Sears canada Competitive Analysis

Prepared By:Chetan Channa

Date: 02/18/2011

Sears

Contents1. Sears History................................................................................................................................ 1

2. Sears Business Description.......................................................................................................... 3

3. Industry Analysis.......................................................................................................................... 4

4. Sears Business Analysis................................................................................................................ 6

4.1 SWOT Analysis..................................................................................................................... 6

4.2 Financial Ratio Analysis........................................................................................................ 7

Current Ratio.................................................................................................................................. 7

Quick Ratio..................................................................................................................................... 8

Inventory Turnover........................................................................................................................ 8

Debt Ratio...................................................................................................................................... 9

Gross Profit Margin........................................................................................................................ 9

Operating Ratio............................................................................................................................ 10

Revenue per square feet.............................................................................................................. 11

5. Strategic Suggestions................................................................................................................. 11

6. Overall Analysis.......................................................................................................................... 13

7. Exhibit 1: Financial Information................................................................................................. 14

8. Exhibit 2: Financial Ratio Calculation.........................................................................................15

9. References................................................................................................................................. 17

Page | 2

Sears

1. Sears History

Sears Canada is a full-line retailer of general merchandise and home-related services in Canada. At the

end of January 2010, the company operated 122 Full-line department stores, 280 Specialty stores

(including 48 Sears Home stores, 186 Dealer stores operated under independent local ownership, four

Appliances and Mattresses stores, 30 Corbeil stores and 12 Outlet stores), 22 Floor Covering Centres,

1,853 catalogue merchandise pick-up locations and 108 travel offices.

Sears Canada's history dates back to 1952, when Simpsons-Sears, a Canadian catalogue order and retail

company, was incorporated as a result of an agreement between Simpsons of Toronto and Sears,

Roebuck and Co of Chicago. Subsequently, in 1971, the company modified its logo to display simply the

name 'Sears' in order to prevent customer confusion between Simpsons and Simpsons-Sears. Hudson's

Bay acquired Simpsons in 1978 and Roebuck & Co acquired the 17 million shares of Simpsons-Sears

owned by the Hudson's Bay in 1983. This gave it majority ownership and 75% of the voting shares of the

company. By acquiring the leases to seven Bay and Simpsons stores in 1991, the company entered the

urban department store market. Sears Canada introduced its dealer stores which provided appliance

and electronics goods through independent, locally owned outlets, in 1994. In the following year, the

company opened its first Sears Whole Home Furniture Store location. The company acquired T Eaton

(Eaton's) in 1999. In 2002, Sears Canada launched its new online travel service and during 2003, Sears

entered banking services by forming Sears Canada Bank in the same year. Sears Canada acquired the

Cantrex Group, a buying group representing independent merchants of furniture, appliances,

electronics, photography equipment and floor coverings, in 2005. The company sold its credit and

financial services operations to JP Morgan Chase Bank, a subsidiary of JP Morgan Chase & Co, in 2005. In

2007, Sears Canada announced a major new charity initiative and alliance with Coast to Coast against

Cancer Foundation that helped raise awareness and funds for childhood cancer. In 2008, the company

purchased the assets of Excell Duct Cleaning, a privately-held Ontario-based company which managed a

network of air duct cleaning licensees for Sears in 24 regions. In March 2009, Sears Canada launched a

promotional 'Sears Certified Real Estate Services' where the customers are given gift certificates when

they buy or sell a house in the Greater Toronto Area. In the same year, it also launched a new residential

paint service further adding to its home improvement. Sears Canada unveiled a new beauty destination,

Oasis, in November 2009. Oasis offers a one-stop 'head-to-toe' shopping destination featuring an

assortment of beauty brands and personal care tools. Sears Canada announced its new "Live Green"

Page | 1

Sears

program, aimed at identifying eco-friendly products and services for customers seeking greener choices,

in March 2010.

