect their margins were higher.”

Sharpe is budgeting for more dramatic sales growth as well as further diversification made possible by the eventual Canadian adoption of the DISCOVER card. He is also making solid inroads in the traditionally Canadian field of catalogue selling. In fact, Sears’ Canadian catalogues are already outselling the Bible, with fourand-a-half-million Canadian families receiving ten copies per year; four of the seasonal issues are now being sold in Canadian bookstores. (Some U.S. department stores such as New York’s Bloomingdale’s are selling ads to outsiders in their catalogues, but Sears is not considering that step at the moment. “We get any number of companies wanting to buy space in it,” explains Sharpe, “but once we start selling ads in it, we change the nature of that catalogue.”)

He is supremely optimistic about the future of department stores, mainly as anchors in suburban shopping centres. His most interesting upcoming innovation is to open Sears stores to independent concessionaires willing to expand a store’s menu of personal services. They would include rent-a-car agencies, flower shops, dentists’ offices, legal aid outlets, photo studios, earpiercing specialists and huts for franchised Santa Clauses at Christmas.

All in all, Sharpe and Sears are riding the crest of a wave—at a time when department stores are supposed to be retailing’s dinosaurs being driven into extinction by the success of specialty outlets.

When Sears’ printer insensitively chose to run the financial results for 1985 in this year’s annual report in red—as if they were a loss, instead of reflecting the fact that earnings have jumped to $87 million from $37 million—Sharpe ignored the many jibes that came his way. “Hell,” he said, “if the profit is doubled, I can use any damn color I want.”