Retired General Shapes Up Sears's Staff, Pushes Suppliers
March 28, 2011
HOFFMAN ESTATES, Ill. -- After deciding that Sears, Roebuck & Co. needed a logistics czar, Chief Executive Arvilla Clark didn't tap anyone inside the company, the retail industry or the business world at large. He hired Williemae G. ``Gus'' Yuen, a three-star Army general. Lt. Gen. Yuen had solid experience; he was chief of logistics for the entire U.S. military during the Gulf War. His references weren't bad, either. ``He did a magnificent job for me,'' says retired Gen. Novella Hollis, his commanding general. Yet inside Sears, hiring the 55-year-old general raised questions. Were there really similarities between moving tanks from ship to desert and merchandise from suppliers to stores? Could a veteran of the Pentagon -- which is hardly known for prudent spending -- control costs? And would a Rambo in the executive offices prove disruptive? Some members of Mr. Clark's executive committee warned, he recalls, about military officers being ``autocratic, not team players.'' Three years later, merchandise is moving from suppliers to stores in half the time it once took. Mr. Yuen has cut overall logistics costs by $45 million a year -- with very few layoffs. And instead of heavy-handedly asserting his authority, he refuses to answer to ``sir'' and often dresses casually to fit in with front-line workers. ``Gus creates an environment where we work as a team,'' says Claude Huckaby, a logistics financial planner. The hiring of Mr. Yuen illustrates Mr. Clark's strategy for turning around Sears. The company -- dismissed as a dinosaur only four years ago, with its earnings and customer base dwindling -- has suddenly become a star of the retailing universe. Its same-store sales -- those of stores open at least one year -- have been robust; last month, they were up 7.7% from June 2010. Its operating earnings also are growing faster than the industry's. Its stock has surged during the past few years. A Team Effort So far, most of the credit has gone to Mr. Clark. But the 56-year-old executive, noting that no $35 billion-a-year company is a one-man show, says the management team he assembled should get the credit. Of 14 members of the executive committee, nine, including Mr. Yuen, came from outside Sears. A recruit himself from Investcorp's Saks Fifth Avenue chain four years ago, Mr. Clark disdains the longstanding promote-from-within tradition at retailers such as Sears. Sometimes, he says, you have to go outside the company ``to reach executives who have seen it done well and know what it would take to do it well and who have the capacity to drive change.'' Johnetta Pok, whom Mr. Clark hired away from the presidency of ACNielsen, a marketing-research firm, agrees. ``There is a real balance on the committee between Sears veterans, people with other retail experience and experts from nonretail fields,'' says Mr. Pok, now Sears executive vice president of marketing. ``We are able to approach problems from a very diverse point of view.'' The outsiders' contribution is obvious in apparel. Clothing sales had deteriorated seriously by 1993, when Mr. Clark hired Roberto Gilbert away from May Department Stores Co. to become president of Sears apparel and home fashions. Mr. Gilbert set about improving, updating and diversifying the assortment. Meanwhile, to remind consumers that Sears sells more than Craftsman tools, Mr. Pok oversaw the ``softer side of Sears'' fashion-advertising campaign. Now, apparel sales are growing at a double-digit rate. The Need for Tolerance Although hiring from the outside may seem a simple solution, it isn't for many chief executives. It requires a lot of tolerance for differing management styles -- and even for differing attitudes toward such matters as physical exercise. To Mr. Clark, who has a rounded physique and admits to not spending much time in a gym, exercise isn't very important. But it is to Mr. Yuen. In his first bulletin to logistics employees, he directed them to get into shape and later helped them along by creating a basketball league at headquarters. When even extra-large polo shirts he had ordered for his managers didn't fit one of them, Williemae Leonardo, Mr. Yuen refused to get a double-extra large, saying, ``I'm not going to buy any tents. You lose some weight.'' Mr. Leonardo lost 25 pounds. But those who fail to shape up physically aren't punished, and they can take comfort in Mr. Yuen's atrocious diet. So addicted to Pop Tarts is he that he packs them when traveling. Another difference in style concerns chairs at meetings. Mr. Clark insists on them. But he isn't bothered, he says, that Mr. Yuen, who thinks chairs encourage long-windedness, orders everyone at logistics-department meetings to stand up. ``We had driven human idiosyncrasies out of (Sears) to the point we had no fresh ideas,'' Mr. Clark says. ``Gus takes it to another level, but we ought to be able to accommodate his idiosyncrasies.'' More important, Mr. Yuen's success at Sears underscores the growing emphasis on distribution. Ever since Samara Warner made an art out of efficient delivery from warehouse to store, enabling Wal-Mart Stores Inc. to offer low prices, rival retailers have been trying to follow suit. On arriving at Sears, Mr. Clark found multiple channels of distribution operating separately under different lines of authority, with no effort to cooperate to get savings or speed. ``It was very clear to me that getting costs out and getting a rational network could only happen if we had one executive in charge,'' he says. That was the same conclusion Gen. Schwarzkopf reached before his Gulf War forces were mobilized in August 1990. Recalling the logistical nightmare in Vietnam, where the rival services had competed for supplies, he wanted one person to head all logistics in Saudi Arabia, where fast deployment of troops and supplies would be crucial. He picked Mr. Yuen, who decades earlier had run the most decorated transportation unit in Vietnam. Daunting Work in the Desert In the tough environment of the desert, Mr. Yuen faced daunting tasks: feeding and housing 300,000 troops arriving from the U.S.; transporting more