Page | 2

Sears

2. Sears Business Description

Sears Canada Inc. and its subsidiaries (Sears) is a Canada-based company. The Company operates in two

business segments: merchandising operations and real estate joint venture operations. The

merchandising operations includes the sale of goods and services through the Company’s Retail channel,

which includes its Full-line, Sears Home, Dealer, Outlet, Appliances and Mattresses, Cantrex Group Inc.

(Cantrex) and its wholly owned subsidiary, Corbeil Electrique Inc. (Corbeil), and its Direct

(catalogue/Internet) channel. It also includes service revenues related to the Company’s product repair,

home improvement, Cantrex, travel and logistics services, and performance payments received from

JPMorgan Chase Bank, N.A. (Toronto Branch) (JPMorgan Chase) under the Company’s long-term credit

card marketing and servicing alliance with JPMorgan Chase. The real estate joint venture operations

segment includes income from the Company’s joint venture interests in 11 shopping centers across

Canada.

Page | 3

Sears

Merchandising

Retail Travel Home Services Direct

Online Catalog

Real Estate

Joint Ventures

JV interests in 11 shopping

centres

Sears

3. Industry Analysis

1. Threat of New Entrants - One trend that started over a decade ago has been a decreasing number

of independent retailers. While the barriers to start up a store are not impossible to overcome, the

ability to establish favorable supply contracts, leases and be competitive is becoming virtually

impossible. Their vertical structure and centralized buying gives chain stores a competitive advantage

over independent retailers.

2. Power of Suppliers - Historically, retailers have tried to exploit relationships with suppliers. A

great example was in the 1970s, when Sears sought to dominate the household appliance market. Sears

set very high standards for quality; suppliers that didn't meet these standards were dropped from the

Sears line. You could also liken this to the strict control that Wal-Mart places on its suppliers. A contract

with a large retailer such as Wal-Mart can make or break a small supplier. In the retail industry, suppliers

tend to have very little power.

3. Power of Buyers - Individually, customers have very little bargaining power with retail stores. It is

very difficult to bargain with the clerk at Safeway for a better price on grapes. But as a whole, if

customers demand high-quality products at bargain prices, it helps keep retailers honest.

Page | 4

Retail

Full-Line Department Stores Sears Home Stores Appliances &

Matresses StoresIndependent

Dealers

Sears

4. Availability of Substitutes - The tendency in retail is not to specialize in one good or service, but

to deal in a wide range of products and services. This means that what one store offers you will likely

find at another store. Retailers offering products that are unique have a distinct or absolute advantage

over their competitors.

5. Competitive Rivalry - Retailers always face stiff competition. The slow market growth for the

retail market means that firms must fight each other for market share. More recently, they have tried to

reduce the cutthroat pricing competition by offering frequent flier points, memberships and other

special services to try and gain the customer's loyalty.

Page | 5

Sears

4. Sears Business Analysis

4.1 SWOT Analysis

Sears Canada (the company) is a multi-channel retailer based in Canada. The company, through several

store formats, offers general merchandise and home-related services. Sears Canada has been

increasingly focusing on improving its private and exclusive brands portfolio to enhance the exclusivity.

As private labels provide higher operating margins than national brands, increased penetration of these

private labels will improve the margins of the company. Additionally, they offer a competitive advantage

and will enable the company to develop a niche customer base. However, rising labour costs could

negatively impact the profitability of Sears Canada.

Strengths

Increasing focus on private and exclusive brands portfolio driving margin growth

Multiple formats coupled with multiple channels catering to varied preferences of large customer base

Specialty services helping differentiate from competitors

Weaknesses

Declining market share in Canadian retail spending

Declining sales from direct channel

Opportunities

Growth in demand and GDP in Canada

Expanding product portfolio

Increasing online retail spending likely to environment offer opportunities for growth

Ageing Population

Cultural/Ethnic mix and population especially in Toronto & Vancouver

Threats

Labor shortage and increasing wages

Intense competition in difficult retail

Economic Recovery in US and exchange rate of CAD vs US$

Weak Housing Market

Page | 6

Sears

4.2 Financial Ratio Analysis

The following section contains the analysis of certain financial ratios to spot important trends and to

compare Sears’s performance from 2005 to 2009 with Canadian Tire and Home Depot. To spot the

trend, ratios are calculated for each quarter and special attention is paid to notice any unfavourable

trends that may be starting.

