Case 11, Sears: Why Should You Shop There?

After working late one evening, Joan stopped off at Sears toreturn some items she had purchased online from Lands' End—aSears-owned brand since 2002. She couldn't remember the last timeshe'd set foot in a Sears store, instead usually shopping at otherdepartment stores or discount retailers. As she walked in, shenoticed that the store felt old and a bit run down. She alsonoticed that she was one of the few people in the entire store. Thestore seemed to stock a hodgepodge of products and brands, arrangedin a pedestrian way. On her way out of the store, she wondered toherself, "Who shops at Sears? Why?" Younger shoppers might find ithard to believe, but until the 1980s, Sears was America's largestretailer—the Walmart of its day. It's once famous slogan, "WhereAmerica Shops," wasn't just a clever tagline conjured up by MadisonAvenue. It was a positioning statement with power. Sears catered toall, selling merchandise in just about every category to just aboutevery customer segment. But the once dominant Sears has sincefallen so hard, and so fast, that some analysts are now predictingits demise within the next few years. Its once famous slogan seemsalmost comical now, as its stores are often deserted, even duringpeak times. What caused this decline? Sears lost its focus. Whereasmany retail brands have forged strong positioning strategiestargeting specific segments, Sears no longer stands for much ofanything. Mention Walmart and people think "Save money. Livebetter." Bring up Target, and they know to "Expect More. Pay Less."At Macy's you get "the magic of Macy's," and Nordstrom promises to"take care of customers no matter what it takes." But say Sears andmost customers draw a blank. The chain has neither an image nor anapparent value proposition that gives people a compelling reason toshop at its stores.

The Fall of an Icon

Founded in 1886, Sears grew to become America's iconic retailerduring the 1900s. It began as a mail-order catalog company in the1880s, grew into a national chain of urban department stores duringthe early- to mid-1900s, and became an important anchor store inthe fast-growing suburban malls of the 1960s and 1970s. Through the1980s, Sears was the nation's largest retail chain. Almost everyAmerican relied on Sears for everything from basic apparel and homegoods to appliances and tools. But during the past two decades, asthe retail landscape has shifted, once-mighty Sears has lost itsway. And Sears has failed to refresh its positioning to make itselfrelevant in today's marketplace. A look at Sears advertising or avisit to the Sears Web site testifies to the retailer's almostcomplete lack of current positioning. Headlines scream "Buy more,save more on appliances," "50% off your favorite apparel brands,""Lowest prices on Craftsman lawn and garden," and "Big brand sale:great values, top brands." It seems that about the only thing Searshas going for it these days is that everything it sells is alwayson sale. However, price is not a convincing value proposition forSears, which has trouble matching the low prices of competitorssuch as Walmart, Target, or Kohl's. In 2005, a struggling Searsmerged with an even more distressed Kmart to become Sears HoldingCorporation. The merger of the two failing retailers left analystsscratching their heads and customers even more confused about thevalue propositions of the respective chains. Following the merger,the corporation jumped from one questionable tactic to another. Forexample, Kmart stores began carrying well-known Sears brands suchas Craftsman tools, Kenmore appliances, and Diehard batteries,diluting one of Sears's only remaining differentiating assets.Sears Holding Corporation has also tried a variety of storeformats. For instance, it converted 400 Kmart stores to SearsEssentials stores, which it later changed to Sears Grandstores—Walmart-like outlets that carry regular Sears merchandiseplus everything from health and beauty brands, toys, and babyproducts to party supplies and groceries. It has also dabbled witha confusing assortment of other formats carrying the Sears name,such as Sears Hometown stores (a franchised smaller version offull-sized Sears stores), Sears Hardware stores, Sears HomeAppliance Showrooms, Sears Outlet stores, and Sears Auto Centers.Despite all the new store formats, Sears has done little to refreshits positioning. "A lot of traditional department stores havereinvigorated themselves through merchandising. You haven't seenthat from Sears," says one analyst. To make matters worse, whereasmost competing retailers have invested heavily to spruce up theirstores, Sears has spent less than one-quarter of the industryaverage on store maintenance and renovation, leaving many of itsoutlets looking old and shabby. "There's no reason to shop atSears," concludes a retailing expert. "It offers a depressingshopping experience and uncompetitive prices.

