Sears lands Lands’ End

Associated Press

CHICAGO – Sears, Roebuck and Co. is taking a page from its roots as a catalog company to try to put some zip into long-stagnant clothing sales by buying Lands’ End for $1.9 billion.

Lands’ End’s upscale casual apparel will hang on the racks of a company known best for power tools and car batteries, under the surprise deal announced Monday.

Investors and retail experts applauded the surprise marriage of the retail giant and catalog specialist. Lands’ End stock surged more than 20 percent, while Sears’ shares rose slightly despite the deal’s hefty price tag.

“I think both of them will benefit,” said analyst John Champion of the retail consulting firm Kurt Salmon Associates. “It gives Sears a strong brand in apparel, which has been a challenge for them, and it gives Lands’ End a chance to get retail-store presence.”

Sears, the No. 1 seller in home appliances, has been losing ground to Wal-Mart, Target and others for years thanks largely to weakness in its apparel business. Even chairman and chief executive Alan Lacy recently called Sears’ clothing “dowdy” and said he considered abandoning it altogether when he took over the company less than two years ago.

But after announcing plans this spring to launch a new Sears clothing line under the Covington name, Lacy decided buying a top independent brand made even more sense in its quest to reach more customers. Lands’ End is the nation’s largest specialty apparel catalog company and the biggest Internet seller of clothing in the United States, ahead of L.L. Bean in both categories.

In the deal expected to be completed in June, Lands’ End will become a wholly owned subsidiary of Hoffman Estates, Ill.-based Sears while continuing to be headquartered in Dodgeville, Wis. Lands’ End items are to debut in Sears stores by fall and account for 15 percent to 20 percent of its apparel space by the fall of 2003.

“We’re buying a great company … and we’re acquiring a great brand,” Lacy said.

The deal is costly, he acknowledged to analysts, but it’s “the next step in our journey to revitalize our business.”

The move comes with Sears in the midst of an overhaul of its 870 full-line stores. The company, which discontinued its own famous century-old catalog in 1993, is trying to be less like a department store and more like a discounter, adding more self-service, increasing the emphasis on home appliances and scrapping some clothing brands.

Lands’ End, which racked up $1.6 billion in revenue last year, will continue to offer its complete product line through catalogs and online. David Dyer, its CEO and president, will remain in charge of the business and will assume responsibility for Sears’ online and specialty catalog businesses.

Will Sears home appliances be added to the Lands’ End catalog? There are no such plans, executives said, without ruling out the possibility.

Under terms of the deal, Sears will make a tender offer for all shares of Lands’ End stock for $62 a share in cash. That is a 21.5 percent premium over Lands’ End’s closing price of $51.02 a share on Friday in trading on the New York Stock Exchange.

Retail analyst Bernard Sosnick of Fahnestock and Co. called Sears’ acquisition a “brilliant strategic move.”

“It’s a bold step by Sears,” said Dan Gardenswartz, principal with The Sage Group, a Los Angeles investment banking firm specializing in consumer products acquisitions. “They needed to either take a stand in the (apparel) industry or they needed to withdraw.”