Current Ratio

2009 2008 2007 2006 20050

0.5

1

1.5

2

2.5

Sears

Canadian Tire

Home Depot

This ratio foretells if the business have enough current assets to meet the payment schedule of its

current debts with a margin of safety for possible losses in current assets, such as inventory shrinkage or

collectable accounts. This ratio shows an unfavourable trend for last year w.r.t to its competitors. Sear’s

liabilities increase as some LT debts matured. While the ratio is still in safe zone but management should

keep eye on this especially as the management is trying to reduce the inventory levels which could

further affect this ratio.

Page | 7

Sears

Quick Ratio

2009 2008 2007 2006 20050

0.20.40.60.8

11.21.41.61.8

2

Sears

Canadian Tire

Home Depot

The Quick Ratio is sometimes called the "acid-test" ratio and is one of the best measures of liquidity. The

Quick Ratio is a much more exacting measure than the Current Ratio. By excluding inventories, it

concentrates on the really liquid assets, with value that is fairly certain. It helps answer the question: "If

all sales revenues should disappear, could my business meet its current obligations with the readily

convertible `quick' funds on hand?". This ratio shows a favorable trend but competitors have fared

better in this regard. Also looking Quick and Current ratio together, it looks that management should

continue focusing on reducing inventory levels.

Inventory Turnover

2009 2008 2007 2006 20050

2

4

6

8

10

12

Sears

Canadian Tire

Home Depot

This ratio reveals how well inventory is being managed. It is important because the more times

inventory can be turned in a given operating cycle, the greater the profit. Higher the ratio better it is.

Page | 8

Sears

Looking at the drop in sales, this ratio looks fin but competitors have fared better in this regard. It should

be kept in mind that inventories shouldn’t be reduced to a level that it starts affecting sales.

Debt Ratio

2009 2008 2007 2006 20050

0.05

0.1

0.15

0.2

0.25

0.3

0.35

Sears

Canadian Tire

Home Depot

A ratio that indicates what proportion of debt a company has relative to its assets. The measure gives an

idea to the leverage of the company along with the potential risks the company faces in terms of its

debt-load. This ratio shows a very favourable trend and Sears should keep focussing on improving these.

Lower leverage means more potential to get LT loans to go for acquisitions and improvement in supply

chain, which might be necessary to reduce costs.

Gross Profit Margin

2009 2008 2007 2006 20050

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

Sears

Canadian Tire

Home Depot

Page | 9

Sears

A financial metric used to assess a firm's financial health by revealing the proportion of money left over

from revenues after accounting for the cost of goods sold. Gross profit margin serves as the source for

paying additional expenses and future savings. It is a measure of firm’s productivity. This shows a

favourable trend but it lies below both of it’s competitors. Management should further focus on process

improvement, investing further in improving efficiency of it’s operations.

Operating Ratio

2009 2008 2007 2006 20050.78

0.80.820.840.860.88

0.90.920.940.960.98

Sears

Canadian Tire

Home Depot

This ratio shows the efficiency of a company's management by comparing operating expense to net

sales. The smaller the ratio, the greater the organization's ability to generate profit if revenues

decreases. However, it doesn't take debt repayment or expansion into account. This ratio shows an

unfavourable trend over the last 2 years which might be due to decrease in sales due to recession. One

probable area to improve is the marketing expense. Also it is worthwhile to note that, competitors are

faring better in this regard.

