Sears Buys Lands' End for 20% Premium

**Joubert**[$] · #1 05-13-2002, 01:13 PM

Sears announced that it iis purchasing Lands' End today for $1.9 billion, a move that promptly drove LE stock to the $60+ a share Sears offers. Rejoice, apparel mavens. Here's how I see the move:

1) Energizes Sears, which badly needs it.
2) Gives LE incredible retail distribution
3) Gets Sears on the web properly
4) Combines two marketing groups who know how to catalog
5) Gets Sears into b2b sales - where LE is huge

I'm not a fan of big takeovers, but this one seems to make sense. Gotta look at the balance sheets and see how Sears is financing the deal. Right now, the word is "unspecified amount of debt". But Sears has to compete somehow and the LE name will at least woo some Target shoppers.

**mjfrombuffalo**[$] · #2 05-13-2002, 01:21 PM

Hmmm... While it might do good for both companies, I have to say that it ruins for me that certain Land's End quirkiness and cachet that I loved about it. Of course I also haven't bought anything from them in years, but I've drooled over the catalogs.

**Joubert**[$] · #3 05-13-2002, 01:29 PM

MJ, geez, you ain't giving them any money for their cachet. They have to do something!

kurt_messick · #4 05-14-2002, 06:00 PM

I too love Land's End stuff, but haven't had the funds to purchase anything for years (about five years, to be exact, since the year I thought about starting seminary). They stopped sending me catalogs about two years ago. Oh well...

murasaki · #5 05-14-2002, 07:45 PM

So will Land's End only accept Discover and Sears charge cards? That's one of the major things that keeps me away from Sears. I have a Discover card, it's a back up, but I like to charge most of my purchases on my mastercard because I get frequent flyer miles and other benefits.

I actually bought a small item at a Sears in the mall yesterday (I don't make it to a mall very often). I paid cash since the item was less than $15 and I just didn't want to hassle with getting a Discover card bill in a month for such a small charge.

I don't buy much from Land's End, but they will definitely lose my business if they stop taking other major credit cards because of the Sears buy out.

--naomi

**mjfrombuffalo**[$] · #6 05-14-2002, 07:49 PM

bad memories of Whinny the Pooh-patterned flannel pajamas and purple Toughskins(R) are what keep ME away from Sears!

magenta321 · #7 05-14-2002, 07:54 PM

Ummm... I have used Master Card at Sears several times. I've also used my Visa.

My Sears card is actually a Master Card.

I've never paid for anything I've bought in a mall with cash or a check, and I've never owned a Discover card. And I never use my Sears card (even if it is a Mastercard) because I think it charges too much in interest. So I know, without a doubt, that any time I've bought there, I've used a Visa or a Mastercard

And I know I used my dad's mastercard there too. I even had to pretend to be married to him, and try not to visably cringe when they said "Thank you, Mrs. Father's-first-name, Father's-last-name. " Groan. But then again, I don't think I'd ever like to be a Mrs. Husband's-first-name, Husband's-last-name. Not unless people were calling him Mr. Margaret Last-name. Grr.

**pluckyduck** · #8 05-14-2002, 07:59 PM

My first reaction was:

"What a disaster!! They are going to ruin Lands End! That's it, it is over." (semi major Lands End shopper spending $500 to $1000 a year there)

I told my girlfriend Jen. Her reaction was:

"What a disaster!! They are going to ruin Lands End! That's it, it is over." (major Lands End shopper spending $1000 plus a year there)

This doesn't bode well for Lands End. I'd sell them short if I did that sort of thing.

Andrea

**Joubert**[$] · #9 05-15-2002, 08:33 AM

The investment analysts covering retail seem to like the deal so far, but I don't like the debt. What I think is particularly appealing is that Sears has said that they want LE to do Sears' web stuff too. They intend on running them as a wholly-owned subsidiary. How many Sears execs parachute into the LE call centers is yet another story.

