If this kind of Sears tale sounds familiar, it should. Before Martinez joined the dowdy merchant, Sears was coming off an astounding losing streak. Not only were earnings falling fast, but the company had lost its crown as America’s largest retailer to upstart Wal-Mart and rolled out new merchandising programs (pick one, any one) that critics derided as ideas whose time had come–and gone. More importantly, the company’s image was shot. It was once known as a family department store. But the only families that seemed to shop there–for anything more than paint and ceiling fans–were named the Clampetts. Things got so bad that some industry folks suggested changing the chain’s name and starting again from scratch.
Not anymore. Martinez has stopped the bleeding and saved Sears from the fate of the five-and-dime. just over a year since he took on the task, Martinez has slashed costs by firing thousands of workers, closed a slew of stores and dumped the company’s version of a mascot–the catalog–which was losing tens of millions of dollars a year. More importantly, Martinez also has figured out how to spruce up the company’s image and sell clothes to working women–and that’s where the big profits are in the retail business. Sears’s new ads–aimed at what Martinez refers to as “the chief financial officers of America’s families”–are hip even by Bloomingdale’s standards.
Customers are responding. Through the first nine months of the year, the Sears merchandise group has rung up profits of $441 million–a stunning improvement over last year’s $8 million loss. Since mid1992, the company’s stock has soared. of course, this may be the easy part. The performance of the $32 billion merchandise group is calculated against years of weak earnings and sales reports. The revived company now must do battle with its competitors in the crucial holiday-shopping season. which accounts for about 40 percent of the industry’s annual sales. And there’s no guarantee that Sears Will be able to attract women shoppers in droves. Peddling clothing is part theater–and socket wrenches don’t do much for curtain calls.
Still, Martinez, the man who was known as a bean counter at a fancy departmentstore chain, has laid the groundwork for what might be one of the most dramatic turnarounds in American corporate history. And he has broken ties with a past that paralyzed a generation of management. What follows is an account of the Sears overhaul in its first year under Martinez. NEWSWEEK traveled with Martinez and interviewed dozens of former and current employees. What emerges is a picture of a company that was yearning to be saved yet kept making the same mistakes year after year. Sears’s nascent recovery suggests that only an outsider–with nothing to lose and all to gain–can make the changes necessary to revive large, troubled businesses in corporate America.
YOU ONLY THINK YOU’RE TIRED OF reading about problems at Sears, Roebuck. Edward Brennan–now there’s a guy who’s had a bellyful. For a decade he was derided as “Incremental Ed,” the cautious chairman who couldn’t whip the stores into shape even when he personally took control. Years of failed strategies like “Everyday Low Prices”–in fact they were higher than some of Sears’s competitors’ prices–had failed miserably. Sears was losing ground to more nimble competitors such as Toys “R” Us and Wal-Mart. By mid-1992, Brennan desperately needed a win. The parent company’s big stockholders were pressing harder than ever for the turnaround that management kept promising. Scandal had erupted when Sears auto centers allegedly pressured customers into needless repairs. And Hurricane Andrew had hit Allstate, Sears’s insurance arm, almost as hard as it did south Florida. If Brennan didn’t deliver soon, his 36-year career at Sears would soon be over.
Arthur Martinez first learned, through a headhunter. of Brennan’s interest in hiring him just as he was about to take a job as CEO of the Milwaukee-based P.A. Bergner department-store chain. Both Saks, where Martinez worked as the vice chairman, and Bergner carried more prestige in the industry. But saving Sears would be the capstone to his career. in long talks with Brennan and several Sears directors he pressed one question: would I have the authority to do whatever I decide Sears needs? Yes, came the assurances. Martinez hoped he could believe them.
Truth be told, Martinez didn’t know much about Sears. The son of a fish wholesaler, he had grown up in Brooklyn, a long trolley ride away from the nearest Sears store in Flatbush.. After corporate jobs at companies like RCA (where, yes, be met Elvis), he worked on the numbers side of retailing. Occasionally he’d wandered into Sears to buy tools. But with the job offer firming, he and his wife, Liz, began prowling Sears stores assessing what had become of what had once been the strongest retailer in America. They found what millions of shoppers before them had already learned: the merchandise looked OK, but the presentation was lifeless. In Liz’s words. no “oomph.” Translation: Sears looked as boring as, well. Woolworth’s.
Brennan, meanwhile, weighed his options. Maybe Martinez lacked the broader merchandising experience of some candidates. But during hard times at Saks, Martinez had proved a shrewd and bloodless cost-cutter. just the man for the job. So Brennan dangled the bait: $9 million in salary, bonuses and stock over three years. “There were only two reasons not to take the job,” says Martinez. “Either it couldn’t be done or I couldn’t do it.” From day one, though, Wall Street was betting that he couldn’t get the job done. Analysts ridiculed him as a numbers wonk. In a profile, The Wall Street journal groused, “Mr. Martinez is no merchant.”