Page | 10

Sears

Revenue per square feet

2009 2008 2007 2006 2005240250260270280290300310

Sears

Sears

This ratio is showing a very unfavourable trend. While this is mainly due to decrease in sales but

management should a keep a watch on non-productive stores and if possible try to lease them or sell

them totally.

5. Strategic Suggestions

1. Focus on Tweens - Tweens are classified as 9-12 years old that account for around 260Billion in

US$ spending. With such tremendous buying power held by this group, Sears should start marketing to

this segment. This could be done by having a special area focusing on this generation, decorated to their

taste and carrying latest trends in clothing and styles.

2. Focus on Ageing population – As population ages in Canada, Sears should set up sections for this

population according to their taste and requirements. Also the Sears loyal customer base is the age

group between late 30s and late 40s so to retain them won’t require a huge marketing investment.

3. Generation- Y – The leading age group of this population has graduated from college while

youngest are exploring pop culture and media. This group has an average of $100 per week as a

disposable income and they are generally affected by peers and internet. Also this group is now starting

their jobs, moving into new houses or getting married. To attract this population, Sears should spend

marketing dollars to advertise to this segment. It could have deals for say newly married couples that if

they do this much of a shopping then they could win a vacation to some place. For the younger, Sears

should start promoting and keeping brands endorsed by celebrities and youth icons. Sears could call in

celebrities in the store to attract crowd and youth in to the stores.

Page | 11

Sears

4. Focus on Cultural Mix/Ethnic Marketing in Toronto and Vancouver – 70% of the population in

Toronto is made up of immigrants. Immigrants tend to hold on to their traditions and culture for at least

2-3 generations. Sears could attract this market by introducing section having traditional clothes and

merchandise. On one hand, these items generally have higher margins while on the other hand such

items would help in building up the loyalty in a new segment for Sears.

5. Improve the Website and Social Media Presence – While Sears website is easily one of the best

e- commerce websites there are some things which can be done to improve it further.

a. Use social media sign-up instead of new registrations. Last year, a survey done by LEEDS

suggested that over 70% of the online shoppers don’t like registering and even if they do the

information is not correct. Social media sign-up would decrease the back-end database costs and

increase the incidence rate on website.

b. Add “Users who bought this also bought this” section. When the users select an item, Sears

website should show items related to the item being searched. This technique would help in increasing

wallet share from existing online users.

c. Improve Social Marketing capabilities and use social media not just as a tool for marketing but to

listen to customers. There are only 5000 ‘Likes’ in Sears Canada and it is miniscule as compared to

113,000 for Canadian tire and 227,000 for Home Depot. Also the feedback received on the Facebook

page should be looked into.

d. Add ‘Like’ Button on website. Adding Like button on website is an important step towards Social

Media Marketing. For e.g. if a customer goes and ‘likes’ a new watch or a gym machine, it would be

posted on his Facebook page from where ‘friends’ with similar mentality would be interested in buying

these items too.

6. Invest in BI, CRM and Analytical tools – Sears should invest in latest technologies especially in the

areas of BI and CRM. These tools would help management in making more informative decisions and

CRM tools at POS would greatly enhance customer satisfaction. Also with NFC technology and mobile

payment being on verge of commercialization, it would make a lot of sense to study the cost involved

using these technologies.

Page | 12

Sears

6. Overall Analysis

Overall, no alarming trend are seen but it is worthwhile to note that in above comparisons competitors

have fared equally well or better as compared to Sears. Also Management should focus on reducing

costs and expenses as this is one area in which Sears lag behind unequivocally. Management should try

benchmarking it current processes and operations with the industry leaders and find out areas to

improve. This could also mean to vertically integrate by acquisitions. Also Sears should invest in

technology and make itself more social media friendly. On the revenues side, as the Consumer

Confidence grows revenue would start increasing but Sears should constantly update it’s product

selection to entice the customers.

Page | 13

Sears

7. Exhibit 1: Financial Information

Sears 2009 2008 2007 2006 2005

Current Assets2491.

