Sears and Lands’ End: Not as Unlikely A Match-Up as Some Might Think

The deal looks almost perfect on the surface. Sears, Roebuck & Co., an old hand at catalog retailing, picks up Lands’ End Inc., an apparel direct-marketer, in order to revive its languishing clothing business. Lands’ End, which primarily markets products through its flagship catalog, had been contemplating opening its own stores in order to add a retail chain to its distribution mix. The $1.9 billion deal could help Sears rebuild its apparel department, while broadening the exposure of the Lands’ End brand. Roll-out starts in the fall Initially, Sears plans to add Lands’ End merchandise to many of its 870 department stores by autumn, and is expected to complete the rollout of product into its stores by the following fall. Lands’ End will continue to run its catalog and Internet businesses. In addition, Lands’ End management will assume responsibility for Sears’ online operation, sears.com. Eventually, Sears expects to offer products like Lands’ End camping equipment and other outdoor goods. In addition to its catalog and Internet businesses, Lands’ End operates 16 outlet and inlet stores in four states, three outlets in the United Kingdom, and one outlet in Japan. Its “Travelers’ Inlet” store, located in the Minneapolis/St. Paul International Airport, offers full-price catalog merchandise. Its outlet stores carry slightly irregular merchandise and overstocked items. The company believes that in order to have strong growth it needs a retail channel. Sears has said it hopes that the addition of Lands’ End products to its stores would give it an advantage over rivals like Kohl’s Corp., J.C. Penney & Co., and Target Corp., which has created a niche for itself by stocking more fashion-forward merchandise than competing retailers. Peggy Palter, a Sears spokesperson, could not offer commentary on the transaction but revealed that the Lands’ End deal will not derail Sears’ fall debut of its new line of clothing, Covington. Sears itself designed the collection – an exclusive apparel brand for men, women, and children. The line of apparel, shoes, and handbags is scheduled to hit Sears’ stores in the fall, about the same time as the Land’s End merchandise. The Covington line will replace eight other brands currently sold in Sears stores, including Trader Bay, Crossroads, and Fieldmaster. Palter says that the Lands’ End brand complements the Covington line very well, with Covington being positioned “smack in the middle” of the better category of apparel and Lands’ End filling the “best” slot. “The different styles of the apparel lines are complementary as well,” she adds. “Land’s End has an emphasis on conservatively styled casual and business attire and Covington is more fashion-oriented,” she says. Upon announcement of the transaction, some industry experts were quick to point out the deal’s potential pitfalls. The major stumbling block, they said, is that the two companies have dissimilar customer bases. And although the deal provides the opportunity for both firms to expand their brands across multiple distribution channels, there exists the possibility of alienating each retailer’s core customers if the cross-channel marketing strategy is not executed well, they noted. Backing up the experts’ concern, a recent online survey of 2,146 Internet users, conducted by market research and consulting firm Harris Interactive, showed that landsend.com shoppers are more affluent and better educated than sears.com customers when it comes to shopping for clothing. Landsend.com shoppers also tend to be more Internet savvy and more apt to make their purchases online, the survey disclosed. Customer bases can peacefully co-exist But even if differences between the two customer bases exist, Steve Louis, a partner in the retail group at Accenture, believes they can “peacefully co-exist in a Sears store.” He says that the deal helps bridge the gap between people who buy hard lines, such as appliances, from Sears but who do not buy clothing there. Even if the typical Sears soft-lines customer is less affluent than the typical Lands’ End customer, there is a “trade-up opportunity for that traditional Sears apparel customer,” says Louis. “Sears now has a chance to sell higher-priced merchandise – perhaps adding credibility with respect to its apparel offerings – and customers can feel good about that. The Lands’ End customer, who almost definitely is buying some hard lines at Sears already, now has another way to purchase the Lands’ End brand. I don’t know that there has to be a single customer type,” he says. Additionally, Louis does not think that the addition of Lands’ End clothing to Sears’ struggling apparel department will tarnish the Lands’ End brand. “I think that those customers who want to continue to shop directly either through the catalog or online will do that.” “More-affluent consumers are more likely to buy hard lines at Sears than soft lines, I think, but the addition of Lands’ End merchandise to Sears stores gives those wealthier customers a reason to come into the store for more than hard lines,” he notes. Sears is a good fit for Lands’ End, Louis points out, because many other department stores already have strong apparel brands, which Lands’ End would have to compete against. “If you were to bring Lands’ End into a Federated Department Store you begin to compete with Tommy Hilfiger and other casual lines. It might be a more difficult assortment to break into.” Louis says that he doesn’t expect the addition of Lands’ End merchandise to Sears to “be done in a vacuum.” Beyond re-imaging its apparel business, Sears should look at ways to “create a new apparel shopping experience” – focusing on department layout, presentation, and marketing, he says. The most compelling reason for Lands’ End to do the deal, Louis says, is for the instant access to Sears’ stores. Developing one’s own chain of stores is not an easy task, and not a guarantee for success either, given the somewhat crowded casual apparel market, he notes. He points to L.L. Bean Inc. as an example of a very successful direct marketer which has been looking for growth channels but has not developed a large store-based presence.