06 Jun, 2017

The Fall of American Retail Icon Sears

 -Sears

Retailers are closing their stores as they struggle to keep up with consumer demand and entice customers in-store.

In a recent Washington Post article, Sarah Halzack took a look at the demise of Sears, an iconic American retailer.

Sear’s once dominated the retail world. Now, stores are falling into disrepair thanks to 6 years of falling sales and profit losses.

The chain is now shuttering stores and selling off crown jewels like its Craftsman tools line.

How did Sears get to this point?

The losses are reportedly due to decades of missed opportunities.

Sears’ focus was lost due to misadventure into Discover Credit Cards and Coldwell Banker real estate.

Big box competitors like Home Depot and Best Buy took market share, capitalizing on lucrative product niches. Sears executives identified the dependency on shopping malls would contribute to the company’s downfall. But multiple attempts at diversifying the store format failed, as has been the case for many retailers out there.

As eCommerce began to reign, Sears like so many, again failed to meet consumer demand. This left the door open for Jeff Bezos and Amazon to step in.

“Sears Holdings’ stock price peaked in 2007 at $195.18, when it was an empire with more lines of business. Today, its stock trades for less than $10. Amazon.com, meanwhile, cleared $1,000 a share last week. (Jeffrey P. Bezos, founder and chief executive of Amazon.com The Washington Post.)”

Sears chief executive Edward S. Lampert has said, “We’re fighting like hell.”, dismissing the idea that it has run out of options.

The trouble at Sears “represents the loss of this long arc of retail history,” said Vicki Howard, a historian at the University of Essex in Britain, who has written a book about department stores. “It does seem quite dire. It does seem like we’re at some kind of turning point.”

Sears is not the only victim. Retailers have announced more than 2,000 store closures this year alone. Big retail is on pace to see more bankruptcies in 2017 than in any year since the Great Recession, according to research by the consultancy AlixPartners.

“The past year will be remembered as one of the most challenging periods for ‘brick and mortar’ retailers — and our company was one of the many affected by these headwinds,” Lampert wrote in a blog post in May.

The history of Sears

Sears Roebuck & Co. is an American icon, beginning its long history in the 19th century as a mail-order business for watches. Their offering quickly grew to incorporate saddles, sewing machines, and buggies to a largely rural nation.

Sears set itself apart with low prices and a huge range. This tactic was employed by Amazon to great success 100+ years later.

In 1925, Robert E. Wood pushed the company to open its first outpost. Wood believed that with the advent of the motorcar, consumers would be encouraged to travel to stores. He was right. In just 4 years, Sears boasted 324 stores. By 1931, the company was making more money in-store than the catalog business.

Sears was now America’s largest, most powerful retailer.

Generations of families have turned to Sears.

“Sears was regarded as a national institution, almost like the Post Office,” said Gordon L. Weil, a writer who chronicled the history of Sears in a 1977 book. “Everybody went there, everybody did business with them. Everybody believed they were a permanent part of the landscape.”

By the 1990s, Sears was trying to diversify its portfolio by venturing into Discover, Coldwell Banker, and stock brokerage firm Dean Witter Reynolds.

Sears posted a loss of nearly $4 billion in 1992.

By 2000, despite repeated attempts to diversify, Sears was closing multiple stores.

By 2004, it was hedge fund chief Lampert’s turn to try to revive the chain.

Lampert engineered a takeover by Kmart, along with a series of other initiatives, including Shop Your Way, a rewards program in which shoppers earn points by spending money at Sears, Kmart and tens of thousands of partner businesses. Lampert also slashed costs and put resources toward building Sears’s online shopping firepower, committing to the power of eCommerce.

Despite all of this, the retailer is still struggling.

Then came a major creditor. Seritage Growth Properties, paid $2.7 billion in 2015 to acquire more than 200 stores and other real estate owned by Sears Holdings. This deal gave Sears a fresh infusion of cash. Lampert’s own hedge fund, ESL Investments, also provided loans to Sears Holdings, including one for $500 million announced earlier this year.

Lampert is also a major creditor. As of March 13, Lampert controlled about 59 percent of shares of Sears Holdings.

It’s time for the Transformation Plan

Sears is now looking to transform.

This transformation includes making the Shop Your Way program more valuable.

“People are shopping us to the tune of $20 billion in revenue,” said Brathwaite, the Sears spokesman. “Clearly we mean something to a lot of people. And so what we’re trying to do is make ourselves profitable.”

Sears still holds strong with a substantial market share in the appliances category, trailing only Lowe’s and Home Depot.

When asked about the condition of their stores, such as the collapsing structure in Falls Church, a spokesman said they are working to spruce up stores.

“Because of Sears and Kmart’s long-standing history and cultural impact, we are targeted for criticism when our results are poor,” Lampert said in a 2016 letter to shareholders. “But it is unfair to evaluate our approach through the rearview mirror without acknowledging the changing circumstances in our industry as well as our bold attempts to change the way we do business to meet this changing reality.”

Despite repeated resuscitation effort, Sears is in the process of closing 150 Sears and Kmart stores nationwide.

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