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Sears looks to younger consumers for its comeback

The Sears store entrance at the Toronto Eaton Centre

Deborah Baic/The Globe and Mail

Sarena Campbell is on a mission to draw shoppers to Sears Canada not only for what they need, but also for what they want.

She has her work cut out for her. The department store retailer is perhaps best-known for hard goods, such as its Kenmore appliances and Craftsman tools. Ms. Campbell's job is to attract more people to Sears' softer side, and to position it as a destination not just for hammers and washing machines but skinny jeans and sequined dresses.

So Ms. Campbell, who has been the company's vice-president of apparel for more than two years, is racing to attract younger customers by rolling out new in-store fashion boutiques with trendier lines, while bringing more stylish goods to the children's and tween aisles and giving Sears' cosmetic counters a makeover. All of this is an attempt to turn around a negative trend: the venerable chain has been losing sales.

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"We haven't reached out to [younger]customers" in the past, Ms. Campbell says, clad almost head to toe in her recently re-fashioned Sears' own-label cheap-chic Attitude garments. "That's why you see the market share dropping."

Sears is at a critical juncture. For years, it has been the steady, profitable part of U.S. parent Sears Holdings Corp., outperforming the U.S. Sears stores by a healthy margin. And it remains the No. 1 seller in apparel, appliances and furniture in Canada. But its business over the past couple of years has suffered, with overall sales falling to $5.2-billion in fiscal 2009, down nearly $650-million from two years earlier.

And that is before it faces the "Target effect" - the intensified competition from fashion-savvy Target Corp., which is preparing to enter the Canadian market with hundreds of locations. And other new rivals are rushing to bolster their operations. A flood of foreign merchants are considering expansion here, and Sears Canada is a potential takeover target amid a dearth of attractive retail space. Sears executives are now under pressure to sharpen the company's performance - and quickly - before Target stores open and go after Sears' core middle-class customers.

"Of all Canadian retailers, certainly Sears would be very much exposed to competition from Target," said retail analyst Bill Chisholm at investment firm MacDougall, MacDougall & MacTier. "It's not getting any easier."

Next Wednesday, Sears Canada will release its fourth-quarter results, which are expected to be softer than a year earlier because of heavy discounting to win over customers. In its previous quarter, the retailer's profit tumbled 61 per cent to $18.5-million; sales at outlets open a year or more fell 8.2 per cent.

"Costs have been pared to the bone," Keith Howlett, retail analyst at Desjardins Securities, said in a report late last year. "Sales performance over the next 18 months is critical … Competition appears to be feasting on Sears Canada, category by category."

In the apparel category, where gross profit margins can be twice as high in appliances, Sears Canada has struggled to keep its leadership position. Its market share slipped to 10.2 per cent in 2010, from 12.4 per cent two years earlier, according to researcher Trendex North America.

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Still, the Canadian company has an important advantage over its parent Sears Holdings. In Canada, the retailer has little competition other than The Bay among conventional department store retailers. Sears Canada is a major player in the higher-margin fashion and cosmetics segments, which have a smaller presence at the parent's stores.

Sears Holdings, controlled by hedge fund manager Edward Lampert, already owns more than 90 per cent of the Canadian unit since buying out a key minority shareholder last year; the Canadian division could be taken private soon, Mr. Chisholm said. Mr. Lampert also could unload Sears Canada or its real estate, he added. The real estate is valued at almost $1-billion, while the leases could be even more valuable - worth more than $1.5-billion - industry observers have estimated. Sears pays as little as $1 a square foot for some of its prime downtown locations.

The retailer keeps its costs down in other ways. In 2009, capital spending at Sears Canada dropped to $52-million from $161-million in 2004 before Mr. Lampert took over the parent. But it benefits from its leading e-commerce site and catalogue, and a social media strategy that, for example, entails posting videos that take consumers through new fashion collections, said ad executive Alan Gee at Blammo Worldwide.

"I don't think you should ever count Sears out and say they're old-fashioned or behind the times," he said. "Whether it will accomplish something is a question of commitment on behalf of the board [and]tenacity of the people involved."

Ms. Campbell is taking her strategy from John Lewis, a British department store retailer that has revitalized itself partly by attracting young families with a refreshed offering of private labels and branded fashions for all age groups. "You hear people talking about department stores being a dinosaur business," she said. "[People say]'It's overwhelming - who wants to go there?' But we are a mall. It's a small, more intimate mall."

Her new model puts a spotlight on something called Modern Shop, which already has been set up in 43 of Sears' 122 full-line stores since last fall. It stocks her updated store-brand Attitude fashions for thirty-somethings, to round out Sears' Jessica line for older women, along with Calvin Klein, Guess, Buffalo and other younger lines.

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So far, the shops' sales have jumped in the double digits, she said. By next fall, she'll launch an Attitude line of casual clothing for men. She's also moving to revive fashion for children and tweens, catering to young mothers who want trendier styles for their offspring.

In the cosmetic aisles, Ms. Campbell has introduced hands-on beauty bars and open-shelf displays, rather than tucking the products away behind a counter as has been the custom at department stores. That is an echo of the formats at Shoppers Drug Mart and Paris-based cosmetics powerhouse Sephora, which are stealing away business from Sears. And she has launched brands for the "under-serviced" ethnic customer, such as Milan and Pari for southeast Asians, catering to a wider array of skin shades. A Sears spokesman said it is pleased with the results of the tests, elements of which have been rolled out in as many as 40 stores.

While Sears' capital spending has declined from the beginning of the decade, Ms. Campbell said she's stepping up her marketing budget. In January, Sears became the chief sponsor of the new Marilyn Dennis daytime talk show, giving it a platform to tout everything from leggings to loveseats. In another departure, she started to trumpet Attitude in Toronto Fashion Week shows more than a year ago, going toe-to-toe with upscale lines such as Pink Tartan. And last fall she began promoting her styles in television, radio, print and billboard ads.

"We are changing, so we must tell our story to consumers," Ms. Campbell said.

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About the Author
Retailing Reporter

Marina Strauss covers retailing for The Globe and Mail's Report on Business. She follows a wide range of topics in the sector, from the fallout of foreign retailers invading Canada to how a merchant such as the Swedish Ikea gets its mojo. She has probed the rise and fall (and revival efforts) of Loblaw Cos., Hudson's Bay and others. More

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