Going Up Against Sears
By: John Rosenthal
April 13, 2009
Sears Holdings Corp.
The retail business
has been under siege for months, but the problems at Sears predate the
In 2002, the Hoffman
Estates-based retail giant reported significant problems collecting payments
from its credit card users, contributing to a stock drop of more than
The share price ultimately
recovered, reaching $191 as recently as April 2007, before dropping again
amid the most recent turmoil to trade at around $45 a share. Michael Markowski,
founder of StockDiagnostics.com, an analysis Web site based in Northampton,
Mass., who forecast the 2002 decline, points to seven consecutive quarters
of declining revenue and eight straight quarters of falling cash flow
as signs of more trouble ahead.
Even more damaging
over the long term may be a declining interest in department stores among
younger shoppers. Otto Papasadero, interim executive director of the Chicago-based
North American Retail Dealers Assn., warns, "They'd rather go to
a place that matches their lifestyle more."
1154 Lill Studio
Fashion items like
custom-designed handbags are among the first things consumers cut back
on during tough times. People with less money in their purses spend less
money on their purses. So when Jennifer Velarde, the 35-year-old founder
of 1154 Lill Studio, saw a recession, she knew she'd have to make changes
1154 Lill Studio | Photo: John R. BoehmMs. Velarde launched three new
styles of Simply Chic bags, each priced under $100.
The company's small size was crucial in getting the bags on the shelves
in just a few months. "We don't have a long lead time for research
and development," says Robin Newberry, Lill's vice-president. "The
people who sew the bags work downstairs in the same building as the administrative
The shifting economy
also has allowed Lill's store managers to devote more personalized attention
to each client. Handwritten notes and personal e-mails to customers were
part of Lill's approach in its early days, says Ms. Newberry, 35, but
fell off as the company expanded.
"It wasn't by
design," she says. "We just got too busy. This economy is allowing
us to go back to basics, to what made our customers attracted to us in
the first place."
Ms. Velarde does not
disclose the company's revenue but says sales have held fairly steady
at Lill's stores in Chicago, Boston, Philadelphia and Kansas City, Mo.
Lill's party business, which runs much like Tupperware parties for handbags,
has declined, however. Michigan and North Carolina, automotive and banking
centers, have seen the steepest drop-offs.
Lill's shopping experience
also may prove an asset. In the showrooms, customers, often in pairs or
small groups, build their custom-made purses by choosing from among dozens
of designs and fabrics. Korey Karnes, editor-in-chief of Chicago-based
CS Magazine and a Lill customer, says that means shoppers get more than
a purse. "You can make it into a fun afternoon or evening for a good
Jon Abt, the third-generation
co-president of the Glenview appliance and electronics store, concedes
that the recession has taken its toll. The slowdown in new housing construction
has devastated demand for appliances and high-end entertainment systems.
But Mr. Abt, 41, is
confident the retailer will outlast the downturn by doing what it has
haven't changed since my grandparents founded the business in the 1930s,"
he says. "It's always been about good prices and old-fashioned service."
Family ownership has
also allowed the company to grow slowly, keeping everything under one
350,000-square-foot roof. So while publicly owned competitors like Circuit
City went bankrupt in part by expanding too quickly, Abt owns its building
and land and has no debt.
Mr. Abt says the company
isn't interested in adding more stores. Abt's only attempt to pursue customers
outside the Chicago area has been through its Web site, which it launched
in 1997. Today, the site is the fastest-growing segment of the business,
says the company, which declines to share revenue figures.
Elly Valas, CEO of
Colorado-based retail consultancy Valas Consulting Group LLC, says only
Amazon.com does a better job at e-tailing than Abt.com.
it has a lot of product specs and benefits available, and it's seamlessly
integrated with their inventory and shipping departments," Ms. Valas
"Having one store
enables us to steer the ship a little quicker than the big guys,"
Mr. Abt says.
At the same time,
Abt has the luxury of thinking long term.
The company has installed
solar panels and windmills on its roof, and sells excess energy back to
Commonwealth Edison Co. from its own generators.
Adapting on the fly
is nothing new for CB2. It's in its DNA.
When the offshoot
of Crate & Barrel opened in 2000, it perceived a market for customers
ages 19 to 24, says Marta Calle, CB2's product director. The stores stocked
backpacks, notebooks and small-ticket items like decorated pens and pencils.
Ms. Calle came aboard
in 2004 and expanded CB2's collection of furniture, lighting and rugs,
which found a profitable market among childless homeowners in their 30s
attracted to modern furnishings. More affordable than Crate & Barrel,
CB2 also has a higher percentage of male customers.
out a nice niche," says Harry Wakefield, editor of Mocoloco.com,
a Canadian blog that tracks contemporary design. "Their signature
says it all: affordable modern."
Marta Calle | Photo:
John R. BoehmThe revised formula spawned a second Chicago store in 2004,
and branches in New York ('07), San Francisco ('08) and Berkeley, Calif.
('09). A Los Angeles location is slated for May.
Management believes entrepreneurship is key to its success in the current
economy. The company, which does not disclose revenue, tracks sales on
a daily basis and can evaluate whether it needs to ramp up or down production
on any product within two weeks of publishing a catalog.
Last September, when
sales fell amid the stock market collapse, the Northbrook company's 15-person
management team brainstormed ways to bolster business. They launched a
food drive in which customers got discounts for making donations. It was
a success, says Ms. Calle, who reports seeing customers carrying full
shopping bags in and out of the store.
The idea came from
one of CB2's financial planners, the kind of person who wouldn't have
been in such a meeting at a larger company.
"It was one of
those ideas where you say, 'Why haven't we thought of that before?' "
says Ms. Calle, 53.
"In a department
store, there are so many ways of doing things handed from the top down.
We want to listen from the bottom up," she says. "We've gotten
some of our best ideas from somebody asking, 'Why do you do it that way?'
Copyright © 2009
Crain Communications, Inc.