Sears: Bankruptcy through Management by Magazine

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Sears, the company that gave the world Kenmore appliances, Craftsman tools, Sears houses, and catalog retailing “limped into bankruptcy” on October 15, according to The Wall Street Journal (Sears, Once Retail Colossus, Enters Painful New Era).  As one who grew up near two Sears anchor stores, this is astonishing. Never mind that for years, “the handwriting was on the wall.” It wasn’t always that way. Sears was the first major retail chain to build parking lots for cars and to offer store hours on Sundays. Talk about innovation!

The bankruptcy will affect nearly 70,000 Sears employees, and threatens the financial security of 100,000 Sears pensioners. “Employees are our greatest asset!” – until they’re not. In 1925, when Sears opened its first store in Chicago, the “limped into bankruptcy” part of their story was unimaginable. I wonder how Amazon’s epitaph will read, and when.

Over the next year, there will be copious Sears-related analysis. Stern-faced investment analysts will appear on TV. Wizened B-School faculty will lecture classes about the company’s missteps. And armchair quarterbacks like me will proffer reasons for the company’s demise, and post them online.

“In the end, Sears just didn’t . . .”  Almost any crucial corporate outcome or result you’d care to include at the end of that sentence will ring true. Management flew an already-troubled company into the ground in every sense of the word.  “It’s an American tragedy and it need not have happened, said Arthur Martinez, Sears CEO from 1995 to 2000. Amen.

As I read about the various Hail Mary’s Sears tried to save itself, I detected a strong aroma of Management by Magazine in the C-Suite. I saw how Sears executives flung themselves onto the life-ring of The Next Great Management Fix, and along the way, how they strangled the company beyond hope of resuscitation.  “Sears said in court papers if faces ‘catastrophic consequences’ if it can’t repair its unraveling supply chain. Some 200 vendors have stopped shipping goods to its stores in the past two weeks, and it faces potential liens if it can’t pay logistics companies owed millions of dollars over the coming weeks,” according to The Wall Street Journal.

Sears CEO Eddie Lampert resigned his position on October 15th. Here’s what he tried along the way. Below each, I’ve included counterpoints that by now, I’m sure Lampert wishes he read:

1. Cut costs, increase profits!

Analysis: the right strategy, done the wrong way.

“[CEO] Eddie [Lampert] inherited a difficult situation, but he made the operating performance worse,” said Steven Dennis, a former Sears executive who left the company in 2003. “He cut costs in places that hurt the company and didn’t reinvest in the stores.” Mr. Lampert’s strategy included cutting advertising spending. Predictably, goods wouldn’t sell, former executives told The Wall Street Journal. He also limited merchandise purchases to the point where stores routinely had empty shelves and outdated products.

Counterpoint: A Better Way to Cut Costs.

 

2. Create transformational change!

Analysis: the right strategy, done the wrong way.

“We chose transformational rather than traditional change,” Lampert said. “Some efforts gained traction while others did not, and there were external factors that have severely hurt the company.”

Counterpoint: Transformational and Incremental Change: A False Dichotomy?

 

3. Diversify, or die!

Analysis: the wrong strategy.

“Industry executives say Sears planted the seeds of its demise nearly 40 years ago when it diversified from socks into stocks with the 1981 purchases of the Dean Witter Reynolds brokerage firm and real estate firm Coldwell Banker,” according to The Wall Street Journal. “That was their first mistake,” said Allen Questrom, a retired retail executive who ran JC Penney. “They took their eye off the ball.”

Counterpoint: To Diversify or Not to Diversify

 

4.  Fail fast!  “Mr. Lampert would green-light a project, then quickly shut it down if returns didn’t materialize. That applied to investments other executives saw as necessary, such as store upgrades: Some stores had holes in the floors, broken fixtures and burnt-out lights.”

Analysis: the wrong strategy.

Counter-point: Why Fail Fast, Fail Often May Be the Stupidest Business Mantra of All Time. 

 

Lampert ran Sears via teleconference from his home in Florida. He visited the company’s Illinois headquarters “once or twice a year” according to former Sears executives. For those who believe senior executives lead by demonstrating their commitment to the company, it’s hard to miss Lampert’s message: “we’re toast.”

The post Sears: Bankruptcy through Management by Magazine appeared first on Contrary Domino.

Republished with author's permission from original post.

2 COMMENTS

  1. Andy, lots of good thoughts here, both the analysis and counterpoints. The decline of Sears will be endlessly studied in boardrooms and business school classes. Bottom line is that companies who are industry giants today, can be gone tomorrow if they don’t adapt. The message is that you either disrupt yourself or the competitors you scoff at today will disrupt you in the future (e.g. the Blockbuster vs. Netflix scenario).

  2. Hi Chris: thank you for taking the time to comment. You bring up an interesting point. When companies perform SWOT (Strength-Weaknesses-Opportunities-Threats), seldom – if ever – do they include hubris, groupthink, and complacency in the analysis.

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