Trimming Frills At the Big Store

OUT LOOKING TO BUY A CRAFTSMAN POWER DRILL? While you're at it, why not bring home a mortgage and a couple of shares of AT&T? As unlikely a shopping trip as that might seem, it was the scenario on which Sears, Roebuck & Co. built its 1980s growth strategy to turn the nation's prototype "Big Store" into one of the largest retail companies on earth. A decade later, the retailer's executives at the landmark Sears Tower corporate headquarters in downtown Chicago have admitted defeat. In one of the most painful setbacks in its 106- year history, Sears announced that it would soon begin dismantling its $57 billion financial and merchandising empire.

In the end, the humiliating irony for the company that invented such American-style trademarks as national merchandising, catalog shopping and even store-wide sales was that it was better at selling stocks, bonds, credit cards and insurance policies than it was at satisfying its core retail customers. Such financial ventures as its Coldwell Banker real estate unit, Allstate Insurance, Discover credit cards and Dean Witter are currently generating 90% of Sears' earnings, while income from its 860 retail stores has declined 33% this year. Rather than help Sears' growth, most analysts believe, the financial units only subsidized its failure to compete during the retail revolution that produced such fierce, profit-taking rivals as Wal-Mart, Home Depot, the Gap and Circuit City. Furthermore, its urge to grow saddled Sears with a $38 billion debt that has left bond markets and shareholders increasingly restive.

After its new restructuring, Sears will be back pretty much where it started -- with the stores and its Allstate subsidiary, founded 60 years ago. In addition, the company will have to deal with the future of its trademark catalog, reported to be losing $200 million annually. As it goes back to business behind the counter, Sears must seek anew the answer to the retailer's most important question: What does the customer really want?

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CAPTION: SEARS IN THE FIRST SIX MONTHS OF 1992