4 2244.8 1997 1915.2 1884.1Current Liabilities 1376 1096 1220 1542 1665.3

Revenues5200.

6 5733.2 6326.4 5933 6273.6Inventory 852.3 968.3 855.4 805 788.2

Cost of Goods Sold4712.

3 5213.1 5783.8 5468 5814.6Total Debt 350.7 364.6 372 543 749.3Total Assets 3404 3237 3003.1 3060 3198.6Net Income 234.7 290.7 308.5 153 770.8Operating Expense 4853 5311 5865 5693 5316.6Sq Foot 19.8 19.8 20.9 21.1 21* In Million CAD

Canadian Tire 2009 2008 2007 2006 2005

Current Assets5004.

6 5196.2 3979 3138.2 2541

Current Liabilities2212.

1 2647.8 1999.7 2113.7 1663.6

Revenues8980.

8 8686.5 9121.3 8606.1 8269.1Inventory 901.5 903.6 917.5 778.7 667.3

Cost of Goods Sold8000.

2 7788.1 8200.5 7694.5 7451.7Total Debt 1220 1494.2 1338.3 1603.6 1171.4

Total Assets8764.

1 8872.5 7783.8 6764.8 5804Net Income 453.6 335 375.4 411.7 354.6Operating Expense 8383 8207 8578 7994 7246* In Million CAD

Home Depot 2009 2008 2007 2006 2005Current Assets 13900 13362 15674 18000 15269Current Liabilities 10363 11153 12706 12931 12706Revenues 66176 71288 77349 79022 81511Inventory 10188 10673 11731 12822 11401Cost of Goods Sold 43764 47298 51352 52476 54191Total Debt 9682 11434 13430 11661 11643Total Assets 40877 41164 44324 52263 44405

Page | 14

Sears

Net Income 2661 2260 4395 5761 5838Operating Expense 61373 66929 70107 70156 72148

Page | 15

Sears

8. Exhibit 2: Financial Ratio Calculation

Current Ratio 2009 2008 2007 2006 2005Sears 1.81061 2.048175 1.636885 1.242023 1.131388Canadian Tire 2.262375 1.962459 1.989798 1.484695 1.52741Home Depot 1.34131 1.198063 1.23359 1.392004 1.201716

Quick Ratio 2009 2008 2007 2006 2005Sears 1.191206 1.16469 0.935738 0.719974 0.65808Canadian Tire 1.854844 1.621195 1.53098 1.116289 1.126292Home Depot 0.358197 0.241101 0.310326 0.400433 0.304423

Inventory Turnover 2009 2008 2007 2006 2005

Sears 5.528922 5.383765 6.761515 6.792547 7.377062Canadian Tire 8.874321 8.618969 8.937875 9.881212 11.16694Home Depot 4.295642 4.431556 4.377461 4.092653 4.75318

Debt Ratio 2009 2008 2007 2006 2005Sears 0.103026 0.112635 0.123872 0.177451 0.234259Canadian Tire 0.139204 0.168408 0.171934 0.237051 0.201826Home Depot 0.236857 0.277767 0.302996 0.223122 0.2622

Gross Profit Margin 2009 2008 2007 2006 2005


Return On Assets 2009 2008 2007 2006 2005


Operating Ratio 2009 2008 2007 2006 2005

Page | 16

Sears


Same Store Sales 2009 2008 2007 2006 2005

Sears 262.6566 289.5556 302.6986 281.1848 298.7429

Page | 17

Sears

9. References

1. Sears Annual Report 2005,2006,2007,2008,2009,2010

2. Home Depot Annual Report 2005,2006,2007,2008,2009,2010

3. Canadian Tire Annual Report 2005,2006,2007,2008,2009,2010

4. Google Finance

5. Investopedia.com

6. Datamonitor Company Analysis

7. Wikipedia.com

Page | 18

Sears canada Competitive Analysis

News & Politics