Sears looking for national specialty fitness role, commercial fitness sales

Forget just finding entry-level equipment in a bland fitness section at many Sears stores. The national retailer has entered the specialty fitness arena with a new, polished, shop-in-shop concept highlighting some top specialty brands. And success means it is now expanding. SNEWS talks to the president to find out what’s on the horizon.
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A go-to for most of Middle America for drills, dryers or DVD players, Sears has now entered the specialty fitness arena with a new shop-in-shop concept highlighting some top specialty brands.

Historically, Sears has focused on low-prices and entry-level equipment – and was often derided by specialty retailers as a stronghold of equipment destined to breakdown, leading Sears customers to specialty’s doors.

For more than two years, though, Sears (Nasdaq: SHLD) has been tiptoeing closer to a specialty-retail style. In stealth mode and forging partnerships with specialty manufacturers, it prepared for a broader national rollout that started with a pilot of its turnaround model in Cupertino, Calif., nearly two years ago.

That rollout is now.

Fitness departments – dubbed “Sears Fitness Flagship” – in 21 additional stores were revamped through 2010, and a number more in key markets nationally will be finished and opened by November 2011.

“Cupertino got it right,” Hugo Malan, Sears senior vice president, and president of the fitness and sporting goods unit, told SNEWS in a conversation at the Club Industry show in October. “It just took off. It was phenomenal.”



Retail turnaround


With that turnaround success in Sears' back pocket, the Hoffman Estates, Ill.-based retailer laid its plans for broadening its fitness footprint nationally, at the very time that the specialty fitness retail segment had seen closing doors, bankruptcies and shrinking store numbers.

“Sears has seen a very positive customer response to its entry into the specialty fitness segment last year,” said Malan, who joined Sears in May 2009 leaving his role as managing director of Barclays Capital. “As a result, we are continuing to roll out Sears Fitness Flagship stores across the country, beyond the initial wave in 2010.”

Malan declined to name exactly how many stores were on the docket or where they would open, but did say that not all Sears stores have the demographics for this concept. The first batch was opened in California, north and south (seven); Chicago metro area (three), Maryland (three); New York and New Jersey (six); Texas, near Austin (one); and Virginia (two).

In light of the retail squeeze due to the economic downturn, though, Malan said he and his team have to do it right.

“It was about providing the whole solution and the right experience,” he said.

Chris Pietsch, Sears commercial sales manager since March 2010 after stints at Cardio Fitness and Johnson’s Horizon brand, was one link that helped the company tap into specialty. But beyond Pietsch’s experience, Sears uses its history and size as a calling card: It is the nation’s fourth-largest broadline retailer with over 2,200 full-line and specialty retailer Sears-branded stores in the United States and Canada, growing substantially after its merger with Kmart in March 2005 to nearly 4,000 retail operations today.

But just laying out the pieces doesn’t mean immediate economic returns. Parent company Sears Holding Corp., which includes Kmart stores, has continued to struggle financially, although there were some bright spots such as a reduction in inventory levels and a 30-percent boost in online sales, as the company continues to redefine itself. Companywide, through the first six months of 2011, revenue dropped 2.2 percent to $20.04 billion with a net loss of $318 million. On its own, Sears stores sales fell 3.6 percent to $10.7 billion through the first six months, and its operating net loss fell to $318 million, versus a loss of $48 million a year ago.

Malan and his team are optimistic, though, pointing out that it is already the largest fitness retailer in the United States, plus it has a well-honed package of services – such as financing, credit, delivery and service – that are vital to fitness retail.

The whole package

Apart from those elements it had in place, Sears then also had to provide:

>> the appropriate experience. Each new store has a “gym feel” with polished hardwood floors, tall mirrors, a roomy layout, large branding signage and a high-end feel.

>> trained salespeople, with at least one dedicated to the fitness department in each store. Sears began advertising national on job boards in 2009, with one description for a store fitness “lead,” reading that the “position is responsible for enhancing the profitability of the fitness department and developing customer relationships by providing proactive support to customers and Fitness store associates.” It also required a “strong knowledge of fitness products and trends.”

>> brands that live up to the look and promise. Look for not only the retailer’s traditional brands of Sole, Smooth, Proform, Nordic Track, and AFG, but also Bladez and Schwinn and (in select markets) Cybex, Life Fitness, FreeMotion Fitness, Octane Fitness and True Fitness, with accessories from Spri, Gaiam, Valeo and others.

“We’re quite proud of the brands we have…. But we’re always looking at more brands we need to add,” Malan said, after a look around the floor at Club Industry in Chicago on Oct. 13. “It’s a natural part of being in retail.”

>> marketing and ad campaigns that would bring in higher-end customers who were its goal (see ad, below).

