• WisBusiness

WisBusiness: Lands' End Faces Declining Morale
8/31/2005

By Brian E. Clark
WisBusiness.com

DODGEVILLE -- It's been a rough three years since Sears paid nearly $2 billion for Lands' End, the Wisconsin clothing and catalog icon with nearly 6,500 employees in the state.

And things have only gotten rougher for the brand and its increasingly nervous employees since Kmart bought Sears for $11 billion six months ago.

"People are looking for other work," said a former executive. "Lands' End was a great employer, but I'm glad I'm not there anymore. Morale is lousy.

"Sears claims Lands' End is not for sale, but it would be great if a upscale company like Marshall Field's or Nieman Marcus bought it," said the former employee, who asked that his name not be used.

Following a year of declining sales in Sears' apparel catalog division, Lands' End fired nearly 400 workers in June. The company cashiered 200 workers when it shut down its Cross Plains call center and terminated another 175 at its Dodgeville headquarters.

Then, in a surprise move three weeks ago that sent shockwaves from Badger State boardrooms to New York City, CEO Mindy Meads abruptly departed Lands' End.

No one knows for certain, but analysts say Meads was probably pushed out of her job by higher-ups at Sears Holdings, the new parent company of Sears and Kmart. They also predict that Lands' End will eventually be sold, though they don't agree on when that will happen, and they split sharply on the value of the company, with one Chicago-based observer saying its value has risen in the past few years, while a New Yorker says it's now worth only half the $2 billion purchase price.

Meads, 53, had been named vice president of the company in 1991. She was promoted to president and CEO in early 2004. Meads also served as executive vice president of Sears Holdings of Hoffman Estates, Ill.

Meads, who also is a member of the board of the Federal Reserve Bank of Chicago, declined to comment on why she left Lands' End and Sears did not return calls for this story.

In 2004, however, Meads was given a $220,000 bonus on top of her $594,000 salary, according to Securities and Exchange Commission filings.

Howard Davidowitz, chairman of Davidowitz & Associates, a national retail consulting and investment-banking firm, said he believes
there will be more bloodletting at Lands' End before it is ultimately
sold.

Davidowitz, a blunt New Yorker with ties to Wisconsin, said he could never understand why Sears bought Lands' End, a move he said took the brand down-market and eroded its value.

"It was never a good marriage," he said. "It was handled poorly from the beginning. I'd say it's been a debacle that is not getting any better.

"Sears thought having Lands' End in its stores would propel them both," he said. "But it's not worked out for either of them."

Davidowitz said he believes Lands' End has lost half of its value since Sears purchased it. That would be nearly a $1 billion loss.

But he said he does not blame Meads, whom he predicted would soon find another executive position in the clothing industry.

"She has a superb reputation, but she took over a mess," he said.

"What, did she suddenly start taking stupid pills? I don't think so. She took over the Titanic, but was not allowed to steer the ship.

"Until she talks, no one will know, but I think the Sears people were calling the shots," he said. "And when a company goes bad, somebody has to take the fall."

Though no one at Sears has asked his advice, Davidowitz said if he were running Lands' End he would pour his resources into the online business.

"It's still a catalog company, but the growth will be on-line. Look at Amazon, it's worth multiples.

"Lands' End still has a good image and has tremendous Internet potential," said Davidowitz, who predicted more layoffs for the Iowa County firm. "I would de-emphasize the Sears and Kmart connection and get the hair off Lands' End.

"Listen, you gotta clean it up," he said. "It will take a year or two to build up Internet sales. The you could sell it for a huge multiple, but certainly not in its current condition because it's got hair all over it."

George Rosenbaum, chairman of the Chicago survey research firm, Leo J. Shapiro & Associates, agreed that Lands' End would ultimately be auctioned off.

But he said a sale could come sooner rather than later because he believes the company is worth more than its nearly $2 billion purchase price.

"If Lands' End can't add value for Sears and Kmart, it will be spun off and sold," he said. "I don't know anyone who would disagree with that.

"And while this is a shocking statement, I think Lands' End is worth more than what Sears' paid for it. As far as I can tell, their catalog business is relatively stable now and they have higher retail visibility than before, even though the brand match may have been wrong."

Rosenbaum said he believes Kmart will try to do with Lands' End clothes what it has done with Martha Stewart's soft goods.

"She has been successful with Kmart's highest price point," he said. "But Sears may not have put much effort into selling Lands' End clothes.

"I assume that was the source of conflict between Lands' End and Sears. Meads and Sears probably had ‘strategic differences' and she did not want to compromise on quality. But who knows?"

Rosenbaum predicted Meads would land on her feet after a hiatus from the clothing industry.

"I think she will emerge from this in good shape," he said. "She could say it wasn't the merchandise that was wrong, just that Sears and Kmart didn't know how to sell it."

Jim McCauley, mayor of Dodgeville (pop. 4,500) said he worries that Lands' End's image will suffer the longer the company stays a part of Kmart.

"The best thing that could happen would be if a benevolent or upscale buyer purchased the company," he said.

"We want Lands' End to do well, obviously," McCauley said. "That company has been a great community supporter and the community supports it as well. I hope things turn out OK for them.

"I always thought Sears buying Lands' End was a stretch, and then Kmart. It's just not the same culture."

Chantal Tode, a senior editor for New York-based DM News, said the Lands' End brand has suffered since its purchase by Sears.

"The company seems to have lost its focus," she said. "Obviously, there have been a lot of distractions. Most people think Lands' End and Sears or Kmart customers are different people because they are.

By contrast, she said Lands' End's major catalog competitors – L.L. Bean and Eddie Bauer, appear to be doing well.

"There is still a lot of mystery at this point what will happen with Lands' End," she said. " It'll be pretty interesting to see how it all
shakes out.

"But the picture certainly got more complicated with the Kmart deal," she said.

"They could give the brand wider distribution in Sears and Kmart stores, but that hasn't worked well with Sears," she said. "It didn't make much retail sense. So who knows?

Like Rosenbaum and Davidowitz, Tode had praise for Meads.

"My sense is that she didn't mesh well with the Kmart people," she said.

"As for a sale, I know some companies that would love to buy Lands' End," she said. "Catalog companies have been hot recently, but I have no idea what price Lands' End would bring."

Another former Lands' End executive, who also requested anonymity, said the first year following Sears' takeover went smoothly, though many employees were uncomfortable with the sale.

But she said they bore no ill will to Gary Comer, who founded and headed the company for more than 40 years.

"He's a great guy, he was in his 70s and his children didn't want to take it over," she said. "People forgave him."

The one-time executive said Sears made few initial changes. "But right after the one-year point, they started to manage a lot more from Hoffman Estates."

She described the transition from that point on as "difficult."

" We had different systems," she said. "It caused friction and frustration."

The former executive said the situation has gotten more contentious since Kmart came onto the scene.

" My friends there tell me everything has gotten much tighter," she said. "All purchases are questioned, even though things are already incredibly lean there.

"Mindy Meads is certainly the highest profile person to leave Lands' End," she said. "But I don't think she'll be the last."

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