It’s not the easiest message to sell, given that its sales have dwindled to $3.1 billion in the past decade, and the department store has been written off by many analysts as one operating long past its expiry date.
But it’s an affirmation Brandon Stranzl, named last year as Sears Canada’s Executive Chairman, wants to promote as the company tries to catch up to far more nimble web retailers, and it’s a change, he notes, that required some fresh blood.
“This was a mature company with a lot of leadership that had been here for a very, very long period of time, and if you look at our senior roles, we have new people in almost all of those roles,” Stranzl said this week from the offices of Initium, the retailer’s new innovation hub.
In a move that echoes Richard Baker’s cleansing of the legacy ranks at Hudson’s Bay Co., 76 per cent of Sears Canada’s executive leadership team has been with the retailer for less than two years, with several of them claiming new roles in recent months. The group includes a new president, new chief operating officer, new head of home and hardlines, new head of merchandise planning, new head of omnichannel, new head of human resources and new head of cosmetics and fragrances.
The turnover extends to the buying team, of which 59 per cent are new, while one-fifth of the company’s store general managers and more than a third of the e-commerce team is new.
The new team was required to effect a cultural shift that is highly focused on speed, Stranzl says; head office also has been reconfigured to remove barriers that typically slow down communication.
“All of the functional people that worked together — merchandising, marketing, global sourcing, private label — they were all on different floors, and they are moving on to one floor,” said Stranzl. “The cubicles are gone, it’s an open concept workspace where they can talk to each other.”
The pace of change has sped up considerably at Sears Canada since last July’s arrival of Stranzl, a 41-year-old executive with ties to Sears Holdings CEO Eddie Lampert, whose investment fund owns 48 per cent of Sears Canada. He was brought in to help run the department store retailer after Ronald Boire, the fourth in a series of short-stint chief executives at Sears Canada, left the top job to run Barnes & Noble.
“The web was theirs to lose…and they never developed it the right way”
It, too, is being led by a team of mostly new recruits who have been worked virtually around the clock at Initium, an open-concept office located amidst a spate of Toronto technology startups, to replace 20 years of legacy technology on 262 different systems in 120 days with an integrated cloud-based system — a process that can take some businesses years.
A new online platform operating as a back end to the company’s Sears.ca website will begin with a beta test in Calgary this summer, and executives are aiming to have it rolled out nationally by October, in time to capitalize on the critical holiday selling period.
The relaunched Sears.ca “will look drastically different,” Stranzl said, adding the company “will make a splash” when it goes live.
The website’s improved back end will show stock at individual store locations and make it easy for the retailer and customers to closely track online purchases from order through to delivery. Funded by ongoing operating costs, the IT transformation will reduce overall technology carrying costs by 75 per cent. Sears made $125 million in cost cuts to the business in 2015 and is targeting a further $100 million to $127 million in reductions this year. The launch of a refreshed Sears department store concept will coincide with the web launch this fall.
The goals are admirable, but many experts believe such an overhaul should have happened at Sears Canada years ago. Doing so might have established its image as a retailer focused on future growth rather than one that has raised cash over the years by selling its prized store leases back to landlords.
It also might have prevented sales from dropping, as they did in the last fiscal year, in the company’s direct business — its legacy catalogue operations and Internet channel, which failed to pick up from when the once-thriving catalogue business slowed down. Its shares are trading at less than half their value a year ago.
“The web was theirs to lose,” said Maureen Atkinson, a retail consultant at J.C. Williams Group in Toronto. “They had all of the logistics infrastructure going for them with the catalogue operation, and they never developed it the right way. Online sales should have been growing at a 10 or 15 per cent annual rate.”
Stranzl sees that distribution system as a potential new business for Sears, however — one in which the company can help online retailers, Amazon-style “marketplace” partners — distribute their goods through Sears’ vast network of 300 trucks, national distribution centres and 1,100 catalogue pick up points across the country.
“If you were a third-party retailer and you wanted to come to Canada we can give you all of the distribution solutions,” Stranzl said, adding the marketplace is a longer-term strategy to leverage the company’s asset base and build up a new business. “If we can become a fulfillment company and a marketplace company, that is a real asset. Very few retailers have the logistics facilities that Sears Canada has.”
Atkinson said Sears is doing the right things. “I love the idea of what they are doing and it is something they have to do to stay in the game. The biggest challenge in my mind is that they seem to attract some of these really talented and capable people with great ideas — it’s just their ability to pull it off that is a challenge.”
“In our view, the objective is for Sears Canada to achieve cash breakeven, or close thereto, creating the appearance that it will be able to continue to operate for many years to come,” said a recent report from Desjardins Securities analyst Keith Howlett, who estimates the company’s residual owned real estate is worth more than $350 million. “This would, in our view, elicit more lease buyout offers from landlords.”