Lessons For Businesses From Sears Inevitable Downfall

June 5, 2017
By Zack Poelwijk
A closed sign hanging in a shop window

Sears is dying. The store where my mom took me to buy a dress for my first middle school dance. The store where I used to get left in the record album aisle while my mom tried on clothes. (Yes, department stores once had an entire aisle of actual record albums!) What was once one of our country’s brick and mortar retail pillars probably won’t survive to the turn of the next decade, if it lasts that long. The company has $4.2 billion in debt and has been losing ground over the years to Target and Walmart. The mistakes that the once-great company made go back a long way.

First, in the early 1980s, Sears’s parent company, Sears, Roebuck & Co., expanded aggressively into financial and real estate services market. They purchased Dean Witter Reynolds securities firm and Coldwell Banker. These didn’t have anything to do with Sears’s “core” operations. And, when their back was turned, so to speak, by being involved with these divergent markets, Target and Walmart started invading their space.

After that, they broke up their business into separate units. This was in the mid-2000s. By the time they did this, their company was already financially hurting. The separate units managed Sears’s well-known brands such as Diehard and Craftsman. One of the problems with this was that the managers they picked were said to have little retail experience. And this archived news story from the time supports the view in hindsight that it was a mistake. ABC News quotes an analyst who says, “I think it’s risky.” The article says, “Analysts say the changes contemplated by [chairman Edward] Lampert — who acquired Kmart in 2003 and Sears, Roebuck and Co. in 2005 — run against prevailing trends where retailers try to craft a single, cohesive business image. “He’s looking to turn it around by using a different approach,” said retail consultant Walter Loeb. “I think it’s risky.”

Also in 2005, Kmart bought Sears. But both were failing. The merger left them with twice as many under-performing stores. Once the company had lost so much money that it was consistently losing ground, it began selling off its assets to manage its cash flow. Over the last 10 years its sold off its brands like Lands End. It’s closed stores that were’t performing well. Over the last few more recent years, it’s continued to lose so much money that Sears is selling off its profitable stores. Sears now plans to sell its profitable stores and then lease them back.

All along as these things were going on, Sears customers have complained that the products they’re selling don’t seem high-quality. There’s no sense of Sears as a “department store” anymore, with brands that the customers knows and trusts.

All along the way, Sears’s actions seem to point to a company that was too busy protecting itself or denying that the marketplace had changed. It reacted, rather than adapted. There are lessons here for businesses of any size.

Lessons For Businesses From Sears Inevitable Downfall

For one, know your competitors. Walmart grew aggressively and their selling proposition was based on price cuts followed by the ability to buy your grocery’s for the night’s dinner at the same store where you’re buying your tank tops and your barbecue grill. As cool as Sears was to have all kinds of different departments, you couldn’t buy a tomato at Sears. Once customers got a taste of that convenience, they didn’t want to go back.

Secondly, be true to yourself. If you’re retail, do retail. And do it good. With options, customizations, good customer service, good business hours. Put in a kiosk where people can comparison shop. Then when they do, let them see enough to know that they really do want to buy it from you after all. Hire managers who know what they’re doing. Don’t keep employees around who waste time and don’t treat your customers with respect.

Thirdly, watch your cash flow. Once you get into trouble it can be hard to turn it around.

And finally, never stop evolving. Your customer behavior changes. Yours should too.

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