Sears: What Went Wrong and Why
You can now add Sears to the list of long-standing businesses that have been eclipsed by the growing relevance of e-commerce companies now controlling the helm of retail shopping.
The 132-year-old retailer filed for bankruptcy this past October as it failed to adapt its business to include a stronger online shopping platform. Sears’ digital deficiency was not all to blame, though.
Here’s the breakdown on what went wrong and why, and how the retailer plans to spring back and exit Chapter 11:
Sears Holdings Corporation – Profile
- The retailer sells a range of products, including clothing, home appliances, electronics, auto parts, bath and bedding items, tools, fitness equipment, jewelry, and more. Formerly headquartered at the namesake Sears tower in Chicago where it was based for 100 years; Sears started as a mail ordering catalog company.
- Sears filed for bankruptcy in mid-October 2018 after accruing massive debt and struggling to stay afloat for several years.
What led to their downfall?
Poor strategic decisions made by leadership/management
- Sears’s CEO Edward Lampert lacked experience in the retail business and fell short in understanding the store’s customers.
- Lampert wrongly limited television advertising.
- He mistakenly trimmed investment on store upgrades.
- He scaled down on inventory selection, stripping it of its title as an “all-in-one” store.
- He failed to adopt a stronger, more data-driven e-commerce presence.
Sales declined due to lack of differentiation
- Did not sell exclusive brands; products sold could be found anywhere.
- Carried minimal product offerings.
- Sold off legendary brands like Lands’ End in 2014 and Craftsman in 2017, which led to a loss of loyal customers.
- Struggled to keep an edge over competitors who offered better prices and better merchandise selections; these competitors include: Amazon.com Inc., Walmart, Best Buy, and Target.
Bad customer service and store upkeep
- Management neglected employees’ needs, which hurt their motivation to deliver excellent customer service, a value that the store traditionally promoted.
- There was a shortage of salespeople on the floor and at the checkout.
- Stores were not kept clean; some stores had crumbling walls, cracked floors, and collapsing ceilings.
- Shelves were poorly stocked and oftentimes empty; they didn’t carry products that core customers needed.
Suppliers demanded tighter payment terms
News of Sears’ filing for bankruptcy alarmed its vendors; here’s how suppliers reacted:
- Suppliers demanded tighter payment terms given the uncertainty that the retailer would be able to pay them for their goods.
- Some suppliers asked for cash upfront for items.
- Whirlpool removed key brands from Sears stores including Maytag and KitchenAid.
- Other suppliers like GE Appliances and Electrolux are demanding the return of their inventory including refrigerators, washers, dryers, and mattresses.
- Some suppliers stopped shipments to Sears when vendor insurance proved too costly.
Will they stay in business?
- Many investors believe Sears will go into liquidation as the retailer does not have the funds and investment to bring back their customers.
- Both vendors and creditors will be looking at the retailer’s sales performance during the holiday season to gauge their decision on whether or not to continue backing it.
How will Sears stay in business?
Sears plans to reorganize and exit Chapter 11
- Sears is closing stores to reduce its footprint and selling some of its assets to make it more asset-light.
- By filing for bankruptcy, they hope to strengthen their balance sheet and regain profitability.
- They plan to enter new licensing deals and expand their product lines, specifically for its Kenmore and DieHard brands.
- They plan to increase their sales by employing strategic marketing initiatives to drive in-store and online traffic, including holiday promotions and more advertising all year round.
- They are keeping their shelves well-stocked and carrying essential products in order to regain their consumers’ confidence and win back vendors’ and creditors’ trust.