I don't know about credit cards, but if LE didn't take Discover before, they do now.

brian_igo · #10 05-18-2002, 11:14 AM

Quote:

Originally posted by joubert
Sears announced that it iis purchasing Lands' End today for $1.9 billion, a move that promptly drove LE stock to the $60+ a share Sears offers. Rejoice, apparel mavens. Here's how I see the move:

1) Energizes Sears, which badly needs it.
2) Gives LE incredible retail distribution
3) Gets Sears on the web properly
4) Combines two marketing groups who know how to catalog
5) Gets Sears into b2b sales - where LE is huge

I'm not a fan of big takeovers, but this one seems to make sense. Gotta look at the balance sheets and see how Sears is financing the deal. Right now, the word is "unspecified amount of debt". But Sears has to compete somehow and the LE name will at least woo some Target shoppers.

Sears does not need energizing. They need resurrecting. Buying LE is not going to do the trick.

I don't think this is going to end well for anyone. Can LE maintain their quality when placed in over 1000 retail outlets literally overnight? Will shoppers find the brand as attractive when Banana Republic, Abercrombie, Gap and J. Crew are next door? Will shoppers who patronize Marshall Fields, Macy's or Nordstrom feel different about shopping at Sears because of Land's End? Or will the association with Sears cheapen the brand, as the posts here indicate?

With all respect, Sears does not need a big web presence. The web has had no notable impact for major mass market retailers like Sears, Wal Mart and Target. If Sears knows how to catalog is debatable, their catalog sales dropped like a stone through the sixties and seventies as the company moved into every new suburban mall.

Land's End created the upscale b2b clothing market, but they're not the only game in town anymore. Columbia has made huge advances in the past few years, and Roots is making headway in the profitable winter outerwear category. I don't think the Sears deal will hurt this segment, but I doubt it will help.

And I am pretty sure Sears is already a lot bigger in b2b than LE. Sears has become a major player in industrial maintenance tool and supply sales with their Craftsman lines. If my memory is correct they are second only to Granger, who used to absolutely own the market. This has been one of the few success stories to come out of Sears in the last decade.

What is so frustrating about Sears is what they could be, if they had the stones to admit that they will never buy their way upmarket no matter what they do. Even weak and wounded, Sears is the one retailer who could take on Wal Mart and Target, and win. Their in-mall location would be a massive advantage if they focused on price, variety and customer service instead of chasing yuppies.

Brian

**Joubert**[$] · #11 05-19-2002, 11:57 AM

Those are some good points, Brian. And you're right, of course, about the Sears b2b presence. I was thinking more of apparel, but as I looked at it, they apparently have uniform divisions too.

I think you're final paragraph neatly summarizes the situation. Sears has historically fought against its strength -- good call.

**pluckyduck** · #12 05-19-2002, 12:02 PM

Quote:

Originally posted by joubert
Those are some good points, Brian. And you're right, of course, about the Sears b2b presence. I was thinking more of apparel, but as I looked at it, they apparently have uniform divisions too.

I think you're final paragraph neatly summarizes the situation. Sears has historically fought against its strength -- good call.

Insert evil laugh.

Lands End is a direct competitor of mine in the B to B market. (They would be the Big Guy to my Very Teeny Guy status).

Lands End frustrates all of the promotional products folks, from coast to coast, because their product line, unlike 99% of all of the other wearable offerings is exclusive. Nobody but Lands End can sell it and the Lands End name carries cache' . If a customer wants a Lands End product, a promotional product person is screwed. We can offer an equal product at a better value, but we can't put a Lands End label in it, can we?

Laughing evily one more time

Sears I can beat.

There is much joy in promotional productville tonight.

Andrea

**Joubert**[$] · #13 05-21-2002, 10:33 AM

Understanding the Sears/LE deal took reading Allan Sloan's column in today's Washington Post to figure out why this deal makes sense for Sears.

It probably doesn't in the long run.

But with the new accounting rules that don't require goodwill be amortized, Sears doesn't take a hit on earnings this year unless LE's value has dropped. Yep, the same thing that everyone in every business mag is screaming about actually made this one possible. No huge AOL or JDS Uniphase non-cash write-off, but this is a very real pickup for Sears.

Read Sloan's column. He does an excellent job in going through the numbers and then addresses the service issues that so many here have fought.

And where's Pageclot? It's now an accounting thread!

Joubert
the secret accountant who wasn't but still subscribes to CFO

**pluckyduck** · #14 05-21-2002, 02:41 PM

Link no work.

I probably wouldn't have understood it anyway.

