Case Study III - Sears: The Death of a Legend

Founded in 1886, the Sears and Roebuck Company was once the largest retailer in the
U.S. until surpassed by Wal-Mart in the late 1980’s. Many Baby Boomers and Gen X-
errs will remember the vast book like catalogs that were synonymous with Sears. From
these catalogs, customers could order literally almost anything. They had extensive
offerings in clothing, furniture, sporting goods, and a myriad of other items. You could
even order a kit for a complete residential home, delivered straight to your door, which
included plans on how to assemble it! It was at that time a one-stop-shop for just about
anything a consumer could wish for.
The retail landscape began to change in the late 1980’s and early 1990’s. One of the
biggest competitors to take the retail market by storm was Wal-Mart. While Sears
maintained their mail-order business model, Wal-Mart was bringing the products to the
customers, and at lower prices. As of 2019, Sears is a shadow of its former self with
only around 400 stores currently operating in the U.S.
Sears soon began to lose money and market share at an incredible pace. To stave off
bankruptcy, and to perhaps remake the Sears image, they merged with rival Kmart in
2004. By this time, however, it was clear that the merger alone would not save the
company. With tens of thousands of jobs at risk, and with a bloated real estate portfolio,
Sears began to hemorrhage money, and never recovered. To stave off bankruptcy,
Sears sold off some iconic brands to raise funds. Kenmore appliances and Craftsman
tools were sold, along with several others. The loss of these well-known and revered
brands further reduced Sear’s retail footprint and was a desperate move to try to save
the company.
Sears It was also a very large employer with a generous pension plan. Currently, there
are around 90,000 pensioners receiving retirement benefits that are at risk of a
complete liquidation of the remaining Sears stores. Through a last-minute deal, the
bankruptcy court allowed a $5 billion sale to ESL Investments, a hedge fund company
owned by Sears CEO Eddie Lampert, saving many jobs, though retaining a bleak and
uncertain future. The stock price of Sears has been decimated. On April 14, 2007, the
stock was trading at $144.79. The stock closed in May 2019 at $0.41 per share.
With intense pressure from large retailers like Target, Wal-Mart, and especially Amazon,
many traditional retailers are struggling and closing their doors. However, this case
study of Sears is by far the largest failure and the end of an era for retailers.
DISCUSSION QUESTIONS:
1. From the background story of Sears, what factors and failures can you identify
that lead to their dramatic deterioration?
Sears problems started in the late 1980’s when Wal-Mart came on the scene and
brought lower prices to consumers. Sears couldn’t compete and didn’t conform to
the low-price business model that of what Wal-Mart was offering to consumers. In
2004, Sears decided to merge with K-Mart. It was hopeful this merger would turn
them around and help them compete with the likes of Wal-Mart and Target. But
instead sales kept declining and consumers started going elsewhere for their daily
goods
Sear’s geared their products and brands towards men shopping for home-
building products, with their iconic brands like Craftsman and Diehard. However,
Sears started an ad campaign to appeal to female customers adding clothes. This
caused confusion with a lot of consumers. Also, Sears decided to broaden their
investments and business, adding on insurance, banking, investments and real
estate. All these changes crippled growth and soon they started losing market share
to Wal-Mart and Home Depot.

2. What could Sears have done differently?

Sears failed to invest into the company to adjust to how consumers were
purchasing products and goods Many retailers poured money into their businesses,
Sears has arguably been on the sidelines. Sears in 2017 was spending roughly 91
cents per square foot to make upgrades both online and in stores, while J.C.
Penney spent $4.13, Kohl’s was paying $8.12, and Best Buy was forking out $15.36
per square foot to make enhancements. From 1995 to 2000, Sears closed more
than 100 stores, laid off more than 50,000 workers and discontinued Sears’ famous
catalog. Trying to slash costs as sales started to fall, only made the troubles for
Sears mount up even more.
In 2013, Sears continued to cut some of its marquee brands and assets. The
company has since sold off its credit card portfolio to Citibank, the Craftsman tool
brand to Stanley Black & Decker, spun off Lands’ End and shuttered hundreds of
stores. It also has failed to invest back in its remaining stores. From these facts, it is
very apparent that the CEO’s in charge, just failed to invest into the company the
proper way. There was very little investment to conform to internet sales, invest in
store upgrades, and just invest back into the stores to help continued growth and
help declining sales.
3. What role, if any, did the internet and online shopping have on Sears demise?
The business model for consumer’s purchasing goods changed drastically by the
internet. Consumer’s buying through the mail was a thing of the past and it all turned
to online buying. Sears took too long to conform to this kind of business model. Also,
as noted before, Sears management didn’t invest back into the stores to help
compete with online sales and make the upgrades necessary to compete with the
likes of Amazon and other online retailers. Instead of following suit of the like’s of
Wal-Mart, Target and Kohl’s who had invested into the transition of online sales.
At first Sear’s had an upper hand on online retail sales. In 1984, together with
IBM and CBS, the company created what would become Prodigy, a pre-Web online
portal. Built on a private network, it was distinct from the internet but presaged it in
many ways, offering email, games, news, weather, sports, and shopping. However,
in 1992, when Sears' revenues reached $59 billion, the company announced
plans to simplify its structure and sold the Prodigy project off, losing what
could have been an opportunity like any retailer would have every
experienced.
Sears turned to the web in earnest. A July 2000 press release boasted that
sears.com sold home electronics, computers, office equipment, appliances,
cookware, baby products, school uniforms, gifts, toys, and sports memorabilia.
Amazon, meanwhile, only just began branching out from books to offer software,
video games, and home improvement products in November 1999. At that time,
Sears' problem was not so much Amazon as it was Walmart, which became the
nation's largest retailer in the 1990s. With not conforming to the low price business
model of Wal-Mart and the eventual online business model of Amazon, it led to the
ultimate demise of Sears.

4. If you were the CEO now, what would be your strategy to attempt to revive
Sears?
One of the issues that some say caused the decline of Sear’s is how it
was running like a hedge fund, instead of a retail store. Eddie Lampert, chairman
of Kmart, purchased Sears for $11 billion in 2004, changing the name of the
company to Sears Holdings. With a finance background, not a retail background,
Eddie Lambert implemented financial maneuvering at the expense of investing in
Sears’ stores left many wondering whether his background was a weakness, not
a strength.
 If I was acting CEO of Sears now, I am not sure what I could do to revive
the retail giant. It seems to me that the first focus would be growing the online
business. Investing more into a business model to compete with the likes of
Amazon and Wal-Mart. Wal-Mart led by example. They saw that they had to
conform to the online sales, make it easier for their customers to by online and to
get the same 2-day shipping as Amazon customers likewise received. If I was
acting CEO, I would get in line and follow the example that of what Wal-Mart has
done. Offer online orders to be shipped to store. By picking up online orders in
the store, puts the consumer into the stores with the hopes of buying more in the
stores while picking up online orders.