With the purchase of Lands’ End, Sears, Roebuck and Co. will take a giant step forward in the repositioning of its business with the introduction of Lands’ End clothing in to its stores. And for Lands’ End, the move is a way to increase the market penetration of its product line with the stroke of a pen through exclusive retail distribution in 870 Sears stores.
Sears announced yesterday that it would acquire Lands’ End for about $1.9 billion. The deal is expected to close in July.
With the purchase, Sears steps back into the catalog business after discontinuing its own century-old namesake book in 1993. The deal combines Lands’ End, the largest specialty catalog and Internet retailer, with Sears, a retailer in the midst of overhauling its clothing unit as part of its repositioning.
Lands’ End has, for some time, considered opening retail stores. “We felt that for the Lands’ End brand to have tremendous growth in the future, we need retail,” Lands’ End CEO David Dyer said yesterday in a conference call.
The Lands’ End brand, well known for its quality and value, brings a much needed boost to Sears’ clothing assortment, referred to recently as “dowdy” by Sears CEO Alan Lacy, according to a news report.
Hoffman Estates, IL-based Sears, the No. 1 seller of home appliances, has been losing customers to discount chains like Wal-Mart Stores Inc., Target and Kohl’s Corp.
Key Lands’ End products will begin to appear in Sears’ stores by this fall. By autumn 2003, 15% to 20% of Sears’ retail floor space will be devoted to the Lands’ End brand, Lacy said. A significant advertising campaign will promote the new merchandising mix.
Dyer will remain in his position and will report to Lacy after the deal closes. Dyer also will assume responsibility for Sears’ existing customer-direct business, which includes sears.com, catalogs and specialty merchandise.
Lands’ End will continue to offer its conservatively styled casual clothes, shoes and home goods through its catalogs and Web site. And while Lands’ End products will be featured at the Sears Web site there are no immediate plans to include Sears’ products in the Lands’ End marketing channels. “If it makes sense, we’ll consider it,” Dyer said.
Lands’ End’s Internet sales last year made up about 25% of its U.S. business, or $327 million, and 21% of its global sales. Many of the firm’s online innovations such as My Virtual Model, the Personal Shopper and custom designed slacks may debut at the Sears.com site if appropriate, Dyer said.
When asked yesterday during a press conference if the Sears name would diminish the premium nature of the Lands’ End brand, Lacy said, “We don’t have that concern at all.” He cited the Sears’ Kenmore and Craftsman brands as being known for quality and value, the same characteristics that Lands’ End brings to the table.
Analysts are not quite so sure.
“The issue is the Lands’ End customers and whether or not they will want their cherished Lands’ End brand to be sold at Sears,” said Wendy Liebmann, president of WSL Strategic Retail in New York. “In the immediate term, it probably won’t be noticeable as Sears management says it will let the catalog business run on its own. However, once Sears puts the Lands’ End brand in its stores, that will be a whole other issue.”
Lands’ End will continue to operate from its headquarters in Dodgeville, WI. No major layoffs are expected. Some jobs may be lost as internal functions of the two firms are combined but others may be created to install the new line in Sears’ stores, Lacy said.
Under terms of the deal, which has been approved by both retailers’ boards, Sears will pay $62 a share for Lands’ End, representing a 21% premium over Friday’s closing price. Sears will assume an unspecified amount of debt.
Many investors and retail experts applauded the surprise marriage. Lands’ End stock surged more than 20% of the news, while Sears’ shares rose slightly despite the deal’s hefty price tag. Lands’ End was valued at about $1.5 billion on Friday.
“It’s a bold, surprising move,” Liebmann said. “It’s good news for Sears because in spite of Land’s End’s struggles over the last few years, it is a good brand name, an upscale brand name, that will offer value to Sears customers.”
Sears had taken a step earlier this year to enhance its apparel line with the announcement that it would launch a private-label line of classic clothing called Covington this fall.
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