What Caused the Downfall of Sears?
The tale of how Sears developed over the years has been a legendary one for more than a century, but with every new development, the chances of getting a happy ending become less likely. Ultimately, Sears sadly closed its doors and the story reached a sad conclusion.
Upon further examination, Sears, before falling from grace as a leading U.S. retail force, experienced an impressive climb up the industry ladder. However, these triumphs have been overshadowed by the company’s numerous strategic errors, ungrasped opportunities and costly mistakes that, in the end, brought about its failure to maintain the status it once enjoyed as a symbol of the American Dream.
Sears is one of the most current companies to file for bankruptcy, asking for Chapter 11 debt protection on October 15 in light of crumbling sales and tremendous debt. Many experts think this to be a temporary measure to prevent the company from losing money and customers, which has been going on for many years. The filing came as no surprise, but it was a stark reminder of how much the long-beloved store had declined in the eyes of its shoppers.
Since the conclusion of the Civil War, Sears has been a major retailer, becoming the go-to option for shoppers seeking anything from clothing and shoes to major appliance to car tires and even pre-cut homes. The company established itself as a pioneering retail innovator in the late 1800s when it started selling products through a mail-order catalog. The expansion of Sears’ reach significantly altered the way people shopped, while simultaneously galvanizing the process of unifying a burgeoning nation at the same time as the Second Industrial Revolution.
A growing number of large retailers are facing bankruptcy, with this being one of the most prominent. One has to wonder how a company, such as Sears, who is responsible for brands like Kenmore appliances and Craftsman tools, who revolutionized the credit card with Discover, who gave thousands of families a shot at homeownership, and who’s Sears Tower was the world’s tallest building, turn into an organization closing hundreds of stores, laying off thousands of people, and being forced to rely on writing Chapter 11 bankruptcy protection?
It is not that the vast, multi-billion dollar business that was a major player in the American retail market for almost a century didn’t accept e-commerce, cloud technologies, or any other particular digital projects. The company found it difficult to conform to varying market conditions, such as the popularity of the internet, the increase of omnichannel, and the requirement for an improved customer experience, however each of these were signs of other fundamental difficulties.
The impairment of Sears was largely brought on by their own actions and it took them two decades to get to this point.
To put it bluntly, Sears has not done well in all areas of retail, including selection, customer service, merchandise, and even basics. In a fiercely challenging market, it would already be difficult to keep up, but in the circumstances we face today, this will result in a massive disaster.
– Neil Saunders, managing director of GlobalData Retail
Why Sears Failed
‘Sears Stopped Innovating’
In a tale about the failure of Sears, reported in the New York Times, Craig Johnson, the head of Customer Growth Partners, a retail research and consulting business, summed up the downfall of the once powerful retailer.
Johnson commented that, over the years, Sears has become less popular and isn’t seen as important to those who were brought up with it. In the retail industry, it is essential to make sure you are always introducing something new. But Sears stopped innovating.”
It’s easy to think that Sears lacked in digital change or wasn’t investing in technological e-commerce advancements to compete with companies such as Amazon, but that’s not entirely accurate. Sears, the pioneering retail establishment, discovered distinctive strategies to expand their customer base by means of their well-known catalog. To attend to this expanding customer numbers and likewise transform them into dependable Sears supporters, they erected thousands of stores in the city centers, and eventually in the suburbs.
As well, as computer advancements occurred and the internet began to form, Sears made a forward-thinking, customer-based electronic trading platform titled Prodigy during the early 1980s. Prior to the inauguration of Sears.com in 1999, they had already begun to market several of their items online, and Edward Lamphert, the ex CEO, was exceedingly generous with investing in the company’s cyber services.
The lack of a shift in attitude established a basis for multiple other organizational slip-ups that ultimately brought about the downfall of Sears.
A Gradual Fall from Grace
While Sears’ problems can be partially blamed on an accumulation of uncontrollable forces, including increased competition, evolving market dynamics, and changing consumer habits, three specific business failures heavily contributed to Sears’ unraveling:
1. The brand failure
For years, the thing that told Sears apart from its competition was its standing as the retail giant in the United States, and it was so attached to this image it didn’t notice rivals swarming the already-crowded market. As of the late 1980s, Walmart had begun to contend with Sears for their position as the number one retailer in the United States. After attaining its highest stock value in 2007, Sears began to rapidly lose its hold on the market. The firm took steps to close down stores and minimize spending, yet this action had a damaging impact on its reputation and affected the reputation of its brand.
Subsequently, Sears might have channeled the money saved back into projects like providing a more satisfying customer service through setting up fulfillment centers across America or making its remaining stores a one of a kind shopping spot. However, Sears decided to remain in a trust of a name that was quickly losing its charm and believability. Some people claimed that Sears acted in an arrogant and overconfident way, or even had an unrealistic sense of its importance, which resulted in it failing to hold on to its most important advantage – its name and reputation.
2. The brick-and-mortar failure
In an omnichannel retail setup that is interconnected, physical stores become controllable sources of delivery and satisfaction that make traditional retailers stand out compared to online-only businesses. An infrastructure of physical stores decreases expenditures incurred from refunds, shipping, and even promotion. Target has made substantial investments in revamping its entire chain of stores so they act as strategic distribution hubs. Target utilizes a strategy of omnichannel, creating an even experience for their customers whether they are doing shopping online, on their cell phones, or in stores. They use their physical stores as part of the digital strategy, allowing orders from customers to be fulfilled through them.
