In 1973, Sears, Roebuck & Co. left its longtime headquarters on Chicago's West Side to move into the 110-floor, sleek black tower -- the world's tallest building -- in the city's downtown.

Yet today, it is in the virtually abandoned five-story West Side building where much of Sears' future as a retailer is being planned.

Here, a small team of employes busily puts the finishing touches on the company's latest merchandise and display strategies to help Sears regain its competitive stature against the more fashion-oriented department and specialty stores.

Ever since the new chairman of the Sears merchandise group, Michael Bozic, arrived last January, the company's retailing arm has been engaged in a whirlwind campaign to make the stores more appealing to today's shoppers and more profitable to the company's investors.

Even before 46-year-old Bozic arrived from Sears Canada Inc., where he was president and chief operating officer, the retailing division was busy cutting costs and management layers to make the company more efficient.

First, it eliminated the four territorial corporate offices that had slowed down management decision-making. Then, within two months of Bozic's arrival, Sears announced plans to shut down five of its 12 distribution centers. The announcement was hailed by financial analysts not only because it would cut costs but also because it showed a new willingness "to foresake tradition," a PaineWebber report noted. One of the first distribution centers to be closed was the company's oldest, in Sears' hometown of Chicago.

After these cost-cutting measures, Bozic started the hard task of remerchandising the stores. The first of these efforts appeared in the stores last month when Sears unveiled its new line of kids clothing, "McKid's." A joint venture with McDonald's Corp., McKid's clothes are bright and boldly displayed -- part of a design to entice parents to buy more than just the basics at Sears.

Currently, 300 Sears stores around the country -- including one of the eight in the Washington area -- are in the midst of completing a new men's department that breaks up the merchandise into a variety of different specialty shops to make Sears more competitive with The Gap, Eddie Bauer and Richman Brothers, among other retailers.

Similar revisions are now being planned for the women's clothing, housewares and the sporting goods departments.

Behind all these new departments is the desire to make Sears look and feel like a variety of different specialty stores. When completed, the long, colorless rows of merchandise racks that are standard in most Sears stores will be gone, replaced by small departments, each highlighted by bold graphics.

"It's not revolutionary," said one store official. "Most of these things are already found in other stores in the malls. But this brings us up to date."

Sears is also following other retailers by going outside the company for fashion advice, hiring consultants to help develop some of the apparel Sears will sell. "Many successful apparel merchandisers have outside operations to assist in product development," said Bozic who acknowledged that Sears is stronger in execution -- such as stitches per inch -- than in selecting style or color. "In apparel we've never been more serious," Bozic said.

The reason behind this aggressive remerchandising and remodeling campaign is simple: Sales and profits have been extremely disappointing -- despite the massive store renovation and merchandise upgrading that Sears did in its Store of the Future program, unveiled in 1982. One of the main thrusts of the program was to turn loyal appliance and automotive customers into Sears apparel buyers as well.

Sales, after reaching a high of $21.7 billion in 1984, dropped to $21.5 billion in 1985 and increased only marginally to $22.1 billion last year. Even more telling, profits from the merchandise division plunged during the same period from a high of $656 million in 1984 to $447 million in 1985, increasing only slightly last year to $458 million.

"Clearly the Store of the Future has failed in its mission of turning Sears' appliance customers into apparel customers," a recent PaineWebber report stated. "Instead, some of Sears' apparel customers have gone elsewhere, turned off by higher price points and unstylish merchandise."

The future looked so gloomy for the merchandise division when Bozic was appointed that some retailing industry officials said Bozic was assuming a post equivalent to that of captain of the Titanic.

Bozic, however, clearly bristles at that description. "The last thing we are is the Titanic," he said in a recent interview. Besides, he added, "This captain plans to listen to a few people -- and if someone tells him there's an iceberg out there, he'll go out and look."

Given the competitive nature of the retailing, Bozic noted, he'll probably be on the lookout every day.

Bozic clearly has a hard task ahead. "I look at the three major retailers in the United States -- Sears, K mart Corp. and J.C. Penney Co. Inc," said Linda T. Kristiansen of PaineWebber. "Of the three, Sears is clearly the farthest behind. ... It is still behind the times, a little too dowdy for the 1980s and 1990s," she added.

"Sears stores today are nowhere near what retailing has become -- a sense of theater, excitement and powerful assortments," said Louis W. Stern, a marketing professor at Northwestern University's Kellogg Graduate School of Management. If not corrected, "the merchandising end of things will be an increasing albatross around the neck of Sears," he added.

Yet Bozic is far from writing Sears' demise. "Our differentiation is that Sears is clearly the only store in the mall that represents total household needs." As a result, he said, if the remerchandising and remodeling efforts succeed, "we can become an interesting specialty store for very busy people."

High-fashion apparel, Bozic was quick to add, "is not our intention. But we can do a better job of providing goods that meet today's standards and quality."

As Sears sets out to redo its existing stores, it is also making plans to expand by setting up smaller stores in communities that it previously felt were too small and in urban areas where there are no full-service Sears stores close by.

In the urban areas, where real estate is scarce, small neighborhood stores would be set up with items "people wouldn't drive far to buy," Bozic said. Large refrigerators and other major appliances may be absent, but compact refrigerators and"Sears stores today are nowhere near what retailing has become -- a sense of theater, excitement and powerful assortments." -- marketing professor Louis W. Stern other household goods, such as toasters and microwave appliances, would be abundant. Sears is close to testing such a concept near Chicago, Bozic said.

Sears is already testing a new concept in catalogues -- at least new for Sears. Following the example of other successful mail-order companies, Sears has issued a glossy 24-page catalogue of more fashionable casual apparel -- complete with large photographs of models pictured on the beach -- in an attempt to appeal to younger, more fashion-conscious women.

"We found {the catalogue} 'Changes' to be the most exciting statement Sears has made in merchandising in at least the last 10 years," PaineWebber said. Results have been promising, Bozic said, noting that orders have come from areas where the catalogue was never sent -- a good sign that friends were passing them on to friends and relatives around the country.

Of all the opportunities for growth, the greatest appears to be in the newly created specialty retailing division of the merchandise group. Having seen the success of specialty stores, Sears has concluded that it has to be in that business, and in a far bigger way than if it were to start a specialty chain on its own.

As a result, it is aggressively looking for companies to buy. Earlier this year, it purchased a 41-store optical chain, Eye Care Centers, for $52.4 million. But, by all accounts the company is looking for even larger prey.

Financial analysts speculate that Sears is searching for an apparel merchant. "We think a junior apparel specialty retailer would be a good fit," a PaineWebber analyst suggested.

Bozic and other company officials decline to discuss their search. But they acknowledge they are taking their time to find what they consider the right company.

"We are going to do this judiciously," Bozic said. The process is like pressing an elevator button, Bozic said. "Once you press that button, you are going to go there whether that's the floor you wanted to go to or not."