Sears’ New CIO Starts With Lands’ End

Sears’ New CIO Starts With Lands’ End

Joanne Derbort

It’s offering zero-percent financing on everything from appliances to treadmills. It’s trying out a two-word tagline—”Where else?”—which tries to build on its long relationship with American consumers. It’s absorbing one of the nation’s most fabled direct-marketing operations, Lands’ End, and taking the wraps off store makeovers just in time for the critical Christmas shopping season. And, as that holiday season dawned, Sears said it has named a new chief information officer to replace the one that left after the Lands’ End acquisition was announced in May.

New CIO Garry Kelly arrives at a critical juncture. Investors, rivals and employees are all looking for a sign that the one-time top dog in U.S. retailing is turning itself around in the fiscal year that ends Dec. 31. Last year, the company’s net income fell to $735 million on revenue of $41.1 billion. That’s essentially half the profit it recorded two years earlier, on the same amount of sales. And profits in its September quarter still were behind the pace of last year.

Kelly was brought in to replace acting CIO Don Zimmerman, who was moved into place last May after former CIO Jerry Miller’s sudden departure just days after the Lands’ End venture was announced. Kelly, whose résumé includes stints at Payless ShoeSource and Wilson Sporting Goods, will have to help solidify the operations of Sears’ credit-card division, where a growing mound of unpaid debt led to the abrupt departure of the executive who ran it. And, he faces one of the largest challenges of all in its technology operations, specifically pertaining to the Lands’ End acquisition—how much to integrate, how fast and in what direction. How will the technologically fleet-footed Lands’ End live with the larger, older, slower-paced Sears?

Lands’ End Is Twice As Profitable

After all, Lands’ End in its fiscal year ended January 2002 recorded net profit of $66.9 million on sales of $1.6 billion. That’s a margin of 4.3%—about double Sears’ current profitability. So Sears is moving cautiously in order not to disrupt the famous Wisconsin catalog and Web-sales operation, one of the last and most successful direct-only apparel companies.

First moves include the decision that Lands’ End’s goods would be stocked in 180 of Sears’ 800-plus retail stores by Dec. 1 (delayed from an original target date earlier in the fall) and the arrival of a button on the Sears.com homepage linking shoppers to the Lands’ End site. Neither technology is very complicated.

“We’ve made no significant technological changes,” says Sears spokeswoman Peggy Palter, of the early December move to retail stores. “We’re treating Lands’ End like any other vendor. The merchandise comes to our distribution centers from Lands’ End suppliers, then it gets sorted and sent out to our stores.”

Down the road, though, the decisions for Sears will be complicated and the projects potentially massive. Although neither Kelly nor the company is willing to talk about what lies ahead, it’s clear Kelly has a consolidation chore of the first rank on his hands.

“The pros of this kind of deal are diversification, the ability to build revenue and operations,” says Bernard Goor, vice president of retail product marketing at business-software producer i2 Technologies, which has worked with Sears for years. “But the cons come with the merging of two cultures and the integration” of its information systems.

First, experts say, Sears must sort out its priorities. It’s not clear whether or how much Sears and Lands’ End will want to integrate their computer operations. They are markedly different—and serve different needs and customer bases. Yet critical to the success of the merger will be creating opportunities to “multi-channel,” to encourage customers to buy everything from shirts to saws at Web sites, retail stores and catalogs.

“The more they (customers) shop across channels, the more loyal they are, and the more profitable Sears and Lands’ End will be,” says Rick Schultz, vice president of industry marketing for the data warehousing technology firm Teradata. “You can create synergies in underlying business operations without necessarily having to share operational systems.”

Then, Sears and Lands’ End must decide what parts of their technology operations can yield the most benefit through integration. On Kelly’s plate: internal architecture and general reporting systems, data sharing and warehousing, customer relationship management (CRM), supply-chain management, demand management and return on investment systems. What follows is a closer look at three of those areas…

Three Key Focus Areas

CRM

Lands’ End is best of breed when it comes to customer service. Its return policies and procedures are simple. It typically answers e-mails within four hours. Its call centers function smoothly. And its work force is loyal, passionate and well trained.

“The trick will be to take advantage of Sears’ size without losing the culture and nimbleness that got Lands’ End where it is in the first place,” says Erin Kinikin, a vice president at technology advisory firm Giga Information Group.

Supply Chain

Some integration in sharing suppliers and distribution networks must take place in order to be cost-efficient, says Karen Peterson, a vice president and research director at Gartner. Yet the two have very different supply chains in both acquisition and distribution. Lands’ End handles customer parcels, delivered by Federal Express, UPS and others. Sears is far more retail-oriented, with hundreds of locations where returns can be handled.

If the pair decides integration is the way to go, Sears will need to merge distribution centers, reduce staffing levels, and pay attention to its reverse logistics process—its system of handling product returns, says Peterson.

Data Integration

Data could be integrated without merging systems. Sears, according to Teradata’s Schultz, already has signed on for data warehouses that combine customer information with sales and inventory reporting, and recognizes that the new retail landscape demands integration of databases that once allowed only for separate drill-downs. Customers’ decisions can be linked now to suppliers’ data to plan better for demand.

“The new trend is toward enterprise data warehouses,” Shultz says. “Retailers learned from the failed dot-coms, where online business was kept separate from brick-and-mortar business. They didn’t think in terms of their customers.”

Garry Kelly

Chief Information Officer

Sears, Roebuck and Co.

Experience(most to least recent)

Payless ShoeSource: Sixteen years; ended up as vice president, logistics, information systems and technology

Wilson Sporting Goods: Company Directed information services

Arthur Young & Company: Led management consulting practice in Chicago office

Education

University of Illinois, Bachelor’s degree in economics

Questions He Faces

Service Levels: Lands’ End answers e-mail within hours. Will Sears do as well?

Cross-selling: Will it proliferate under Kelly or remain as limited as it is now?

Inventory management: Will Sears run out of Lands’ End apparel? Also, too many clearance sales on Sears’ Web site may signal trouble

What You Should Do if You’re Integrating Retail Systems

Establish an architecture.

Make sure you come up with a good way to link up applications with the data from your reporting systems, without having to blend or migrate entire systems. Use middleware; don’t rip and replace

Integrate data.

Integrate information from sales, inventory, customers and stores so you have a big picture that’s easy to see. That way you’ll be able to track the flow of goods and not duplicate any efforts

Focus on customers.

Look at all your applications, but start with those that affect customers. Example: If I buy at Lands’ End, can I use my Sears credit card?

Look at vendor applications.

Then work on how to deal with suppliers. Example: Decide how to handle private-label programs and different prices for the same goods, when working with one set of factories.

Look at internal applications.

Finally, look at the systems that run your business. These are the systems in between you and the customer and you and the supplier that must efficiently track inventory, receipts and results.

Copyright © 2004 Ziff Davis Media Inc. All Rights Reserved. Originally appearing in Baseline.