>> community where consumers can communicate with Sears-selected experts, get advice and education, and interact. It is called FitStudio (www.FitStudio.com), and it launched in late September. Malan said retail is less of a one-way communication but is evolving into a dialogue (see home page, below)

“If you don’t do all of these things, it’s at a cost,” Malan said. “It is about providing the whole solution and the right experience.”

Where others have trod

Other retailers have dabbled at this kind of concept. For example, Best Buy in late 2009 expanded a small pilot, and then a year later grew that segment to 600 plus stores. Despite loud drum-banging about providing service and high-end brands, the din has dulled and specialty retailers have told SNEWS they have customers coming to them after finding frustration at Best Buy.

Other brands in their search for expanded distribution have tried partnerships with various sporting good stores. Most recently, Precor announced its plans to rollout select pieces at lower prices at Dick’s in October 2011 (Click here to read that Oct. 14, 2011, SNEWS story) after an earlier partnership with Sports Chalet; Life Fitness has tried various strategies with various sporting goods partners, is now also with The Sports Authority and continues its non-exclusive policy, for example with Sears in this project.

“The Sports Authority and Sears are more similar than not,” Brent Hutton, vice president of the Life Fitness consumer group, told SNEWS. “Sears is a national brand, and they are making a concerted effort to change the fitness department.”

Hutton said it won’t likely do more than a couple of dozen of Sears locations based on other specialty relationships and what it considered appropriate demographics of a region.

“We’re approving the store list,” Hutton said. “We know we’re under-represented in certain markets where we only have specialty.”

Like other brands, Life Fitness’ message is that this helps specialty by increasing advertising in a market. A customer may go to a Sears store but not find the selection he or she may want, thus head for an area specialty store.

“We’ve to lost one specialty retailer” over this partnership, Hutton said. Still, he said the company, owned by Brunswick (NYSE: BC), has listened well.

Brands like Octane emphasize they are dedicated to specialty but just need to fill in some distribution gaps. Ryan Simat, Octane vice president of sales, noted Octane will only sell in four Sears stores – Tucson, Ariz.; Santa Barbara, Calif.; Cupertino, Calif.; and (select models only) Concord, Calif.

“We are not cutting off our dealers,” Simat said. Those in those regions “will just lose exclusivity. We don’t have a chain store strategy. We’re just looking to fill some voids.”

For FreeMotion’s parent, Icon Health & Fitness, marketing director Colleen Logan said this plays to Sears’ strength because people think of the retailer as a place “to buy something that has a motor, that needs service …. that needs warranty and delivery.”

“This is an opportunity for Sears because like all retailers it has tried to adapt to the changing marketplace,” said Logan, “and it’s done an unsung job.”

What, me worry?

Retailers SNEWS contacted in areas where stores have existed seemed either unaware or unconcerned – or both.

“We have had customers bring up Sears a couple of times,” said Gerad Cassello, co-owner of Chicago’s Fitness Experts retailer. “I am sure they are doing well and sell customers we never get a shot at.

“Sears selling higher-end products has a positive side as well. When customers come in they have been exposed to the higher end and are less shocked at the price points,” he added. “The term specialty store has been diluted and a big company cannot give a true specialty experience. This is not a knock, but policies and corporate structures do not adjust to a individual client's needs.

“This country has a lot of people that need to work out,” Cassello said, “and good equipment in their home will help.”

Another retailer in New Jersey, not far from an early Sears location said he hadn’t been to a store but it was worth keeping in mind.

“They may very well make a dent in specialty,” said Samuel Baruch of Better Health & Fitness. “The primary areas where we can excel are by stressing comfort,… enjoyable workouts … and a commitment to the customers in the long-term.

“They will gladly sell an extended warranty because it’s an add-on sale,” he said, “and not because the salesperson has any vested interest in the product performing well…. Yet Sears is considered competition.”

But, wait, there’s more…

Seeing itself as a powerhouse with national distribution, warranty, service and repair, Sears didn’t stop with a revamped and expanded business for consumers. The new Sears fitness division also launched a commercial sales segment, headed by Pietsch, nearly 18 months ago, and is building its sales to places like hotels, universities.

“We’re just scratching the surface,” said Pietsch. “Our value proposition isn’t to go in and just sell commercial fitness, but we go in and, No. 1, we sell Sears,” because of its national resources. Plus commercial and vertical accounts can get a one-stop shop for everything from coffee machines and microwaves to industrial washing machines and lighting.

Malan noted that he couldn’t foresee how far the retailer would go in fitness and what the future held.

“How big is big for us here? We don’t know yet,” he said. “But we’re excited about it. As the economy strengthens we’ll be well-positioned.”

One goal is however not to put others out of business.

“We’re here to serve our customers as best we can,” Malan added. “There is always space for retailers of all formats.”

--Therese Iknoian

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