After buying our first home in 2000, my wife and I spent many weekends shopping at The Great Indoors, a home décor chain founded by Sears in 1997. One of our early purchases was a Kenmore canister vacuum cleaner. For more than a decade until the retail chain became defunct in 2012, I returned to the store whenever I needed replacement vacuum bags.
After The Great Indoors closure, I bought my vacuum cleaner bags at the Sears store located in Cherry Creek North. It’s telling that I only visited that store twice between 2012 and March of 2015, when it shuttered after more than 60 years in business. Both times, my sole purchase was vacuum cleaner bags.
The Great Indoors is now just a footnote in the history of the once venerable American retailer. There were other mergers and acquisitions, from the discount retailer, Kmart, to the investment firm, Dean Witter. By the end of 2018, Sears and Kmart chains had around 700 locations remaining in the U.S., compared to a total of 3,500 combined locations when they merged in 2005. Sears filed for Chapter 11 bankruptcy protection on Oct. 15, 2018, listing $6.9B in assets and $11.3B in liabilities in the filing.
So what happened to Sears? Before you say, “Amazon,” let me summarize the points made in the Saturday/Sunday, March 16-17, 2019 Wall Street Journal article by Suzanne Kapner, How Sears Lost The American Shopper:
Failure to genuinely focus on customers:
According to a former company vice president, “There was a new policy where in every conference room, one of the chairs had this cloth label on it that said, ‘The Customer.’ The point was that in every conversation you need to be aware of what does the customer want. In my first meeting where there was that chair, there was a conversation about Walmart and do we need to be concerned? I remember listening to the senior executives in the room conclude, ‘Walmart can’t touch us.’” (Since 1990, Walmart’s market value has increased 750% whereas Sears’ market value had declined 99%.)
Failure to innovate:
Barbara Kahn, a professor of marketing at the Wharton School observed that when “(Walmart) came along with its great service and low-prices, other retailers started to innovate more with products and service. Sears and Kmart simply trudged along and thought that was good enough.” Sears also failed to get off mall with a viable, important retail format. Sears did try the Sears Grand format, basically a big-box store that was right across the highway from Walmart , Target, Home Depot and Lowe’s. Although those stores’ annual sales exceeded its mall stores sales by 80 percent, Sears couldn’t build enough stores to catch up to what was at that point 1,000 outlets being opened every year by its established big-box store competition.
Failure to adapt:
Even though Sears had a tremendous head start to launch as an online retailer, given its abundance of customer data and established distribution network, it failed to adapt its catalogue business quickly enough to capitalize on an increasingly connected and web savvy consumer. Amazon’s total sales were just 17% of Sears’ in 2005, the first full year after the Kmart merger. By 2016, however, Amazon made $136B in sales to Sears’ $22B.
Failure to execute:
In order to look more like a “mall store” showcasing apparel, Sears took its profitable hardware and appliance departments and moved them to the back of the store. Doing so unwittingly allocated extremely profitable floor space to apparel that was underperforming both revenue-wise as well as profit-wise. And after Sears bought Lands’ End and began to display its merchandise in the stores, it created a disconnect with consumers. According to former company CEO, Alan Lacy, “Here’s a (Lands’ End product) that never went on sale, surrounded by product that was always on sale.”
Sears reached its pinnacle in 1974. In the 1980s, there was a lot of focus on Allstate, Dean Witter, Coldwell Banker, and the Discover credit card. The management team was distracted away from the retail business and there was, according to Frank DeSantis, former Sears district manager, “almost an arrogance with regard to the competition.” These flaws together with the failures outlined above lead to the unraveling of an American retail icon.
While there were plenty of missteps, I thought it was interesting to note that Sears instituted “The Customer” chair decades before Amazon founder, Jeff Bezos, famously introduced the same empty chair in conference rooms across the company in order to give absent customers a voice—a symbolic seat at the table. Although Sears’ stated goal in doing the same was to include the customer, its real goal was to forge ahead with its own plans to grow the business regardless of what the customer wanted.
Bezos has said, “Start with the customer and work backward…obsessing over customer experience is the only long-term defensible competitive advantage.” Amazon has supplanted Sears as the nation’s leading retailer, in part, because its stated and real goals with respect to customer focus are aligned.
The irony is not lost on me that Sears’ abuse of “The Customer” chair contributed to its unseating by Amazon.
Great post as is the style of Steve Curtin. This well-known story is retold with a spotlight on the underlying reasons for Sears’ demise. They provide valuable lessons for all who care about serving customers. We repeat mistakes when we fail to learn from the past. My biggest takeaway is what happens when arrogance and myopia trump humility and curiosity.
Hi Steve: thanks for this article. The Sears story contains a wealth of artifacts, and I have no doubt that it will be used for decades as a fascinating business case to dissect in undergraduate and graduate business classes. I read the same Wall Street Journal article you referenced, and my conclusion was that it’s difficult to pinpoint any one thing that contributed to the company’s downfall. Arrogant leadership? Feckless leadership? Voracious competition? Inability to adapt to rapid changes in technology and consumer buying habits? Loss of customer focus? Deficient risk management? Poor acquisition strategy? It’s all there – and more. Based on what I’ve read, it’s hard to put my finger on any one of these and say with authority “It’s that!” What’s clear to me, however, is that the combination is portents for failure.
I read the article a while back, but a couple of interesting items stuck with me. 1) Sears relied on durable goods like appliances for a large part of their revenue. That brought customers back to the store about once every, say, 15 years or so, when the machines needed replacement. Not a great way to build sustainable ‘run-rate’ revenue. In addition, in apparel, Sears did not appeal to women. The ad campaign “The softer side of Sears” was designed to overcome that problem. As it turned out, it was too little, too late.
In an article I wrote about Sears in 2018, Sears: Bankruptcy Through Management by Magazine http://customerthink.com/sears-bankruptcy-through-management-by-magazine/ I criticized CEO Eddie Lampert. But I might erred in piling on to what everyone else was saying about his management decisions. An excellent editorial by Holman Jenkins in The Wall Street Journal takes a different angle: https://www.wsj.com/articles/sears-still-has-its-biggest-fan-1539730841.
Read both articles. Thanks for pointing me to them. As you’ve noted, it’s easy to be an armchair quarterback and evaluate the quality of Eddie Lampert’s decisions after time and other factors have revealed the consequences of those decisions. I appreciate the contrarian perspective by Holman Jenkins that departs from the cacophony of critics who think they’re smarter than Lampert, who turned an initial investment of $1.5B into $5.7B – although it remains to be seen what his return will ultimately be as Sears begins its latest, post-bankruptcy, chapter.
I like this articles which not only about the reason behind Sears’ bankruptcy, it’s more about the vision of CEO whether just keep talking “customer” in the air or really know what the new fashion of customer wants. The purchasing style of customer is keep changing. Today we talk a lot about e-commerce style shopping, how about the next generation? Zara is a good example, they do have a physical store in various locations across the world. At the same time, they also offer a very user-friendly online purchasing environment for the consumer who is busy at work without time go to a department store for shopping. Maybe Sear also have a similar offering but how competitive is another story. I know a lot of traditional companies are burdened by the whole infrastructure transformation. There are a lot of legacy issues which they can’t sort it.