Sears’ collapse into Chapter 11 bankruptcy protection may have been looming for a while, but it nevertheless led to sharp intakes of breath.
In its day Sears, which also owns Kmart, was the world’s biggest retailer.
Its once legendary catalogue made it the Amazon of its time and Sears grew as it catered for generations of consumers buying into the American dream, but recent years have not been kind.
Walmart usurped it as the largest retailer in the late 1980s and in 2004 financier Eddie Lampert took control through his ESL Investments business.
Sears never thrived under ESL – over a four-year period to 2017 the retailer lost $6bn. And Lampert – both Sears’ biggest shareholder and creditor, who had previously won praise for reviving Kmart, which merged with Sears in 2005 – proved a controversial character.
On Monday Lampert, who stood down as chief executive but remains chairman, said: “The Chapter 11 process will give [Sears] the flexibility to strengthen its balance sheet, enabling the company to accelerate its strategic transformation, continue right sizing its operating model, and return to profitability.
“Our goal is to achieve a comprehensive restructuring as efficiently as possible, working closely with our creditors and other debtholders, and be better positioned to execute on our strategy and key priorities.”
So what should retailers take away from the story of Sears, a fallen idol of the industry?
What went wrong?
GlobalData managing director Neil Saunders says Sears’ decline took place over decades.
“The start of the rot really set in during the 1980s when the company diversified into financial services, insurance, real estate, equipment repair, and no end of other miscellaneous ventures,” he says.
“These dalliances came at a cost. They distracted Sears from its core retail operation which, thanks to a combination of complacency and underinvestment, started to suffer. This was also a period in which other rivals like Walmart were expanding and growing sales, so Sears should have been fully focused on its own business.”
“Sears was the largest retailer in the world, but it became increasingly myopic and lost sight of changes taking place in the market, largely by way of competition”
Mark A Cohen
Failure to offer an engaging and consistent retail experience was a theme that continued from that point onwards – and Columbia University’s director of retail studies Mark A Cohen, a former chief executive of Sears Canada, believes it is the crux of Sears’ eventual downfall.
“It’s a study in gross incompetence,” he says. “Whether you’re British or American, retailing is about [the five Ps] –presentation, pricing, productivity, people and product.
“Sears was the largest retailer in the world but it became increasingly myopic and lost sight of changes taking place in the market, largely by way of competition.”
While competitors such as Walmart and later Amazon were attacking the market and innovating to meet customer expectations, Sears stood still.
Coresight Research senior analyst John Mercer says: “There was a huge underinvestment in Sears’ stores just at a point when functional shopping was being skimmed off by the likes of Amazon.
“While bricks-and-mortar retailers began to realise the need to invest in stores to compete with ecommerce and support traffic, Sears stores were unpleasant to shop and merchandising was poor, and simultaneously Sears lost ground to better store-based rivals and to internet retailers.
“At one time the most creative and disruptive of retailers, recent years have been marked by the absence of any overriding strategic plan to recapture momentum, let alone its dominance as a once-great retailer.”
What big calls did it get wrong?
Three big strategic mistakes were made, according to Saunders.
Firstly, it became too distracted with activities such as financial services rather than investing in its core retail offer or getting into ecommerce earlier, and its merger with Kmart in 2004 was also a big mistake. Saunders says at the time of the merger, when Sears was faced with deteriorating performance, Kmart was “plagued by its own problems”.
“The marriage was justified on the grounds of retail strategy, with an argument advanced that Kmart would give Sears more outlets in the ‘right’ locations along with the opportunity to save costs. That argument proved to be a false one.”
Finally, starving Sears of cash and not investing in its stores or ecommerce proved fatal. Saunders adds that the situation got so dire that some Sears stores were left with broken fixtures and shabby carpets.
This was a major reason for shopper defection and declining sales and profits, he says.
Mercer agrees, saying that Sears’ leadership’s “myopic focus of financial engineering, rather than being a retailer” was its ultimate downfall.
“Sears lost sight of the customer. There is definitely an argument to be made that the company became too big and too unfocused”
Neil Saunders, GlobalData
Cohen makes a similar point. He argues: “Lampert cut the daylight out of every budget and he was heralded as the next Warren Buffet but only lasted a while and at the 18 month mark, performance began to decline. He started to sell assets despite the decline and he never reinvested the money.”
“Sears lost sight of the customer,” laments Saunders. “By focusing on what the customer wanted and how they were shopping, Sears would likely have taken better decisions. There is definitely an argument to be made that the company became too big and too unfocused.”
What lessons should other retailers learn?
Saunders questions whether Sears has a future because “the brand is very tarnished and is still losing customers, there is nothing unique or compelling about it”.
“Ultimately, the biggest lesson is that even the once largest retailer in the world can fail if it loses sight of shoppers. However, within this, retailers also need to constantly evolve. Sears did not. Over the past 10 or 15 years it has stood still rather than investing in new ideas, concepts and products. The result was stagnation and then failure.”
Cohen maintains: “The company is now making ridiculous ministrations that everything is fine and that it will emerge a stronger company – that’s baloney. Nothing about the bankruptcy will change the fact that it has no leadership and almost no principal assets. It has also lost the trust and faith that Sears always had.”
He returns to his point about retail essentials and says: “If a retail company is going to have a chance of success it has to have a leadership component that is going to be devoted to protecting those five Ps.”
Mercer observes that Sears committed the ultimate retail sin of losing touch with consumers. He says: “This is not a beloved legacy brand but one of declining relevance and apparently limited resonance with shoppers.
“This is especially so among younger shoppers. [Our] data show that Sears has the oldest average shopper of all the department stores, apparently reflecting a failure to renew its shopper base.”
If, as Lampert hopes, Sears is to have any chance of rekindling a love affair with US consumers it must refresh its fundamental proposition and engage with new generations of shoppers in new ways – a characteristic that made it great in the first place.