Sears plans to buy catalog clothier Lands' End
The move strengthened Sears' beleaguered apparel business by adding a nationally known catalog-clothing brand associated with high quality and outstanding customer service.
Under the deal, Lands' End clothing would begin appearing in some of Sears' 870 stores as early as this fall, supplementing the rollout of Sears' own classic apparel brand, Covington.
Lands' End's catalog and Internet business would be maintained as a separate unit of Sears and would continue to be based in Dodgeville, Wis.
Sears has offered to pay $62 for Lands' End shares, which represents more than a 20 percent premium over Friday's close. Lands' End stock soared $10.71 a share to $61.73 yesterday, a new 52-week high. Sears stock rose 19 cents a share to $52.00.
While the benefits to Sears are clear, so are the risks to Lands' End, retail experts say. Offering Lands' End's pinpoint Oxford-cloth shirts and silk ties at a mass merchant such as Sears may turn off some Lands' End's customers.
Sears also could err by merging Land's End's tightly guarded customer file into its own database of Sears Card customers, they warn. That would inundate Lands' End's wealthier customers with credit-card and eyeglass offers from Sears, one of the most aggressive direct marketers in the country.
Another risk: Sears' infamous bureaucracy could destroy Lands' End's tight-knit, high-energy corporate culture and damage work-force morale. Lands' End is often cited as one of the best places to work in the country by publications such as Fortune magazine.
Some examples: Even part-time employees are part of the company's profit-sharing plan, and Dodgeville workers and their families can use the company's fitness center for free.
Sears promised things won't change.
"This is very simple," Sears Chief Executive Alan Lacy said. "Lands' Ends is a successful business that continues to manage its own destiny. We want them to continue to be the happy family they are."
Comer, who remains chairman of Lands' End, has agreed to tender his shares — about 55 percent of the company's outstanding common stock. For the deal to go through, two-thirds of Lands' Ends' shares must be tendered and regulators must approve.
Lacy, who was in Dodgeville meeting with Lands' End employees yesterday, said he was drawn to the Lands' End's brand because of strength across men's, women's and children's clothing. "It's an excellent fit for Sears and our customers and will aid us in becoming the preferred shopping destination for families," he said.
Sears won't carry everything Lands' End makes, but its buyers will place orders from it like any other supplier, Lacy said. Eventually, Lands' End could constitute 15 percent to 20 percent of Sears' apparel assortment, he added.
Many Lands' End customers are eager to have the option of shopping in Sears' stores, Sears' research shows.
"I'm a Lands' End customer, so if I could get their clothes here, that would be sweet," said Denise Schubert, 27, who was shopping in a Chicago Sears' store yesterday.
Lands' End Chief Executive David Dyer said the acquisition will allow his company to increase the market penetration of its brand. "We were considering the prospect of opening stores ourselves or seeking a strategic partner," Dyer said. "Our alliance with Sears offered the most exciting opportunity for us."
Lands' End has 16 outlet stores that liquidate its overstocked and second-quality merchandise. It also has been testing a full-priced store in the Minneapolis/St. Paul International Airport.
It's been a long trip for Comer, who founded Lands' End in Chicago in 1963 as a tiny sailing outfitter and grew the company into a $1.6 billion catalog and e-commerce powerhouse.
Not all the sailing has been smooth, however. Lands' End ran into choppy water in the late 1990s when its apparel became too stodgy even for its conservatively styled customers. The company's stock price dropped to nearly $15 per share in late 1998, and 1999 net income was chopped in half.
But an effort to jazz up Lands' End with slightly more trendy items has paid dividends in recent years, propelling both sales and earnings. Lands' End stock has almost doubled in the past year. Despite the deal's risks, the acquisition garnered high marks from most retail analysts and consultants.
"One of Sears' big problems is attracting a younger market. This will help build store traffic, which they badly need," said Maxwell Sroge, a catalog consultant in Evanston, Ill.
Sears also looked at L.L. Bean as a possible target, Sroge said, but the Bean family was not interested in selling.
Not only will the Lands' End brand increase the attractiveness of Sears' apparel assortment, it also brings the opportunity to create a free-standing Lands' End chain, said retail consultant Sid Doolittle.
Lacy acknowledged that is a possibility but said it was a minor part of the strategy behind acquiring Lands' End.
The irony of yesterday's move was not lost on Sears watchers. Sears closed its own venerable catalog business in 1993 as part of an extensive restructuring orchestrated by Lacy's predecessor, Arthur Martinez.
But while Sears' distribution system was antiquated, Lands' End's is nearly state of the art, able to deliver many packages the next day. Its Internet business is highly rated for capabilities such as a virtual model that customers can program with their own measurements and then use to "try on" clothes on their computers.
Acquiring Lands' End won't cause Sears to pull back on its goals for 2002 earnings, Lacy said. Sears has said it plans to increase earnings per share by about 17 percent from last year to $4.22.
Sears will not record a special charge for the acquisition, which is expected to close in June.
Information from The Associated Press is included in this report.