1. Prepared By:
Chetan Channa
Date: 02/18/2011

2. Sears
Contents
1. 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
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3. 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
urbandepartment store market. Sears Canada introduced its dealer stores which provided appliance
andelectronics goods through independent, locally owned outlets, in 1994. In the following year,
thecompany opened its first Sears Whole Home Furniture Store location.The company acquired T Eaton
(Eaton's) in 1999. In 2002, Sears Canadalaunched 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 merchantsof 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 subsidiaryof JP Morgan Chase & Co, in 2005. In 2007, Sears
Canada announced a major new charityinitiative and alliance with Coast to Coast against Cancer
Foundation that helped raise awarenessand funds for childhood cancer.In 2008, the company purchased
the assets of Excell Duct Cleaning, a privately-held Ontario-basedcompany 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' wherethe 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 homeimprovement. 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
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4. Sears
beauty brands and personal care tools.Sears Canada announced its new "Live Green" program, aimed at
identifying eco-friendly productsand services for customers seeking greener choices, in March 2010.
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5. 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.
Sears
Real Estate
Merchandising
Joint Ventures
JV interests in
Retail Travel Home Services Direct 11 shopping
centres
Online Catalog
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6. Sears
Retail
Full-Line Appliances & Independent
Sears Home Stores
Department Stores Matresses Stores Dealers
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.
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7. 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.
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8. 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 theexclusivity.
As private labels provide higher operating margins than national brands, increasedpenetration of these
private labels will improve the margins of the company. Additionally, they offera 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 Weaknesses
Increasing focus on private and Declining market share in Canadian
exclusivebrands portfolio driving retail spending
margin growth
Declining sales from direct channel
Multiple formats coupled with multiple
channels catering to varied
preferences oflarge customer base
Specialty services helping differentiate
fromcompetitors
Opportunities Threats
Growth in demand and GDP in Canada Labor shortage and increasing wages
Expanding product portfolio Intense competition in difficult retail
Increasing online retail spending likely Economic Recovery in US and
to environment offer opportunities for exchange rate of CAD vs US$
growth
Weak Housing Market
Ageing Population
Cultural/Ethnic mix and population
especially in Toronto & Vancouver
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9. 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
2.5
2
1.5
Sears
1 Canadian Tire
Home Depot
0.5
0
2009 2008 2007 2006 2005
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.
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10. Sears
Quick Ratio
2
1.5
Sears
1
Canadian Tire
0.5 Home Depot
0
2009 2008 2007 2006 2005
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
12
10
8
Sears
6
Canadian Tire
4
Home Depot
2
0
2009 2008 2007 2006 2005
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.
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11. 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
0.35
0.3
0.25
0.2 Sears
0.15 Canadian Tire
0.1 Home Depot
0.05
0
2009 2008 2007 2006 2005
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
0.4
0.35
0.3
0.25
Sears
0.2
0.15 Canadian Tire
0.1 Home Depot
0.05
0
2009 2008 2007 2006 2005
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12. 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
0.98
0.96
0.94
0.92
0.9
Sears
0.88
0.86 Canadian Tire
0.84 Home Depot
0.82
0.8
0.78
2009 2008 2007 2006 2005
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.
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13. Sears
Revenue per square feet
Sears
320
300
280
Sears
260
240
2009 2008 2007 2006 2005
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.
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14. 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.
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15. 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.
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16. Sears
7. Exhibit 1: Financial Information
Sears 2009 2008 2007 2006 2005
Current Assets 2491.4 2244.8 1997 1915.2 1884.1
Current Liabilities 1376 1096 1220 1542 1665.3
Revenues 5200.6 5733.2 6326.4 5933 6273.6
Inventory 852.3 968.3 855.4 805 788.2
Cost of Goods Sold 4712.3 5213.1 5783.8 5468 5814.6
Total Debt 350.7 364.6 372 543 749.3
Total Assets 3404 3237 3003.1 3060 3198.6
Net Income 234.7 290.7 308.5 153 770.8
Operating Expense 4853 5311 5865 5693 5316.6
Sq Foot 19.8 19.8 20.9 21.1 21
* In Million CAD
Canadian Tire 2009 2008 2007 2006 2005
Current Assets 5004.6 5196.2 3979 3138.2 2541
Current Liabilities 2212.1 2647.8 1999.7 2113.7 1663.6
Revenues 8980.8 8686.5 9121.3 8606.1 8269.1
Inventory 901.5 903.6 917.5 778.7 667.3
Cost of Goods Sold 8000.2 7788.1 8200.5 7694.5 7451.7
Total Debt 1220 1494.2 1338.3 1603.6 1171.4
Total Assets 8764.1 8872.5 7783.8 6764.8 5804
Net Income 453.6 335 375.4 411.7 354.6
Operating Expense 8383 8207 8578 7994 7246
* In Million CAD
Home Depot 2009 2008 2007 2006 2005
Current Assets 13900 13362 15674 18000 15269
Current Liabilities 10363 11153 12706 12931 12706
Revenues 66176 71288 77349 79022 81511
Inventory 10188 10673 11731 12822 11401
Cost of Goods Sold 43764 47298 51352 52476 54191
Total Debt 9682 11434 13430 11661 11643
Total Assets 40877 41164 44324 52263 44405
Net Income 2661 2260 4395 5761 5838
Operating Expense 61373 66929 70107 70156 72148
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17. Sears
8. Exhibit 2: Financial Ratio Calculation
Current Ratio 2009 2008 2007 2006 2005
Sears 1.81061 2.048175 1.636885 1.242023 1.131388
Canadian Tire 2.262375 1.962459 1.989798 1.484695 1.52741
Home Depot 1.34131 1.198063 1.23359 1.392004 1.201716
Quick Ratio 2009 2008 2007 2006 2005
Sears 1.191206 1.16469 0.935738 0.719974 0.65808
Canadian Tire 1.854844 1.621195 1.53098 1.116289 1.126292
Home 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 7.377062
Canadian Tire 8.874321 8.618969 8.937875 9.881212 11.16694
Home Depot 4.295642 4.431556 4.377461 4.092653 4.75318
Debt Ratio 2009 2008 2007 2006 2005
Sears 0.103026 0.112635 0.123872 0.177451 0.234259
Canadian Tire 0.139204 0.168408 0.171934 0.237051 0.201826
Home Depot 0.236857 0.277767 0.302996 0.223122 0.2622
Gross Profit
Margin 2009 2008 2007 2006 2005
Sears 0.093893 0.090717 0.085768 0.078375 0.073164
Canadian Tire 0.109188 0.103425 0.100951 0.105925 0.09885
Home Depot 0.338673 0.336522 0.3361 0.335932 0.335169
Return On Assets 2009 2008 2007 2006 2005
Sears 0.068948 0.089805 0.102727 0.05 0.24098
Canadian Tire 0.051757 0.037757 0.048228 0.060859 0.061096
Home Depot 0.065098 0.054902 0.099156 0.110231 0.131472
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18. Sears
Operating Ratio 2009 2008 2007 2006 2005
Sears 0.933162 0.926359 0.927068 0.959548 0.847456
Canadian Tire 0.933436 0.944799 0.940436 0.928876 0.876274
Home Depot 0.927421 0.938854 0.906372 0.887803 0.885132
Same Store Sales 2009 2008 2007 2006 2005
Sears 262.6566 289.5556 302.6986 281.1848 298.7429
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19. 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
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