View from Manhattan: Name dropping

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The Independent Online
Prudential Insurance Company of America, which set off the scramble of financial mergers in early 1981 when it bought Bache & Company for dollars 395m, has suffered a series of heavy losses on Wall Street. Two years ago, it finally dismissed the chief executive at Prudential Bache Securities, cut its workforce by a third, and dropped the 'Bache' from its name.

But few diversification plans have turned out more costly than the drive by American Express to brand a variety of financial services with its blue-box logo, merging three securities firms into Shearson Lehman Hutton and buying an insurance company, a mutual fund group, a property and mortgage unit, a money manager and a private bank.

After a series of billion-dollar losses, Amex is refocusing on its core travel business, most recently selling its Boston Company trust and money management group last month. Speculation is rife that it will soon sell the reconstituted Lehman Brothers, or even all of Shearson, as it tried unsuccessfully to do two years ago.

Of all the Wall Street mergers of the 1980s, only the acquisition of Donaldson Lufkin Jenrette by Equitable Insurance has continued to function smoothly. The irony is that Equitable, which continues to struggle despite a billion-dollar infusion of capital by France's Axa Midi last year, may be obliged to sell DLJ anyway. Reports circulated last week of a possible sale to SG Warburg, but the rumours were firmly denied.

Thanks to the success of its subsidiaries - Dean Witter is America's third-largest retail brokerage, and Allstate now the world's second-largest property and casualty insurer - Sears was able to avoid the logic of the 1990s longer than most other financial services conglomerates. As recently as May, Sears was still defending its dream of providing for all the retail needs of middle-class Americans, extending the 19th-century principle of the mail-order catalogue and the 20th-century department store into merchandising concepts like cable TV shopping channels and an on-line computer buying system known as Produgy.

But Sears' grand plan was finally derailed by a revolt among shareholders, who saw the retailer slip from dominance of the suburban Middle American market to third place behind the discounters Wal-Mart and K-Mart. A diversification designed to optimise Sears' vast retail network was instead serving to mask its collapse, complained Robert Monks, a dissident investor who won wide support when he mounted a proxy fight against Edward Brennan, Sears' chairman, last spring.

Apparently distracted by its financial services business, Sears managed to squander its legendary heritage, analysts say, missing the opportunity to capitalise on a century- old reputation for value at a time when 'value' is the byword of American retail advertising. Ignoring changing demographics and buying habits, its marketing has instead rambled from formula to formula, usually a year or two behind its rivals.

It moved from its 'Store of the Future' concept in the early 1980s, to 'Brand Central', which highlighted well-known brands at the expense of in-house generics, to 'Everyday Low Prices', an industry-wide attempt to break consumers of the habit of delaying purchases until a store holds one of its ever-more frequent sales. But Sears, burdened with an expense structure almost double that of Wal-Mart, was unable to compete on those terms, reverting more recently to 'Everyday Fair Pricing.'

Experts on corporate governance in the US say Sears' reversal marks an important shift in the balance of power between American corporate management and increasingly organised pension fund investors. But retail analysts say the simple reason for the death of 'socks and stocks' was a lack of adequate attention to the former.

'The mindset of Sears is still the merchant,' one veteran New York retail consultant said. 'But nobody was minding the store.'

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