MARTINEZ KNEW BEFORE HE ARRIVED at Sears that he’d have to make rapid changes. It was obvious Sears had nonperforming assets like the catalog. That was an easy, if painful, fix. The harder part was rooting out nonperforming managers. In early meetings Martinez was astonished that top executives couldn’t answer simple questions such as “How many of our stores lose money?” He also found Sears’s culture to be too respectful of seniority over performance. “Our situation was deteriorating,” be says. “It didn’t appear to me that anyone was paying a price for that failure.” Then there were the store managers, who had been cut out of the decision-making loop. They were “shopkeepers who opened the doors and swept the snow off the sidewalks.” says Martinez. “I was amazed at how uninvolved they were.”
Subordinates didn’t know what to make of their new boss, a charmer of mostly Irish descent whose Spanish surname–it’s MAR-ti-nez–they quickly learned to pronounce. Except for his piercing blue eves, Martinez looked like any other manager who spent too much time at his desk. But employees soon discovered he wasn’t just any other Sears manager. Martinez sent a message by shunning the company’s insular Sears-speak. in which departments are known less by name (such as Brand Central) than by number (700-1). He also created a SWAT-team atmosphere at headquarters, packing eight of his top lieutenants into offices designed for himself and one other. The new boss was a workaholic who expected his troops to keep up. He urged that executives visit stores in the empire each week. “Under that cordiality, that light effervescence, is a very demanding taskmaster–some would say unreasonable at times,” says one Sears source. It was clear that the status quo had come to an end.
DURING MUCH OF AUTUMN 1992, MARTINEZ huddled with Jane Thompson and Russ Davis-two financial executives from the old regime whom he felt he could trust. in the wood-floored conference room off his office they worked in secrecy, pouring over reams of computer printouts. They figured out how many employees they could cut without losing workers who were still valuable to the company. They debated the fate of the catalog, the company’s perennial sacred cow. But the answer was obvious. The catalog operations were losing $160 million a year. And besides, half the catalog customers actually picked up the merchandise at existing Sears stores. Why, then, send catalogs out to 14 million customers?
The troika’s master plan was ready in December. On the Saturday before Christmas, Martinez met in private with the Sears board, which was gathering for an extraordinary 16th time in a single year. The directors had expected bold strokes but weren’t prepared for what Martinez was about to tell them. After all, the holiday season was, saleswise, pretty cheery. But with Brennan looking on, Martinez spoke for the next three hours, outlining his plan. The sheer magnitude of his proposals both startled and sobered the directors. He wanted to fire 50,000 workers–15 percent of the company’s work force. Martinez also wanted to offer buyouts to 4,000 of Sears’s 15,000 managers. He told the board that he wanted to close 113 stores and harpoon the historic catalog. The overhaul wouldn’t come cheap. The price: $2.5 billion.
Several directors pushed back. Killing the catalog struck some as too extreme. The most senior board members asked if Martinez bad exhausted every alternative. A few demanded more details. One source likens their reaction to that of a man who wants his auto repaired but doesn’t want to face the bill. They agreed to sleep on Martinez’s proposals until January. By then the weight of precedent had sunk in: Sears had little to show for years spent trimming the dog’s tail one inch at a time–a staff cutback here, a new strategy there. Meeting again in private, the directors bought Martinez’s entire program, including his suggestion that the surgery be swift.
TWO DAYS LATER HIS RESTRUCTURING announcement rocked Sears. At Prairie Stone, the merchandise group’s campus outside Chicago, nervous managers and workers alike sat glued to their computer screens as the details came bombarding through Sears’s E-mail system. Coveys of workers, many of them frightened by the prospect of leaving Sears, voluntarily or otherwise, huddled over cafeteria tables at lunchtime. Nostalgia-driven press coverage would focus on the catalog’s demise, but for many employees the store closings were even bolder evidence that the old Sears–eager to be all things to every American–had died.
With the changes unfolding immediately, shellshocked workers had little time to obsess on the restructuring. Not that Martinez tried to shortchange the deep hurt that many of them felt. in meetings with Sears field managers and others, he sensed suspicion in the faces of employees torn between ends and beginnings. But he also knew that some Sears workers were desperately tired of their image as losers. He reasoned that if Sears could only begin to show employees the growth possibilities even as it downsized, morale would take care of itself. “To say ‘Now we’re going to have a morale program!’–I’d have been laughed at,” he admits. But outright dissent has never been part of Sears’s culture, and opposition was muted. Some workers were more than happy to say goodbye. As one source says: “Why not take the buyout? You don’t know what Arthur might do with you in a couple of years.”
