SEARS, J.C. PENNEY FACING TOUGH TIMES AFTER TURNAROUNDS.

Byline: Susan Chandler Chicago Tribune 

Turn back the clock a decade, and Sears, Roebuck and Co. and J.C. Penney Co. couldn't have looked more different.

By the late 1980s, Penney had reinvented itself as an apparel specialist with a bevy of good-looking brands at reasonable prices. Shoppers liked what they saw, sales soared, and Wall Street sat up and took notice.

Meanwhile, Sears was stuck with stodgy stores and a reputation for being a place where men bought tools and tires. Then in the early 1990s, former Saks Fifth Avenue executive Arthur Martinez began rejuvenating Sears. Using Penney as a model, he launched ``The Softer Side of Sears,'' using jazzy advertising and better-looking clothes to lure women shoppers into the store.

Backed by a $200 million-a-year advertising budget, the Penney-style magic worked. Sears' sales, profits and stock price rose. Within three years, the nation's second-largest retailer was pronounced an awesome comeback story.

Now, only a few years later, both companies have hit a brick wall.

Penney's sales, which have been rocky for the past four years, took a nose dive in 1998, declining seven months out of 12. In December, the most important selling month of the year, Penney's same-store sales fell 7.6 percent despite deeply discounted merchandise.

The year wasn't as bad for Sears. But after a decent first half, Sears' sales increases began to fade in June. It finished off 1998 with five consecutive months of decreased same-store sales, the industry's performance benchmark.

Both companies' stocks have taken a beating. Sears stock has fallen to about $41 a share, down 37 percent from its 52-week high of $65. Penney stock price has been cut in half. It now trades around $39 a share, far from its yearly high of $78.75.

The poor performances are prompting many retail experts to question whether either chain was ever really turned around. Retail wags also are pondering whether the nation's two largest department store chains even have a future in today's hotly competitive environment.

``Sears and Penney's are having a tough time because they're not particularly relevant,'' said George Whalin, president of Retail Management Consultants in San Marcos, Calif. ``They're not the low-priced leader, and they don't have the best selections of merchandise. Specialty stores do.''

No question, much of Sears' and Penney's problems can be summed up quickly: Wal-Mart Stores Inc., Target Stores and Kohl's Corp.

All three low-priced merchants have energized their apparel offerings, taking market share from Sears and Penney, which are burdened with higher operating costs because of their mall locations.

But American shoppers weren't just looking for bargains last year. With the economy strong and real earnings creeping up, they were willing to pay up for fun, trendy clothes. They found them at chains such as Gap Inc., AnnTaylor Stores Corp. and Abercrombie & Fitch.

San Francisco-based Gap, which also owns Old Navy and Banana Republic, in particular, had a phenomenal year. Sales at stores open at least a year rose an average 16.6 percent every month during 1998.

``Consumers today aren't shoppers; they're buyers,'' said Sid Doolittle, partner with McMillan/Doolittle, a Chicago-based retail consulting firm. ``They're going where they're confident they can get stuff. And they're not going to Sears and Penney's.''

It would be easy to blame the problems encountered by these Middle American department stores on the proliferation of specialty retailers. The thinking goes that big stores with broad appeal can't compete with highly focused shops that do one thing well, the same way that broadcast TV networks are suffering from the explosion of specialized cable channels.

But that analogy breaks down when it comes to the discount segment. Wal-Mart, the nation's largest retailer, continues to thrive even as it broadens its already huge assortment to include groceries and drugs.

Sears Chief Executive Arthur Martinez acknowledges his company's progress stalled in 1998. Women turned up their noses at Sears' apparel offerings in the second half of the year. In the juniors area, there weren't enough hot fashion items such as cargo pants and wide-legged jeans.

``Our apparel business clearly hit a stall point. Much of it I lay at our own feet,'' Martinez said in an interview in his office in January. ``It's time for the second revolution.''

That means editing the fashion assortment, reducing the number of suppliers and items offered. It also means a whole new wave of remodeling, updating stores that were done over as recently as 1993, he said. But this time the focus will be on creating more in-store boutiques to display brands like traditional department stores do and encouraging buyers to make bigger bets on fashion trends.

``We aren't buying with enough conviction,'' Martinez said. The planned debut this summer of an exclusive line of Benetton sportswear at Sears is a big step in the right direction, he believes.

These days, Penney's problems are deeper than Sears', retail experts say. Most of Penney's 1,200 stores are desperately in need of renovation. And its entrenched management has lost touch with Penney's core customer while spending billions of dollars to build a national drugstore-chain business, said Kurt Barnard, president of Barnard's Retail Trend Report in Upper Montclair, N.J.

``It is not a pleasant shopping environment, and management is clueless what to do about it,'' Barnard said.

But 1998 was clearly a wake-up call for the Plano, Texas-based chain. John Cody Jr., Penney's long-time president and chief operating officer, announced his retirement in January.

Marilee J. Cumming was promoted to president of merchandising for stores and catalog, the first woman to ever hold that position at Penney. And the retailer announced it would look outside for new high-level talent, a big change for a company that has prided itself on promoting from within.

Penney's executives declined to be interviewed for this article, saying they were in the process of formulating their strategy.

Despite the depth of their problems, nobody is counting Sears and Penney out. Retailing is a cyclical business, and retail executives note that traditional department stores such as Macy's and Marshall Field's were pronounced dinosaurs in the early 1990s before staging a strong comeback only a few years later.

Now the cycle appears to have turned again: Most department store chains produced only lackluster results in 1999. Critics say the causes of the malaise are obvious. The branded and private-label offerings at rival department stores are too similar, service levels are still below-par, and there's no longer a stigma about shopping at discounters.

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Photo

PHOTO (Color) Rosalba Garcia shops the remodeled women's department of a Sears store. After rejuvenating itself, Sears has seen sales fade.

Bonnie Trafelet/Knight Ridder/Tribune Photo Service