" Once a Retailer, Now a Hedge Fund

Many critics place the blame for Sears's lack of sound marketingand positioning on Sears Holding Corporation chairman EdwardLampert, a hedge fund manager and the driving force behind theSears/Kmart merger. Lampert and his funds own about 60 percent ofSears Holding Corporation's stock. Critics claim that since the2005 merger, Lampert has run the company more as a portfolio offinancial assets than as a retail chain. A fierce advocate offree-market economics, Lampert restructured Sears intoapproximately 40 business units, each set up to operate as anindependent business with its own set of c-suite officers, boardsof directors, and profit-and-loss statements. The intention was forthe decentralized structure to foster independence andcompetitiveness and to make each part of the corporation moreaccountable. It had other, less appealing effects. For example,because the appliance unit could make more money selling productsmanufactured by outside brands, it began featuring brands like LGover Sears' own Kenmore. A similar problem arose when the SearsCraftsman brand unit proposed a tool co-branded with the SearsDiehard brand. But under the new structure, Craftsman would havehad to pay Diehard royalties, making the cost of the itemprohibitive. Craftsman tools and Kenmore appliances still leadtheir categories, and the Diehard brand of automotive batteriesremains strong. But the infighting has had a negative effect on themarket positions and fortunes of these and other Sears brands. Thedecentralized structure also created barriers to pricing Sears andKmart products competitively relative to competing chains. Afterstudying the company's prices, a newly appointed president ofretail services surmised that Kmart's food and drugs were moreexpensive than those at Walmart and Target. He proposed reducingprices on these product lines, bringing them in line withcompetitors. The presidents of various business units agreed withthe proposal. But no unit was willing to cough up the $2 millionneeded to fund the project. Corporate headquarters rejected arequest for a loan. So prices remained at uncompetitive levels. Asday-to-day operations played out, cooperation and collaborationgave way to a "warring tribes" culture that made the lack of asolid marketing message even worse. As chief marketing officersfought over advertising space in the weekly Sears circular, thecircular turned into what one former executive referred to as a"Frankenstein" promotion—a hodgepodge of product combinations withno overall cohesion. Screwdrivers were advertised next to lingerie,and lawnmowers sat next to ladies' shoes. For the cover of oneMother's Day circular, the sporting-goods unit purchased space fora Doodle Bug minibike—an item popular with young boys. All of thisspeaks to a lack of leadership at the top. Since the 2005 merger,Lampert has hired four CEOs, not a single one with any retailingexperience. After the last CEO left more than a year ago, Lampertassumed CEO responsibilities himself. But "being a successful hedgefund manager doesn't make you a good retailer," says one Searswatcher.

The Only Hope?

There are a few signs of a prosperous future for the nation'sonce-greatest retailer. To streamline operations and free up cash,Sears is selling off parts of the company. Last year, Sears HoldingCorporation spun off Sears Hometown and Sears Outlet stores.Lampert also facilitated the sale of a portion of Sears's stake inSears Canada. Most recently, the company sold Lands' End—now anindependent company, although still located within Sears—in atransaction that put over a billion dollars in Sears's coffers.Lampert is eyeing similar deals for other Sears businesses,including Sears Auto Centers. Although some see this as a way tostrengthen the company by focusing on its core business, others seeit as little more than "continuing to burn the furniture to staywarm." One potential bright spot for Sears is online sales. As thecompany's revenues have continued to drop, its online sales havebeen on the uptick. Last year, revenue from e-commerce was up 17percent over the prior year. In fact, Sears is the sixth largestonline retailer in the United States. This is no accident. Lampertis a believer in selling online. In a recent statement thataccompanied a financial update to the press, Lampert came as closeas he ever has to issuing a statement of corporate strategy. "Weare transitioning from a business that has historically focused onrunning a store network into a business that provides and deliversvalue by serving its members in the manner most convenient forthem: whether in stores, at home, or through digital devices." Tosupport this assertion, Sears has developed the Shop Your Wayloyalty program—a hybrid between Amazon and Facebook that allowscustomers to accumulate and spend rewards online or off. Sears hasalso experimented with a store pickup service, My Gofer—aninitiative that essentially turns Kmart stores into a same-daypickup location for all Sears and Kmart brands and merchandiseordered online. With the multi-channel model very much in vogue,this strategy seems to put Sears right on target in terms of wherethe retail industry is headed. But while Sears is apparentlyinvesting in the digital side of its business, it is neglecting thebrick-and-mortar side. The chain hasn't opened a new store inyears—in fact, it's selling off locations—and its remaining storesare progressively becoming less appealing. One retail analyst, oncea big Sears fan, remembers growing up in Chicago at a time when hisfamily wouldn't think of shopping anywhere but Sears. Now thingsare different. "I shopped for back-to-school clothes at a store[that's] now so dark and depressing, I can't bear to go in," hesays, "even though it's [just] blocks from my home—a home that sitson a street that shares a name with an iconic Sears brand."Although Lampert and his team continue to claim that turnaroundefforts will soon bear fruit, things don't look promising forSears. The lack of customer thinking and marketing strategy hastaken a devastating toll. Sears Holding Corporation's revenues havefallen for 29 consecutive quarters. Total sales for the most recentyear were $36.2 billion, down almost 10 percent from the previousyear and a far cry from a peak of $53 billion just seven yearsprior. Profits also paint a grim picture—the company lost $1.4billion last year, more than it made from selling off Lands' End.As a result, Sears's stock price has fallen nearly 80 percent since2007. With no cogent marketing plan and seemingly no way out of itsfinancial tailspin, many analysts predict that once-dominant Searswill soon disappear entirely.

Questions

1. According to the principles of retail strategy, howdid Sears once become the nation's biggest retailer?

2. According to those same principles, how did Searslose its once-commanding market position?

3. In addition, research sears andreport on what Sears has done in recent years (have they acquiredother businesses, sell products in other retail outlets - i.e.Craftsman tools). What other changes has the retailer made?What is the most recent development for Sears?