Where sears went wrong

Management inAction TheDecline of Sears Sears, Roebuck and Company, commonly called Sears, was founded in 1892 to sell one product—watches. By 1989 the company had grown into the largest retailer in the United States. Sears initially focused on selling its products via a mail-order business that relied on a catalog.68 “When the catalog first appeared on doorsteps in the 1890s, it fundamentally changed how Americans shopped. Back then, much of the population lived in rural areas, and they bought almost everything from little shops at rural junctions. These general stores had limited selection and charged exorbitant prices. They were the only game in town.”69 Sears’ mail-order business was a disruptor. Over the years Sears evolved along with changing consumer tastes. When people moved from rural areas to cities, for example, the company opened hundreds of standalone urban stores to meet consumers’ desire to shop in attractive department stores rather than via catalog. Sears was also one of the first retailers to offer a credit card in the 1980s—the Discover card—that earned cash rewards for customers based on their purchases. This innovation brought in a consistent source of revenue for many years. The next change was to accommodate consumer preferences for shopping at malls. Sears responded by anchoring its stores in malls across the country. The retail environment started to change in the 1990s, and Sears began to fall behind as discount shopping at Walmart and Kmart took off. These companies were nimbler, changing prices and inventory to meet customer preferences. Sears was more bureaucratic and was stuck with higher overhead costs and catalog prices that had been set months earlier. Not surprisingly, Walmart’s revenue grew while Sears’ did not. Enter online shopping. The combination of convenience, selection, speed, and low prices available through online shopping has been a disruptive force for all retailers. Like its competitors, Sears has struggled against online sellers such as Amazon.70 According to a writer from USA Today, however, the venerable retailer faces even deeper challenges: Sears “has also suffered in the wake of its management’s decisions, including the sale of its more than $30 billion credit card portfolio to Citibank in 2003, and a merger with Kmart.”71 THE MERGER OF SEARS AND KMART In 2004, Sears was acquired by Kmart, a company that was then coming out of bankruptcy. The new firm was christened Sears Holdings and led by Edward Lampert. He had a background in investments but no retail experience at that time.72 Some business writers suggest Lambert purchased Sears for the land on which hundreds of its stores stood. According to one writer, “Lampert saw real estate value as the key, and he has managed the two chains as a value play ever since, ignoring the fundamentals of running a retail business. Under Lampert, the company chronically underinvested in store maintenance, spending as little as one-fifth of what its rivals spent to keep stores clean and up to date. The result has been a customer exodus, as no one likes shopping in dilapidated stores.”73 Another writer described Sears Holdings as having “all the charm of a dollar store without the prices, nor even the service, and with even moredisengaged employees. Bright fluorescent lights highlight the drab floors, peeling paint and sad displays of merchandising that are reminiscent of department stores in the communist Soviet Union.