Updated from 7:56 a.m. EST

Sears, Roebuck & Co.

(S) - Get Report

announced Wednesday that it had started a search for a new chairman and chief executive to succeed Arthur C. Martinez, who plans to retire at the end of the year.

Martinez, 60, who led a turnaround at the retailer, initiated the search, the company said.

Sears, the second-largest retailer in the U.S. behind

Wal-Mart

(WMT) - Get Report

, chose the Chicago search firm

Heidrick & Struggles International

to help find a successor for Martinez. The search will be led by Heidrick's chairman, Gerard Roche.

The hiring of a search firm implies that Sears will not look within the company for a candidate. "One of the charges of a chief executive is to build an organization, to have a clear-cut successor or several to choose from," said Jeff Edelman, an analyst at

PaineWebber

. "Currently, there are none at this juncture." Edelman rates Sears a neutral and his firm has done no underwriting for the company.

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Sears' shares jumped 15/16, or 3%, to close at 29 1/16 Wednesday.

After Martinez became chairman and chief executive in 1995, he moved to restored the company's profitability and significantly increased sales within a year through a series of store closings, the discontinuation of the Sears catalog and a revamp of the company's apparel lines.

Sears outperformed the retailing sector until 1997, putting the previously distressed stock back to the attention of analysts and investors, and shares more than doubled from 1995 to 1997.

But soon after, sales again started to slump amid strong competition from

Target

(TGT) - Get Report

, Wal-Mart and other retailers. In addition, some of Martinez's initiatives came back to haunt him. For instance, "if the catalog had not been closed down, then the company would have been in a much stronger position for the Internet," Edelman said.

Any successor will have a tough road ahead, since the retailer faces some long-term challenges. A great deal of Sears' stores are located in malls and "there are fewer reasons to go to the mall now since there are very strong competitors outside the mall," said Elizabeth Shamir, an analyst at

PNC Advisors

. "You can redo the stores, but the bar is higher to get people to go in."

In 1999,

Home Depot

(HD) - Get Report

surpassed Sears to become No. 1 in the installation sales business, which includes products such as hardware, paint and tools.

She rates Sears an underperform and her firm does not participate in any underwriting.

Also, the Sears charge card has lost its allure for customers, as competing credit cards proliferate. "At one point, it was such an important source of credit, because people buying appliances needed the ability to finance those purchases," Shamir said. "The proprietary credit card is not as big a benefit."