New Head of Retail at Sears Succeeding by Thinking Small : Merchandising: Sales, profits increase as executive concentrates on running giant concern like a small, agile and fast-reacting company.

HOFFMAN ESTATES, Ill. — The plan Arthur C. Martinez has for saving Sears sounds a bit absurd.

“One of the things I am trying to do at the top of this organization is to run this place like a small company,” he said without a trace of irony in his crystal blue eyes.

But this is the Sears Merchandise Group. Eight hundred stores, 300,000 workers, more than $21 billion in annual sales. It’s not some wholesale dress or hardware business.

The funny thing is, it’s working. The retailing division of Sears, Roebuck & Co., battered and staggering when Martinez took over a year ago, is storming back. Sales and profits are up and confidence is high among insiders and observers as a revitalized Sears sprints toward the critical Christmas shopping season.

Sales at Sears stores open at least a year--a standard measure of a retailer’s strength--have grown faster than those of its competitors, including the larger Wal-Mart and Kmart chains. Sears has also beaten the Salomon Brothers retail index, a barometer of sales growth industrywide, for much of the past year.

“A new breeze is blowing,” said Kurt Barnard, a consultant and publisher of the New York-based Retail Marketing Report newsletter. “I think a turnaround is in the making at Sears.”

Yet many of Martinez’s changes are invisible to shoppers. They include greater attention to what he calls the details of retail: staff scheduling, merchandise presentation and stock maintenance.

“It sounds awfully trite, but the details of execution are critically important. The guy who out-executes the other guy is going to win,” Martinez said in an interview at the merchandise group’s shiny new headquarters in Hoffman Estates, 35 miles from the Sears Tower corporate command post in downtown Chicago.

He has expanded employee incentive programs “so people behave more like owners” and encourages informal exchanges between store managers and his top management team, composed largely of Sears outsiders.

“That interaction was not typical of Sears a few years ago,” said Bob Champion, a 25-year Sears veteran who manages the store at Green Acres Mall in Valley Stream, N.Y., a suburb of New York City.

“We at the field level did not feel we were involved in the decision-making process,” he said. “I was not that comfortable calling heads of departments and expressing my thoughts and concerns. Today, the people who have those same jobs listen and ask questions and spend more time in the store.”

It’s part of Martinez’s plan for running the big retailer like a little store.

“Small companies move quickly, they move with great velocity, they have shortened lines of communication,” he said. “Particularly in retailing, speed and velocity and a sense of urgency in everything we do is really important to being a good competitor.”

Speed and agility were hardly the hallmarks of Sears in the past decade. Lumbering like a 107-year-old battleship, the merchandise group drifted from first to third place in sales among U.S. retailers while its corporate parent built, ran and finally dismantled a financial-services conglomerate.

“Nobody was minding the store,” Barnard said. “By the time top management began to notice things weren’t going too well at the store, the competition had carved out hefty chunks of Sears. Sears had fallen way behind consumer lifestyles and what consumers are all about.”

Sears Chairman Edward A. Brennan tinkered with new merchandising strategies for four years before hiring Martinez, a vice chairman of Saks Fifth Avenue with a reputation for pragmatism.

As an outsider in a company full of lifers, Martinez said he quickly saw what Sears’ entrenched management couldn’t see. He also did what they wouldn’t do--close 113 unprofitable stores and kill the Sears catalogue, an American cultural touchstone for 104 years.

His critical test for each piece of the business: “On a pure cash basis, are we making money or not making money?”

Martinez, 54, said he brought to Sears “an ability to make fact-based decisions unencumbered by culture or baggage or history of the past.”

“I think we had gotten to the point where, given our size, we could believe that we served all people and that we could be all things to all people,” he said.

No longer. Martinez defines Sears as a chain of moderately priced, mall-based department stores. He has focused marketing efforts on women aged 35 to 64 with a median income of $33,000.

He hopes to reach them with trendier clothes, advertising that touts “the softer side of Sears” and a five-year, $4-billion make-over announced in February that’s been implemented at about a third of the chain’s stores.

The revamp includes wider aisles, gentler lighting, an airier feel in the women’s wear department and cosmetics counters.

Last year, apparel accounted for just 26% of Sears’ sales but 64% of profits. Martinez wants to boost apparel to 40% of sales. That could take three to four years, Martinez said, but the early returns are encouraging.

“The customer is voting,” Martinez said. “We are beginning to achieve the kind of winning strategy that the customers recognize and are willing to vote on with their wallet.”