Sears Suffers Setback, Returns To Past Strategy Sluggish Sales, Bankruptcy Scandal Give Retail Giant A Black Eye

Clearly, 1997 was not Sears, Roebuck & Co.’s finest hour.

For four years, Sears had been enjoying all the accolades from a turnaround that arrested its decades-long sickening slide. The stock price rose, it won the admiration of industry leaders, and it was the recipient of the sort of drooling business magazine cover articles that executives tend to hang in office hallways.

But last year, it fell on difficult times. There was the scandal over how it had handled shoppers who had filed for bankruptcy. That episode left Arthur C. Martinez - who had made clean business ethics a cornerstone of his strategy when he became chief executive of Sears merchandise group in 1992 - simmering with rage. In June, the company agreed to repay wronged credit card customers, whom Sears had more or less bullied into paying off old debts that had been erased in their personal bankruptcy filings.

Sears was forced to take a $475 million pretax charge in the second quarter as a result, which included the refunds to customers with interest and penalties.

Separately, sales were sluggish. Customer service ratings started to flatten. Store managers began complaining that they were too burdened by missives from the company’s headquarters here to pay proper attention to the selling floor.

Finally, in October, after warning investors that fourth-quarter profits might be hampered by problems with its unpaid credit card accounts, the company’s stock tumbled almost 10 percent, to $48.06-1/4. (It closed Thursday at $45.62-1/2.)

But the troubles at Sears have little to do with its old ways coming back to haunt it. Rather, in many ways, they are a result of the company’s very efforts at improvement.

In giving power to its rank and file, stripping away many of its old rules and becoming obsessed with staff training, the company has become a more vibrant but also a more distracted organization. And while it is much clearer about what it wants to do, lately it seems to have taken its eye off the ball.

At the same time, the company has now turned its focus to growth, a lower priority when it was more concerned with simply digging itself out. And that growth is not likely to come from its big stores.

To get back on track, Martinez is pushing his management team to focus on the five basic pillars he put in place shortly after he took the helm of the lumbering retail giant, which at the time had shabby stores, horrid customer service ratings and sales and stock prices to match.

In a recent interview at the company’s sprawling campus, Martinez described his updated agenda.

“I want to revisit and intensify the theme of our customer being the center of our universe,” he said as he poured himself a diet soda.

To that end, when Martinez gets together with his top players for their annual meeting in Phoenix next month, he plans to preach basics.

“It will be like going to the spa after 5 years to lose 15 pounds of excess,” he said. “There will be no new initiatives, no new big ideas. I want to recapture the early energy of 1993 and its simplicity.”

A huge component of that early energy was directed at making Sears employees feel better about working for the company.

It was not easy. In random surveys back then, they were asked what they thought their main function was. The reply: “To protect the assets of the company.” Uh, no. (The right answer, obsessively: Serve the customer.) It was also revealed that many employees had no clue about the merchandise they were selling.

As such, a major part of the turn-around depended on educating the staff. Product training was heavily increased. Workshops were held with “learning maps,” to help explain the company’s goals. A mantra was developed: Sears must be a compelling place to shop, work and invest. And headquarters completely rewrote its rules on communicating with its employees nationwide, making an effort to get their views.

Store managers began to get e-mail messages on every blip that occurred at the company, even if it was mundane, even if it did not concern them in the slightest.

Morale improved and sales and customer service ratings went up with it, but, lately, some of the initiatives have gotten out of hand.

With the return-to-basics approach now being implemented, Martinez expects that Wall Street will turn sweet on Sears again. As such, he turns to other travel analogies.

“My 83-year-old godfather sent me a note at Christmas,” he recalled. “It said, ‘The road to success is always under construction.”’