Sears 2006 Annual Report Download - page 22

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environment. Therefore, the Company believes that it must improve its analytical capabilities and foster a
discipline of continuous learning and fact-based decision making in order to successfully execute these
principles. Accordingly, in 2006 the Company committed resources to improve the organization’s overall
analytical capabilities and implement a structured “test, learn and deploy” process to evaluate new initiatives.
The Company believes that becoming a “test and learn” organization will allow it to better understand the needs
of its existing (and potential future) customers and develop solutions to profitably meet those needs.
Specific actions taken by the Company in 2006 to build long-term customer relationships and improve the
profitability and/or daily operations include:
• completed a national roll-out of Craftsman brand tools to Kmart locations nationwide, expanding the
number of outlets carrying the Craftsman brand by approximately 1,400 stores. With this nationwide
rollout to Kmart stores, the Craftsman brand is now available at more than 3,000 locations in the
United States and on sears.com;
• enhanced product development and direct sourcing capabilities, accomplished through the major
expansion of a Manhattan-based apparel design center, the purpose of which is to improve the quality,
exclusivity and profitability of Holdings’ apparel products. This effort is part of a larger initiative at
Holdings to create a more vertical business model, in which Holdings assumes a greater role in the
development and design (not merely the procurement) of its apparel merchandise, improving the
Company’s agility so that it can respond to and deliver merchandise that meets the needs of customers
at a lower cost to the Company. Holdings’ increased utilization of direct-sourced merchandise from
manufacturers has increased apparel gross margin rates, particularly at Sears Domestic, which had
historically not utilized direct-sourcing to the extent of its use at Kmart;
• improved Holdings’ on-line capabilities and expertise by assembling management talent and building a
team with relevant experience and knowledge to support the Company’s e-commerce initiatives.
Further, the Company invested in new technologies and functionality for its online commercial
websites, and expanded online product and service offerings. Holdings also completed the construction
of a new e-commerce development center in Chicago, Illinois during 2006 (scheduled to open in early
2007), which will house approximately 100 highly skilled developers, technical architects and project
managers focused exclusively on e-commerce. The development center is intended to act as the catalyst
for Holdings’ efforts to leverage web-based technology to better connect with Holdings’ customers and
attract new customers to the Company’s offerings of products and services;
• focused on improving the overall customer in-store experience through concerted efforts within various
areas of store operations, including improving effectiveness of payroll spending by scheduling store
associates to better match customer traffic patterns, reducing lead times associated with merchandise
resets and the execution of promotional events/sales, as well as focusing on improving overall store
appearance and cleanliness;
• intensified efforts on improving store profitability by enhancing store-level systems and operating
procedures to achieve higher levels of compliance with corporate-wide policies/standards in areas such
as sales discounts, merchandise returns and inventory handling and control;
• improved efficiencies and cost effectiveness of the supply chain, including transportation synergies, the
consolidation of fashion distribution centers and a greater emphasis on direct import merchandise
procurement;
• expanded a test program initiated last year that created a Lands’ End store-within-a-store concept at
certain Sears full-line store locations. Based on positive customer response, the test program was
expanded in fiscal 2006, and currently approximately 100 Sears full-line stores now feature the Lands’
End store-within-a-store concept. At such locations, Sears customers find increased square footage
dedicated to Lands’ End, including enhanced visual merchandising and an expanded product
assortment for women, men, kids and home, all in one location. Additionally, the concept features a
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