After years of declining sales and rising debt, Sears filed for Chapter 11 bankruptcy Monday (15 October). For years it reigned supreme as America’s preferred – and arguably most innovative – retailer, but now the brand is old hat.
Sears was the Amazon before its time. In its first 40 years of business, before opening any brick-and-mortars, Sears operated directly to consumers with its expansive catalog.
But eventually retailers like Walmart and Home Depot overtook Sears, and the e-commerce giant soon followed. Shopping behaviors changed, and the once-nimble Sears didn’t adapt quickly enough, according to retail experts.
Neil Saunders, managing director at Global Data Retail, said: “Sears’ decline is a long tale of poor decisions and even worse reactions to market conditions.”
'They had a mailing list, not a database'
Sears changed American shopping, but as it continued to evolve, the company didn’t keep up with changing consumer behaviors.
The original ‘everything store’ canceled its catalog in 1993. The company had a direct line to consumers but didn’t leverage that relationship, explained Barbara Kahn, a retail expert and marketing professor at the University of Pennsylvania’s Wharton School.
She said this failure was a missed opportunity for the brand.
“Now we know the model of going directly to the end user can be a very profitable one,” said Kahn, “but [Sears] really never leveraged that relationship with the customer. They had a mailing list; they were delivering products, but they never got the information back from the customer.”
With no catalog since the early 90s, the in-store experience was the only way that Sears could interact with customers. Jan Rogers Kniffen, chief executive of consultancy J Rogers Kniffen WWE, said he believes that Sears never did anything new for customers.
“They didn't reinvest in the business,” said Kniffen. “They didn't build a commanding presence on the internet. They didn't refresh their stores. They didn't bring in better brands, different brands … They didn't do anything to make their store more of an experience than it had been.”
Sears attempted a revitalization in the late 90s with its 'Softer Side of Sears' campaign. Kahn said Sears was trying to leverage consumer interest in apparel, but the campaign fizzled because the company was never in the right place at the right time.
Sears was operating mostly out of failing malls and marketing to the wrong kinds of consumers, Kahn explained.
“I don't think [Gen Zs and young millennials] have seen a Sears that was a sexy store to go to for the last 10-15 years," she said.
Debt, debt, debt
Kniffen said Sears suffered from two major issues: “They were failing as a retailer, and they were carrying way too much debt.”
Sears started to fall behind in retail in the 1980s thanks to Walmart’s emergence. As a response, Sears attempted to diversify.
“The start of the rot really set in during the 1980s,” said Saunders, “when the company diversified into financial services, insurance, real estate, equipment repair…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.”
Sears would sell off its subsidiaries to re-focus on retail, which eventually led to the 2005 Kmart merger that was supposed to cut costs while putting Sears in better locations across the country.
“The merger put [former Kmart chief executive] Eddie Lampert at the helm of the combined organization,” said Saunders. “His reorganization of management and the division of the company into operating divisions that competed with each other proved to be disastrous.
"It increased costs and reduced competitiveness; it also had an impact on the shop floor in terms of poor merchandising and ranging decisions.”
Sears was spread too thin, and a company restructuring couldn’t save it. Lampert sold off assets to keep the company afloat that left the retail operation as a non-priority, but Kahn said Sears was “not tracking with changing times even before he took over.”
No online footing
Sears never found its place online, either. Data from Adthena shows Amazon and Walmart dominated online US clickshares over the past year, commanding almost 45% of the market. Sears managed to round up just 0.7%.
"There are so many places the Sears brand, pre-Lampert customer base, and its retail footprint could have gone,” said Ted Nelson, chief executive and strategy director at Mechanica. "They could have stolen some pages out of Walmart's playbook. Or they could have sold their valuable retail footprint to fund a major online presence. Or, best of all, just done a better, more customer-and brand-focused update of their existing offering.
"But any of these solutions would have required some thoughtful retail savvy and a multi-talent leadership team, which is not something Eddie's ego would have permitted. Financial wizardry can only take one so far."
Sears didn’t adapt to changing practices. Between June and October of this year, Sears was only responsible for 1.3% of US retail ad spend on Google Shopping Ads. Walmart drove more than six times the market ad spend over that time.
What can retailers learn, and what's next?
Kniffen said what happened to Sears , as well as Toys ‘R’ Us and Bon-Ton, is a great learning lesson for retailers.
“Don't be so levered up that you're going to go broke with any downturn in your business," he said. “Retailers that are levered up that start to have issues go broke. Retailers that aren't levered up that start to have issues, start trying to change their business to figure out other things to do and put money into something different. But you can't do that when you're levered."
Craig Johnson, president of retail research and consulting firm Customer Growth Partners, said that the Sears brand can live on – if the company takes "triage-like steps" after the holidays.
"Sears is still relevant to many middle and modest income households, plus some higher income quintiles, at least in major appliances and outdoor power equipment," said Johnson.
He recommended Sears unload its 'softer side' and focus on hardline categories where the brand still enjoys decent positioning, like with its Kenmore appliances and outdoor power equipment.
There could also be some winners coming from Sears store closures. According to Saunders, companies such as Home Depot, Lowes and Best Buy will pick up some appliance and hardware spend. JC Penney, Kohl’s, Walmart and even Dick’s Sporting Goods will likely see an uptick in apparel spend, too.
However, as Saunders explained, the other retailers won’t see significant gains because the “spoils from Sears” – based in that 'everything store' strategy – are spread so widely.