Sears Canada Inc. is returning to its "harder" side – as in washing machines and mattresses, a key focus for Calvin McDonald, the struggling retailer's new chief executive.
Mr. McDonald is girding for a turnaround by doing what he did at his previous employer, grocery giant Loblaw Cos. Ltd.: going back to the basics.
For Sears, that means selling more appliances and mattresses – the kind of products known as "hard" lines in the industry. But also it speaks to its softer side of apparel and all-things-for-kids. Still, Mr. McDonald has to return to the future at Sears with something else that harks back to the past: an estimated annual budget of about $60-million, according to a report by analyst Keith Howlett at Desjardins Securities. That's less than half the budget of many other rivals. (Mr. McDonald would not confirm the amount of Sears' annual capital spending.)
Rather than working with an increase in annual expenditure, Mr. McDonald is counting on tapping into Sears Canada's current resources in a smarter way to spruce up operations. But time isn't on his side, as he faces burgeoning competition from rivals with deep pockets, including savvy U.S. discount giant Target Corp., which arrives in Canada in 2013.
"We have to do things differently," said Mr. McDonald, who at 40 juggles training for triathlons and co-parenting four children – aged two to 10 – with his day job. "It starts with acting and behaving differently … The big theme for us is just getting the basics: major appliances and mattresses. Big-ticket purchases."
Mr. McDonald, who arrived at Sears in June with a mandate to breathe new life into the ailing retailer, is borrowing a leaf from the playbook of Loblaw where, as part of its executive team, he raced to return to the basics of food after the grocer lost its way in superstores and non-food merchandise.
But Loblaw, controlled by the Weston family, has invested heavily in its operations. Last year, it poured $1.28-billion into them, partly to update supply-chain systems. Sears Holdings' capital spending stood at about $400-million (U.S.) in 2010.
Sears's spending is clearly being outpaced by that of rivals, said Randy Harris, president of market researcher Trendex North America. In the U.S., Sears shelled out $1.45 a square foot a year on annual upkeep, compared with $5.40 at other department stores and discounters, according to his figures.
Even so, Mr. Harris is impressed with Mr. McDonald's candid approach to acknowledging Sears' shortfalls. "He understands the problem," Mr. Harris said. "He is not in denial of the problem. That is a big step forward."
But the road is a tough one. In its third quarter, Sears posted a loss of $46.6-million (Canadian) compared with a profit of $20.8-million a year earlier, while sales dropped to $1.1-billion from $1.2-billion. Same-store sales, a key measure in retail, dropped 7.8 per cent.
As if to symbolically usher in a new era, Mr. McDonald had the drab taupe wallpaper in his office replaced with a brighter white paint. He keeps the blinds on its circular wall of windows open, when previously they were always shut.
When he arrived, employees walked around with their heads down. "It was just a reflection of a business that had lost its rhythm." A month after taking the position, he outlined Sears's challenges in an internal memo, saying Sears was suffering an identity crisis. "Our stores are too difficult to shop. We have inconsistent execution and too much clutter."
Now his three-year transformation plan calls for streamlined flyers that more clearly tout Sears' "hero" categories, such as appliances, and more radio ads; in the first quarter of 2012, the chain will refashion four of its 122 department stores as a pilot project. Sears will also launch four of its Quebec-based Corbeil appliance stores in Ontario.
A renovated store in Toronto has doubled the size of its major appliances department and expanded the mattress space by 50 per cent, and already sales have beat targets, he said. "There are things we need to do, and do better."