View from Manhattan: Sears unravels socks and stocks

IN THE UNASSAILABLE logic of the era of corporate diversification, what made more sense than expanding the world's largest retailer, the mighty Sears, Roebuck & Company, into financial retailing - retail stockbroking, retail insurance sales, retail property agency? At the end of the 1970s, it seemed quite natural that the company that had founded the first mail-order sales catalogue and become the very symbol of American consumerism should extend 'one-stop shopping' into financial services, selling investment funds, car insurance, mortgages and even new homes next to school supplies, skirts, spark plugs and lawnmowers.

This week, after more than a decade and dollars 38bn spent assembling the Sears Financial Network, the giant retail chain finally admitted defeat in its much-derided 'socks and stocks' strategy. By the end of next year, the Chicago-based corporation will have dismantled its financial shopping mall, selling or spinning off to shareholders its Dean Witter brokerage, Coldwell Banker residential real estate business, its Sears Savings Bank and mortgage lending unit, its Discover credit card operation and a large piece of its Allstate Insurance group.

It is not that any of these units has been a failure. On the contrary, it is the financial services divisions that have kept Sears' core merchandising business afloat in recent years, providing more than two-thirds of the company's dollars 1.6bn profit on less than half of its dollars 57bn turnover last year. What have failed to materialise have been the vaunted 'synergies' of a retail supermarket.

The failure of Sears' diversification does not come as much of surprise to Wall Street, which racked up huge fees during much of the past decade 'deconglomerating' - that is, raiding, asset-stripping or restructuring - much of corporate America. But with Sears' dramatic reversal this week, the drive to deconglomerate has finally arrived on the securities business's own doorstep.

Few of Wall Street's financial supermarkets are functioning as their owners had hoped. After spending more than dollars 600m to buy Kidder Peabody in 1986, the US General Electric Company - itself a vast conglomerate involved in a dozen unrelated businesses - has been actively peddling the investment bank for the past year, after trying unsuccessfully to sell it to rival Smith Barney. Management at Dillon Read - the home of Nicholas Brady, the US Treasury Secretary - last year bought back a controlling stake from the struggling Travelers insurance group, reversing an acquisition consummated the same time as GE's.

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