Martin Cej: Sears Canada is thinking about bringing back Eaton’s. BNN has learned the retailer may re-introduce the famous brand this fall through a catalogue business, which a spokesman has confirmed in today’s Globe & Mail. There’s even a chance you might once again walk through an Eaton’s department store.  Our Jon Erlichman is standing by with more on that story.  Jon?

Jon Erlichman: Hi there Marty. We know that when Eaton’s stores disappeared from the Canadian retail scene earlier in this decade they also took with them plenty of memories.

Customer on the street: I’m really not surprised to see them go, but it is also upsetting.

JE: But the brand rich in history is set for a comeback. Sources say Sears Canada, which owns the Eaton’s name, may offer a Timothy Eaton holiday catalogue this fall. Sears may also eventually convert some city locations into Eaton’s stores. Sears acquired the brand after Eaton’s went bankrupt in 1999. It then re-launched seven Eaton’s stores but pulled the plug in 2002 following disappointing performance. Analysts say that move left a hole in the upscale department store market.  Sears has since battled with HBC and Wal-Mart at the lower end, while Holt Renfrew has gone after Eaton’s shoppers.  By 2010, sources say it’s possible anywhere between five and 10 stores could carry the Eaton’s banner, including the one in Toronto’s Eaton Centre. But that starting point, or at least to get to that point Marty, first they would have to see the success with the catalogue business, which they’re still deciding on. They would support that catalogue business with an online site, in that you could look at merchandise and make phone calls to order. As for having a fully functional e-commerce site, again, assuming the catalogue business is a success, potentially you could see some type of e-commerce site into 2009. Marty?

MC: A very interesting story, and for more on the possible revival of Eaton’s, we’re joined now at the TSX by Rick Wolfe, he’s the president of PostStone corporation. Rick, thanks very much for joining us on this story.

Rick Wolfe: My pleasure.

MC: Rick, I guess the big question is why would Sears want to bring back a catalogue business, why now?

RW: Well, let’s deal with each of those separately. Why now? They have a real hole in their demographic when it comes to that key younger woman shopper, 18-34.  They need to find a new way to bring her back. Why catalogue? They’ve reconfigured, they’ve rebuilt their capabilities, they’ve got new partnerships with a European catalogue company and they think they have the strength to pull it off.

MC: What do you think this decision has to say about the confidence of the people running Sears right now?

RW: I think it says tremendous things about their confidence. I think it says that the board and the executive suite think that they are through the first phase of rebuilding this business, that they have the capabilities in place and now it’s time to start innovating, start doing fresh things with those capabilities to grow the business.

JE: Rick, you mentioned going after a younger demographic. Do you think that the Eaton’s brand remains strong with younger Canadians as well?

RW: Well, the fact is, I think that most women 18-34 can barely remember Eaton’s and have no personal sense of that heritage, so I think that the decision to bring back the Eaton’s brand is in part to save themselves the horrific expense of finding a new brand that they can work with and hoping that they can start some new and interesting conversations around the family table.   It’s not about a brand with powerful heritage with that demographic. 

MC:  Well how then are they going to compete if that’s sort of the age demographic and that spending group, because they’re going to be fighting some pretty tough battles because we do have some big names there. We’ve got Abercrombie & Fitch for one, American Eagle Outfitters, etc. etc. What does a company like Sears do to renew a buzz around a brand that hasn’t existed for women and kids of that age?

RW: Well first off, they’ve started dipping their toe into this marketplace over the last few months and we have to assume that they’ve liked the response that they’ve seen. Secondly, Abercrombie & Fitch is the perfect case study because for close to 100 years it was an outdoors store that sold the kind of gear the Teddy Roosevelt would have taken when he went to Africa. That was its heritage and they took that shadow of a name and rebuilt it into a sexy teen brand. So they wrote the playbook for Sears to follow.

MC: Let me ask you, what about the idea of opening the stores themselves, jumping from a catalogue to the store?

RW: You know, if I was on the executive team of that company I would be very careful before I did that.  The kind of questions that I’d be asking the team are ‘Are we completely sure that we have the passion of this customer set, are we completely sure that all our people know everything they need to know about how to win on the High Street?’ because it was one thing to buy the Eaton’s stores and decide to close them down. It was a badly stubbed toe but everybody’s allowed to make an experiment, everybody has to make experiments. But to try the same experiment twice, boy you’d better get it right the second time.

JE: Rick, put this in the context with the other Canadian retailers and their current strategies.

RW: Sure, so as you suggested, it does look like an opportunity to find a new niche between Holt at the high end and HBC at the bottom end. I think most especially what it says is that Dene Rogers, the new CEO, is saying ‘Look, we have some terrific capabilities in this business, we have sorted out our supply chain, we’ve got good relationships with our suppliers, we have a legacy in the catalogue business, we have new partners in catalogue. My expectation of you is that you will take those resources and you will start to experiment.’ I think that’s the real story here.

MC: Is now the right time to start experimenting though Rick?  If we take a look at the Canadian economy, what’s going on with the U.S. economy, of course today a very big day with the Fed cutting interest rates, still warning about a lot of economic headwinds ahead.

RW: I think they have to.  I think that they can contain the cost of an experiment like this and if they don’t start refreshing what the mid-aligned department store represents that there will be no future for them at all.  So better now than never.

MC: What about foreign investors though, you’re looking at a landscape, you’ve gone through some of the very strong presences in Canada. What about Sears, how does it rate when you put it up against a Shoppers Drug Mart or you put it up against a Canadian Tire?

RW: You picked the tough competition there. They are nowhere near as ready for prime time as either Shoppers or Canadian Tire.  They have a lot to prove but I would take today’s announcement as a very positive message from a new CEO that the company is ready to start showing some new things. Is today the day to buy Sears? No, but it is an announcement that you want to watch very closely, and watch how they perform on this.  Also, expect them to come up with more experiments, and if they don’t come up with more experiments, then I would start to worry that they don’t have the governance and the empowerment of their employees to pull this off.

MC: What about a time scale then? If you’re looking at this sort of turnaround, the generation of these sorts of ideas, how long should the market give it to decide, well, this is looking like a success or perhaps it isn’t? Is this a two-quarter story, is it a one-year story? 

RW: No less than two quarters, more likely one year. And the nature of the beast is that they’re going to be continuing to innovate. If I’m right, if this is the beginning of a big innovation story, we will see a stream of innovations coming from them over the next five years and each one of those major innovations will change the market’s expectations. And so if you are satisfied after the second or third innovation that they can continue to bring good things to market, I would think that would be a very good time to buy some Sears stock.

MC: Rick, Jon, thanks guys for joining us on this very important story.

RW: My pleasure.

MC: We’ve been speaking with Rick Wolfe. He is president of the PostStone Corporation and he joined us from the TSX. Of course that was Jon Erlichman down in New York for us.