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Sears betting big on new discount pricing strategy

WTS (What the Sears), a new slogan, is seen displayed at a test store at the Promenade Mall in Vaughan, Ont.

Marina Strauss/The Globe and Mail

A lot is riding on a $49.97 packable, ultra-lightweight down-filled jacket at Sears Canada Inc.

It's one of 100 top items that Brandon Stranzl, executive chairman of Sears since last year, is betting on with what he's touting as low prices to help turn around the struggling retailer.

The pricing strategy – aimed at "wowing" 75 per cent of Canadians – plus new merchandise lines and an "off-price" discounting model that emulates the one at fast-growing retailers such as Winners, is key to Mr. Stranzl's recipe to win back customers. And the strategies are all on display to varying degrees at a remodelled – and 40 per cent smaller – Sears test store in suburban Vaughan, north of Toronto.

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"This is a lab," said Mr. Stranzl, standing close to a sign with the slogan WTS? and See WHAT THE SEARS is going on.

"This whole thing is all about learning, building, testing, learning so we can become better at serving customers."

Mr. Stranzl is aware of the urgency to rebuild Sears fast. The retailer is losing money amid tumbling sales after selling off assets to raise money and closing stores in an increasingly heated retail market.

To underline the need to act nimbly, Mr. Stranzl has handed out to his employees the bestselling book The Lean Startup by Eric Ries. Mr. Stranzl is trying to drive home the goal of acting like a fledgling firm: Trying out new concepts and running with what works and ditching the others.

His 75-per-cent solution entails stepped-up shopper research to determine the prices of products that would spur 75 per cent of Canadian consumers to make a purchase, he said.

He has shaken up the way the company buys its merchandise from its suppliers. Instead of vendors providing a wholesale price, Sears approaches suppliers with a retail price that its research suggests would get 75 per cent of Canadians to purchase the product, he said. "We start with the price."

In signalling a new direction, Sears is purchasing still other inventory from suppliers that are seeking to clear out excess or past-season merchandise at low rates, he said. It borrows from the playbook of "off-price" retailers that are all the rage. They include Winners, which is owned by U.S.-based TJX Cos.; Saks Off 5th, which recently rolled out its first stores in Canada; and Nordstrom Rack, which will soon arrive here.

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Off-price merchandise is priced at up to about 60 per cent off regular prices of prominent lines. Sears' off-price strategy entails stating on products' price tags: a manufacturers' suggested price, the average price of the item at other retailers and Sears' price. For example, a children's Diesel fleece hoodie is $19.97 at Sears but the price tag also says "compare at $42" at other retailers and a manufacturer's suggested price of $60.

But by selling, for instance, T-shirts for $2.99, does Sears risk becoming too much like discounter Wal-Mart Canada Corp.? "This doesn't feel like Wal-Mart," Mr. Stranzl countered, looking around at the renovated, airy-looking Sears store in the Promenade Mall. "The quality of what we offer is at a different level. We're not the lowest price for that commodity in the market. We are the lowest price for the value you get."

In the appliance and mattress departments, Sears is matching rivals' lowest prices, changing prices in its stores daily – a reflection of the significant effect of Internet comparative shopping on traditional retailers.

The revamped store underscores Mr. Stranzl's bid to move quickly to test new merchandise. The store has polished concrete floors, rather than carpets, along with fixtures on wheels, which allow the retailer to shift products and displays easily and frequently, he said.

The smaller store carries an edited offering of merchandise, roughly 40 per cent less than what is stocked at other Sears outlets, a spokesman said. Mr. Stranzl is counting on the strategy to more than double its sales per square foot, which now stand at roughly $200, he said.

"It's an exponential increase we're looking for, not an incremental increase," he said.

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Sears will remodel three more of its 95 department stores this fall, and 48 next year, with plans to do them all over the next few years, he said.

As for the $49.97 Alpinetek down jacket, it is an example of the larger number of high-margin private label products that Sears now carries. Sears's own brands make up most of the 100 top items that Mr. Stranzl is betting on.

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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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