Anrea

**Joubert**[$] · #15 05-21-2002, 02:55 PM

Looks like I trucated the link - or Opera did it for me.

Try this one

certiorari · #16 05-21-2002, 06:09 PM

Quote:

Understanding the Sears/LE deal took reading Allan Sloan's column in today's Washington Post to figure out why this deal makes sense for Sears.

It probably doesn't in the long run.

But with the new accounting rules that don't require goodwill be amortized, Sears doesn't take a hit on earnings this year unless LE's value has dropped. Yep, the same thing that everyone in every business mag is screaming about actually made this one possible. No huge AOL or JDS Uniphase non-cash write-off, but this is a very real pickup for Sears.

Read Sloan's column. He does an excellent job in going through the numbers and then addresses the service issues that so many here have fought.

And where's Pageclot? It's now an accounting thread!

It is true that Sears will not show a decrease in earnings due to goodwill amortization. However, that is not real money anyway. What counts is how much Sears paid, $1.9 billion.
Although Sears will not show a hit to earnings from amortizing goodwill, it does not get off completely. The transaction is accounted for as a purchase, which means Sears will have to show goodwill as an asset in the amount of $1.5 billion. Its tangible book value per share will decline as it is paying a lot more than the value of the physical assets. The goodwill is what Sears thinks the Lands End name is worth. The auditors should force to Sears to write down the goodwill if the merger does not work out well. They will probably do that in a restructuring. I give it a couple of years.

**Joubert**[$] · #17 05-21-2002, 06:33 PM

Couldn't agree more with the risk of a writedown in the future, certiorari, but I did find it interesting that someone finally profited from the new goodwill rules that were knocking down some pretty big companies.

certiorari · #18 05-21-2002, 06:55 PM

Quote:

Couldn't agree more with the risk of a writedown in the future, certiorari, but I did find it interesting that someone finally profited from the new goodwill rules that were knocking down some pretty big companies.

I find it troubling that an accounting rule with no cash flow implications should have prevented mergers, allegedly. It tells me that the managers are focussing on earnings instead of cash flow. I know they do this but it does not make economic sense.

**Joubert**[$] · #19 05-21-2002, 08:24 PM

I learned a long time ago that cash is king. It was a painful lesson when my company couldn't ship or bill for almost an entire quarter due to a software conversion from hell.

But you and I both know that there was a ton of financial engineering going on behind the scenes. One danger I see now is in how Sears goes around leveraging strong brands to bolster its own weakened position.

The one thing I disagreed with Sloan about was the acquisition allowing Sears to get back into the catalog business. Great, take a premium catalog and give it to the guys who wrecked the Sears catalog. Bad move.

brian_igo · #20 05-22-2002, 07:24 AM

One brief note about the decline of the Sears catalog...

Sears didn't really run it into the ground. After World War II, Sears was one of the first retailers to pick up on what the move to the suburbs and the building of the interstate highway system really meant. They were the first major retailer to sign leases at the new suburban malls. At the time that drew some ridicule from competitors who said Sears was building stores where there were no customers.

We know how history decided that. Sears grew and thrived through the sixties and seventies because it had stores where its customers now were, while companies like Woolworth and Murphy faded into history along with the downtowns they inhabited.

But the migration to the suburbs also claimed Sears catalog business as one of its casualties. The mass market retail catalog, which was pioneered by Sears a hundred years earlier, grew to its legendary power only through the patronage of rural customers who depended on travelling salesmen and the general store for all of their purchases.

When the population balance shifted to the cities and suburbs, and when greatly improved roads increased the distance rural people were willing to travel for shopping, the catalog was doomed. So Sears did not ruin the greatest catalog business ever. Had Sears not made the incredibly ballsy decision to undergo massive expansion of its stores in the fifties, it is debatable if the company would even exist today.

The irony of Sears buying LE is that the company that invented the retail catalog business has bought the company that resurrected it. Catalogs were dead when Lands End came along in the late 70's but the company turned that to its strength. Their angle was that their products were so good that they couldn't be sold in a retail store for the direct prices they were offering. LE became the first niche marketer to succeed on a national scale. They paved the way for J. Peterman, the pre-Gap Banana Republic (who had the coolest catalogs ever), Williams Sonoma and more.

Aw hell, this was supposed to be a brief note...

Brian