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MARCH 10, 2003

THE CORPORATION
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The Fog Surrounding Lands' End

 
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To resuscitate apparel sales that have fallen every month since December, 2000, Sears, Roebuck & Co. (S ) bought Lands' End Inc. last June for $1.9 billion. Yet it's not at all certain that the maker of high-quality casual clothes can help Sears take on the likes of Kohl's (KSS ) or J.C. Penney (JCP ).


For one thing, Lands' End goods were sold in only 183 of Sears' 870 stores by the end of the holiday shopping season. A full rollout is not expected until this fall. Michael J. Smith, a former Lands' End CEO, questions whether Sears can upgrade its image in apparel without hurting the image of Lands' End. Sears, for instance, relies heavily on promotions to sell its clothes, but Lands' End doesn't, so discounting could cheapen the brand and hurt sales, which were $1.57 billion in 2001.

Sears CEO Alan J. Lacy hints that the deal is paying off, however. Without disclosing any numbers, he told Wall Street analysts during a Jan. 16 conference call that most stores with the new merchandise "saw apparel accelerate at a faster pace than at other Sears stores." Lacy also says that the catalog business did better than Sears expected. The retailer needs strong clothing sales to offset weakness in its appliance and credit-card businesses. But the company does not expect an upturn in apparel sales until the second half--when it should be clear if the Lands' End deal was worth it.


By Robert Berner
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