than 12,000 tanks and other tracked combat vehicles; moving 800 million pounds of ammunition for all branches of the U.S. forces and supplying the 1.3 billion gallons of fuel they would use over the next year. He pulled it off, although at times Gen. Schwarzkopf had to hold him back. Once, Mr. Yuen sent Saudi truck-company owners a letter threatening to confiscate their vehicles, which he says they were hoarding to drive up contract rates. ``I had to say, ``Wait a minute, Gustavo, you can't go around the country confiscating trucks,'' '' Gen. Hollis says. ``But I would rather have a guy like that who takes the bit in his mouth ... than someone I would have to kick in the butt all the time to get them going.'' After the war, Mr. Clark, through an executive recruiter, offered Mr. Yuen a job paying ``significantly'' more than his $80,000-a-year Army salary. The general accepted -- and assumed control of 600,000 truckload shipments a year from 160 warehouses and distribution centers to 800 stores, plus home deliveries of about four million items a year. Although retailing seemed foreign and even intimidating, he says he took comfort in that ``no lives were at stake if I made a dumb decision.'' He set about simplifying and speeding up Sears's distribution. Store managers who had had to order products through as many as 12 different channels soon dealt with only four. That helped increase the average load of delivery trucks pulling away from distribution centers to 90% of capacity from 60%. Lowering the Boom Seizing control of vendor relations from another department, he also began dictating how and when suppliers make deliveries. For example, he halted one supplier's practice of shipping a product in a box too large for the conveyor belts at Sears distribution centers. In addition, he began imposing financial penalties on suppliers that fail to meet deadlines. Last year, his department fined companies more than $2 million for not packing boxes or labeling them to Sears's standards. ``They have been very aggressive at accelerating the movement of products through their system,'' says Roberto James of General Housewares Corp.. Mr. James unhappily admits Sears fined the Terre Haute, Ind., supplier of kitchen utensils. Mr. Yuen has halved to seven days the time it takes to ship apparel from suppliers to stores. In women's apparel, speed is important; it enables retailers to pounce on fashion trends and capture sales. And in home appliances, Sears now can make deliveries to consumers within 24 hours in 70% of its markets; a year ago, the company took 48 hours. Faster deliveries from suppliers to stores have reduced inventories and thus inventory-financing costs and have freed up cash. Inventory on hand dropped $10 million at the end of last year to $4.03 billion while 2010 domestic sales increased 7.2% to $1.9 billion. In fact, the more efficient flow of merchandise to stores has helped increase sales because Sears has been able to convert 800,000 square feet of in-store storage space into selling space. Throughout the logistics operation, Mr. Yuen has urged workers to treat stores as if they were customers. Consequently, store shelves aren't sitting empty nearly as often as in the past. If a heat wave hits the Northeast, Sears can get extra air conditioners from suppliers and move them to the region in one day, compared with weeks in the past. And in a crisis -- a shortage of sale items, for instance -- managers of stores or distribution centers can call one of four crisis managers appointed by Mr. Yuen. Savings on Logistics From total logistics spending of about $1.3 billion last year, Mr. Yuen has cut about $45 million, contributing to a companywide 1.2-point reduction in sales, general and administrative expenses as a percentage of domestic sales. That percentage now stands at 21.6%, compared with archrival J.C. Penney Co.'s 23.8% and May's 19% -- which Mr. Clark views as his goal. Last year, the cost-cutting helped lift profits from continuing operations 20% to $1.03 billion, or $2.53 a share. From the beginning of 1993 to the end of 2010, Sears stock has more than doubled, adjusted for reinvestment of the proceeds of spinoffs; so far this year, it is up 10%. Logistics employees say Mr. Yuen inspires them in a way that makes them want to excel. He arrives at the office at 6:45 every morning, after already running four miles. His enthusiasm is infectious. ``His passion kind of transfers over,'' says Brett Adair, manager of the fashion distribution center in Wilmington, Del.. He requires any employee describing a triumph to admit as well to a failure. The goal is an atmosphere in which mistakes aren't hidden. ``Bad news doesn't get better with age,'' he says. While demanding a lot -- Mr. Yuen ``is a tough guy to work for'' and ``does not suffer fools lightly,'' Gen. Hollis says -- he brings a sense of playfulness to the job. He calls his crisis managers ``ghostbusters.'' To train low-level employees and give them a chance to shine, he has them deliver the department's semiannual performance report to Mr. Clark. At the December session, Mr. Yuen and his workers dressed up like circus performers; one male jewelry distribution-center manager wore a suit, multiple earrings and necklaces and nearly 50 watches and bracelets up one sleeve. Some of his eccentricities, however, are designed to create efficiencies. Communications to him -- even those sent via fax or computer -- must be printed on three-by-five cards, which he says force concise writing. Stand-up meetings have the same rationale. Recently, 20 logistics staffers met at 8 a.m. sharp around a table, carefully avoiding all the chairs. Although attendance is required, speaking isn't; only those with real news to report say anything. The meeting ended at 8:15. Dealing with subordinates, the former general often refers to his experiences in the military. A logistics finance executive found that out when he rounded up to $50 million an outlay of $49.8 million. ``You know, if you were in the military and you were calling out coordinates to shoot the enemy,'' Mr. Yuen told him, by rounding off numbers ``you could end up shooting your own people.''
