Sometimes when a corporation fails you could have seen it coming decades ago and so it’s not news.  But rarely you could have seen it coming decades ago and it’s still news.  Thus with Sears’ bankruptcy filing.

“Attention, attention must finally be paid….”

Linda’s Monologue, Death of a Salesman (Arthur Miller).

Only, of course, if we believe the story harbors a lesson for our readers.

Sears was the original “Everything Store” in the early 20th Century and it got there by capitalizing upon a confluence of newly available technologies:

  • Nationwide rural postal delivery that could deliver its famous catalogs, ultimately to nearly every household in America;
  • Likewise national rail freight penetration to deliver the products it sold, from lingerie to entire flat-packed houses;
  • and radio to advertise its wares across the country.

And it made a transformative pivot in the first half of that century, opening its first retail store in Chicago in 1925 and going on a furious expansion spree–opening one store a day at its peak–and capitalizing upon, rather than being dismissive of or baffled by, the post-WWII explosion of suburbia and invention of the American car culture.

It pioneered anchor tenant/stores in suburban malls with huge parking lots; it opened on Sundays; it distributed its Sears credit card into the hands of 90 million customers. It created and brought to ubiquitous market penetration classic and worthy brands including Craftsman tools, Die-Hard auto parts, and Kenmore appliances.

But it never pivoted again.

Walmart dethroned it as the country’s largest retailer in the 1990’s, and Amazon went public in 1997. In the last decade it closed 940 of its 1,278 Kmart stores (74%) and 539 of its 909 Sears stores (59%).

What went wrong?

It lost all strategic focus.

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.

“That was their first mistake,” said Allen Questrom, a retired retail executive who ran numerous companies including rival J.C. Penney Co. “They took their eye off the ball.” (WSJ, Sears Reshaped America, 16 October 2018)

And among the business page obituaries for the company, which have been copious and worldwide, was this very telling analysis by the WSJ’s always thoughtful John Stoll (Edward Lampert’s Non-Strategy to Save Sears)::

For many years, it was a favorite corporate guessing game: What is Edward Lampert’s ultimate plan to reinvigorate Sears? It’s time to consider the possibility that he really didn’t have one….

Instead of thoughtful, achievable, and programmatic strategic vision and execution, he veered from one spasm of activity to another:

After the deal [the acquisition of Kmart out of bankruptcy] closed in 2005, the combined company started converting some Kmarts into a new format, Sears Essentials. But the stores failed to deliver the expected sales bump, people familiar with the situation said.

It was the start of what would become a familiar pattern: 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.

Mr. Lampert would slash advertising, then goods wouldn’t sell, according to former executives. He would limit how much merchandise buyers could purchase, and stores would be left with empty shelves and outdated products, these people said.

And so it was outpaced and outlapped by Walmart (still), Target, Home Depot, Best Buy, and more.  As one investor interviewed on Bloomberg remarked, “Lampert’s incessant demand for ROI without strategy was poison.  When you drive up to a Sears, you don’t see ROI; you see leaky ceilings, dirty floors, burned-out light bulbs, and no merchandise.”

Back to Strategy 101 (with thanks to Playing to Win (AG Lafley and Roger Martin: Harvard Business Press (2012)]:

  1. Have you defined winning and are you burningly clear about your winning aspiration?
  2. Have you decided where you can play to win and where you will not play?
  3. Do you know, in detail, how you will win on your chosen field of play?
  4. Have you defined and built your firm’s core capabilities to empower your where-to-play and how-to-win choices?
  5. Do your management systems support those four choices?

After World War II, Sears ignored all of this.  And the clock never stops ticking.


Update, Friday 19 October

The customarily wonderful Jim Stewart published a piece on Lampert and Sears today, and also was interviewed on CNBC.  A bit more color from Jim’s extended conversation with Lampert and his other background reporting.

  • The view that Lampert systematically stripped Sears of its assets for his own personal aggrandizement and enrichment is palpably at odds with the facts: His net worth actually declined over 75% from the time he purchased Sears ($4.5 billion) to today ($1 billion).  Not only did the decade+ he spent on Sears cost him substantially (OK, OK, all things are relative!) but it took a decade+: “Opportunity cost.”
  • And for our readers’ benefit, what was the key lesson he took away?  That it’s really really hard to find executives who can run a traditional business–in this case a massive retailer whose entire culture revolves around sales per square foot, maximizing inventory turns, getting merchandise in and getting it out–and at the same time build a serious digital business within the same firm.  In Jim’s words:

As one example, he cited his attempt to convert underutilized space into internet lounges, which offered customers free Wi-Fi and a place to relax. It was an attempt to get customers, many of whom didn’t have internet access at home at the time, into stores, much as Starbucks had attracted laptop-toting coffee drinkers.

This was anathema to traditional retailers, who measured success strictly in terms of sales per square foot and for whom any space not dedicated to merchandise was a waste. Nonetheless, the computer-equipped internet lounges were rolled out in 100 Sears locations — but in a halfhearted manner. “I’d visit a store, and there’d be 10 computers,” Mr. Lampert recalled. “Half of them wouldn’t work.” The lounges were abandoned. “We didn’t have store leaders or a C.E.O. at the time who embraced the idea,” Mr. Lampert said.

In the end, Jim validated my hypothesis that Lampert utterly lacked a strategy.  While Lampert was very articulate in his conversation with Jim about finances, restructurings, asset spinoffs, and so forth, “at the end I never heard him describe the archetypal Sears customer.”  Finis.

 

Sears Exhibition Tower, ca. 1930

 

 

Related Articles

close

Sign-up for email

Be the first to learn of Adam Smith, Esq. invitation-only events, surveys, and reports.