Sears, meanwhile, was awash in so many changes that even some executives couldn’t keep track. One manager drew parallels with the Clinton administration, which had just lurched into Washington, D.C., with policy initiatives flying out its tailgate. Martinez, like Bill Clinton, had his share of flip-flops, which annoyed even loyalists. For example: after Martinez killed the catalog division, upset customers forced him to restore some specialty books that peddled merchandise such as health equipment. “If Arthur has an Achilles’ heel, it’s that he makes decisions too quickly,” says one manager. “Our employees and our customers have taught him some lessons.”
MARTINEZ’S greatest challenge was persuading shoppers–especially working women–to buy clothes at Sears. Why? While apparel accounted for only 26 percent of revenues, it produced an astounding 64 percent of the chain’s profits. If only he could get some of the same shoppers who buy shovels to visit the apparel departments, Sears might strike gold. As it was, 70 million families in America came to Sears each year. But only 18 percent of those customers shopped in more than one department.
Luckily for Martinez, some of the younger, talented executives were already trying to spruce up Sears’s selection of women’s clothes. Early in his tenure, Dorrit Bern and Janice Page, the company’s women’s apparel managers, proved to Martinez that Sears already had the right merchandise. The problem was Sears’s unhip image. (In one focus group, women were asked what clothes they would buy for themselves at Sears. One response: “Only something that’s covered up.”)
To prove their point, Bern and Page led Martinez through a roomful of name-brand clothing and identical, though lower-priced, apparel made for Sears by the same companies. The last item was a black, beaded Sears party dress selling for $125. Bern flipped open a copy of Folio, the mail-order catalog of Martinez’s beloved alma mater, Saks. The same dress was priced at $300. They told Martinez that with more advertising support and more space in the stores, they could persuade women–even department-store shoppers–to buy their $125 dresses.
In February, Martinez showed more of his hand–and made a strategic error. He told analysts he would cater aggressively to women, as he promised Bern and Page, and spend $4 billion on remodeling stores to make them more attractive. Sears’s new target customers would be women whose families made anywhere from $16,000 to $45,000 a year. The trouble is, those are discount-store shoppers and not likely customers for $125 dresses. By September, Martinez had quietly upscaled his target families to the $25,000 to $60,000 range.
MARTINEZ MAPPED OUT A costly advertising effort to convince women shoppers that Sears was no longer the dowdy place where Aunt Gert shopped for housedresses. Young & Rubicam produced a series of ads called “The Softer Side of Sears.” The idea was to portray Sears as a surprising source of women’s fashions by playing off the store’s reputation for hard goods. Within the agency it’s known as “the puns campaign,” a self-mockery in which, for example, Sears boasts about its electric pumps while depicting hot-pink women’s dress shoes. The campaign is the raciest Sears has ever run: flirty television spots mixed with alluring print ads. One ad depicts a toddler’s footie pajamas and a model in a slinky chemise. “I found something to help my 2-year-old go to sleep,” she coos. “And something to keep my 40-year-old awake.”
Sears launched the ad campaign in September, but there were already signs of life under Martinez’s reign. Sears Was notching month after month of sharp gains. Throughout the merchandise group, excitement built with each 6 a.m. computer feed of the prior day’s sales results nationwide; Martinez even installed a fax machine at his coastal home in Maine so he could track the numbers during his one–week vacation. The trend had started in winter, gained steam in summer. July sales leaped 15 percent over the same month in 1992. The August increase was 11 percent, triple that of JC Penney and other big shopping-mall rivals.
Is Martinez getting too much credit for resuscitating Sears? Brennan, too, slashed jobs. And, under pressure, he spun off units like Dean Witter and Coldwell Banker so that the corporation could concentrate on its retail business. PaineWebber analyst Margo McGlade says that without these and other behind-the-scenes reforms from Brennan, Martinez would have lost three years preparing Sears for its overhaul. Complains one jealous Sears veteran: “There’s a tendency to think the world began when Arthur walked through the door.”
But Brennan will get his due. Martinez’s success with the merchandise group has begun to rehabilitate his boss’s reputation. Publicly, Brennan couldn’t be happier with the success story being written at Prairie Stone. Privately, he knows some Sears watchers will conclude that what he couldn’t do, Martinez can. “He’s sensitive to it,” says a friend, “but Ed is the ultimate company man.” Brennan admits that the years of battering he took from stockholders, analysts and the business press hurt him personally. “Life is more fun right now,” he says. “Mrs. Brennan would agree.”
THE QUESTION NOW IS WHETHER COST-CUTTING AND FANCY ad campaigns are enough. Mall rivals like JC Penney and more upscale department stores aren’t about to cede their treasured apparel customers without a ferocious battle. Sears also faces pressure from specialty retailers like Circuit City, a consumer-electronics chain, which carries broad selections of merchandise at discount prices. And it’s not clear whether the ad campaign–the sex appeal aside–can convince women that batteries and cable-knit sweaters are a good mix. But if Martinez does nothing more, he has rid the chain of uncreative employees, cut operations that had strangled the old merchant’s growth and, at long last, given the company a vision.
As for that men’s room in Indianapolis remodeling crews are on the way.