Sears required the utilization of its stores, which had many thousands at the company’s peak, and included Kmart outlets when the two entities combined in 2005, even more than before with a weak reputation and little traffic or recognition for Sears.com. However, Sears considered its shops to be more drawbacks than benefits, and the frequent shut-downs lessened people’s access to their merchandise and services. Besides that, the rest of the stores had been ignored and left to fall apart for many years, often impressing shoppers with handwritten notices, racks that were almost empty, and dim lighting.
3. The internal failure
By 2008, Sears had fractured into 30 separate divisions, all technically under the guise of one large organization, although they had little to no communication with one another. This creation of a complex organizational structure had become a handicap. Every individual section – such as tires, appliances, and apparel – had its own leadership, recounted its own profits, and essentially operated like an independent company. Each section was essentially vying for a portion of the company’s resources for the purpose of financing a variety of promotional, brand, and supply chain initiatives. Besides a damaging “us versus them” atmosphere within the company, the effects of a department-focused strategy produced even more gaps within the organization, especially between IT departments.
Rather than having a unified, centralized IT system, the company had 30 separate EDI systems running independently to manage its 30 distinct supply chains, and there was no unified approach or plan in place. The consequence was a combative, divergent IT system with large numbers of duplicate systems and superfluous outlays all over the company. Expenses and inefficiencies became widespread because of Sears’ refusal to embrace a combined IT strategy or agree to consistent digital technology.
Sears’ New Vision
In the early 1980s, Edward Telling, who was in charge of Sears, realized that their decreasing sales figures were still continuing and they had lost their key customers to Kmart and Walmart. In reaction, the company came up with a truly ingenious blueprint that had its roots in a huge change in the structure of Sears and the commercial venture it was in.
Sears, having considered the conditions that would likely shape their operations in the years to come, aimed to change from a company that sold goods to shoppers into an enterprise that provided both goods and services to consumers. The objective was to capitalize on Sears’ positive reputation, existing stores, and existing customers to offer additional kinds of “products,” particularly those related to financial services. In essence, although it was not voiced outright, Sears was hoping to transform itself from a store specializing in consumer products into a more diverse financial services provider that just so happened to have a retail division. When the changeover commenced, Sears had already gained possession of Allstate Insurance.
In order to make their vision come to life, Sears purchased Coldwell Banker, a well-known provider of residential and commercial property services. Furthermore, Sears procured Dean Witter, a store investment broker business. Sears sought to establish competition with VISA and MasterCard by developing their own Discover credit card, in an attempt to maintain a loyal clientele.
The overall outcome of these modifications was to construct “the Sears Financial Network.” These divisions of Sears coexisted with the retail distribution framework.
Results of Leadership Initiatives on Managing the Crisis
Even though the products division experienced higher sales year by year, their net income started falling in 1985 – going from its highest point of $905 million to a low of $257 million in 1990, until it spiked back up to $486 million in 1991. In 1991, the net income was considerably lower as it only equated to 54% of what it had been in 1984.
Compared to other industries, the net income from the financial services business maintained an overall increase from 1984 up till 1991, with the exception of 1990. In 1984 the net income was $701 million whereas in 1991 it was more than $1.1 billion. It should be observed that the majority of total profit originated from the Allstate Insurance Group. There were fluctuations in the profits generated by Dean Witter over the course of this period, and three out of the seven years resulted in losses. Coldwell Banker turned a profit annually for the past seven years, though the net income did vary from year to year. In spite of the fact that the amount of money taken in by the merchandise group was much higher, Dean Witter and Coldwell Banker (minus Allstate) had a greater net income than the merchandise group in 1990 and were accountable for 84% of its net income in 1991.
Sears was able to handle the emergency situation, only to turn their success into a total failure.
By taking a step back and examining the situation, it appears Sears had successfully tackled the dwindling of its core business of retail stores and changed it from a contracting merchandising enterprise to a “consumer products and services business”. Even though the merchandising section was waning, the financial services divisions were gaining momentum and flourishing. The switch by Sears from merely offering retail consumer products to providing diversified financial services and merchandise was a daring plan, and it actually paid off.
Sadly, Sears viewed itself mainly as a seller of goods, not a company providing products and services to customers. In addition, the majority of the firm’s leaders were retail merchandise personnel. The original transformation had been created under Edward R. Telling, who was now retired.
The new head at Sears has annihilated the various financial services and customer items organization, reducing a flourishing activity to failure! Specifically, Edward A. Brennan, who had taken the place of Telling as Chair and CEO, was a seasoned “department store professional”. His background was with how Sears used to be when it had the utmost success, not the condition it had turned into. It was obvious that if things stayed the same, the Sears line of products was going to go through a long and gradual decrease, and this was unacceptable to those who still considered the company to be a merchant of goods.
The firm took action in reaction to the circumstances and altered their outlook and plan for what lies ahead, devoting more attention to retail activities. In summary, Sears encountered the customary predicament with corporate changes that are obligatory in times of trouble – reluctance of the initial main operation to develop.