In 1893, Richard Sears and Alvah Roebuck formed Sears, Roebuck & Company in Chicago, Illinois, from a previously established company that started out offering a limited selection of items by catalog. The first Sears catalog was published in 1888, and shortly afterward, Sears began to diversify its business by providing a wider variety of products including sewing machines, bicycles, sporting goods, and automobiles. By 1895, the company was producing a 532-page catalog. Sales were higher than $400,000 in 1893 and more than $750,000 two years later. By 1896, dolls, stoves and groceries had been added to the catalog, and the business grew quickly.

QUESTION

The following is a summary of the history of Sears:

Sears Holdings Corporation (SHLD)
A Corporation in Decline

In 1893, Richard Sears and Alvah Roebuck formed Sears, Roebuck & Company in Chicago, Illinois, from a previously established company that started out offering a limited selection of items by catalog. The first Sears catalog was published in 1888, and shortly afterward, Sears began to diversify its business by providing a wider variety of products including sewing machines, bicycles, sporting goods, and automobiles. By 1895, the company was producing a 532-page catalog. Sales were higher than $400,000 in 1893 and more than $750,000 two years later. By 1896, dolls, stoves and groceries had been added to the catalog, and the business grew quickly.

From 1895 to 1907, annual sales of the company climbed from $750,000 to upwards of $50 million.

The prosperity of the company and its vision for greater expansion led Sears to take the company public in 1906, with a $40 million stock offering.

In 1906, Sears opened its catalog plant and the Sears Merchandise Building Tower in Chicago. In 1933, Sears issued the first of its famous Christmas catalogs known as the “Sears Wishbook,” a catalog featuring toys and gifts, separate from the annual Christmas Catalog.

The company was badly hurt during 1919–21 as a severe depression hit the nation’s farms after farmers had over-expanded their holdings. To bail out the company, Rosenwald, Sear’s CEO, pledged $21 million of his wealth to keep the company solvent.

By 1922, Sears had regained financial stability. Rosenwald oversaw the design and construction of the company’s first department store within Sears & Roebuck’s massive 40-acre headquarters complex of offices, laboratories and mail-order operations on Chicago’s West Side. The store opened in 1925.

As the demographics of the U.S. changed from rural to urban, Sears shifted emphasis to urban America and from catalog sales to store sales. Sears was a pioneer in creating department stores that catered to men as well as women, especially with lines of hardware and building materials. Its stores were oriented to motorists, had ample, free, off-street parking; and communicated a clear corporate identity. In the 1930s, the company designed fully air-conditioned, “windowless” stores whose layout was driven wholly by merchandising concerns.

From the 1920s to the 1950s, Sears built many urban department stores. Starting in the 1950s, the company expanded into suburban markets and malls in the 1960s and 1970s. Sears began to diversify in the 1930s, adding Allstate Insurance Company in 1931 and placing Allstate representatives in its stores in 1934. Over the decades, it established major national brands, such as Kenmore, Craftsman, DieHard, Silvertone, Supertone, and Toughskins. The company became a conglomerate during the mid-20th century, adding Dean Witter and Coldwell Banker real estate in 1981, starting Prodigy as a joint venture with IBM in 1984, and introducing the Discover credit card in 1985. In March 2009, Sears purchased the social search engine Delver.

In 1974, Sears completed the 110-story Sears Tower in Chicago, becoming the world’s tallest building. Sears moved to the new Prairie Stone Business Park in Hoffman Estates, Illinois, between 1993 and 1995.

In the 1990s, the company began divesting itself of many non-retail entities, which were detrimental to the company’s bottom line. Sears spun off its financial services arm, which included brokerage business Dean Witter Reynolds and Discover Card. It sold its mall building subsidiary Homart.

In 1993, Sears terminated its famous general merchandise catalog because of sinking sales and profits. Sears sold its retail credit card operation to Citibank. The remaining card operations were sold to JPMorgan Chase in August 2005. In 2003, Sears opened a new concept store called Sears Grand. Sears Grand stores carry everything that a regular Sears carry and more. Sears Grand stores are about 175,000 to 225,000 square feet.

On November 17, 2004, Sears announced Kmart was acquiring it. As a part of the acquisition, Kmart Holdings Corporation changed its name to Sears Holdings. The new corporation announced that it would continue to operate stores under both the Sears and Kmart brands. In 2005, the company began renovating some Kmart stores.

Sears has spent much of 2014 and 2015 selling off portions of its balance sheet, namely Lands’ End and its stake in Sears Canada. Sears Canada is one of the most prominent e-commerce players in Canada, with CAN$505 million in sales in 2015—more than Walmart and others who have begun pushing aggressively into online sales. Sears’ CEO and top shareholder, Edward Lampert, said the sell-off of critical assets in the last year had given the retailer the money it needs to speed up its transformation. Sears Holdings has lost a total of $7 billion over the previous four years. In part, the retailer is trying to curb losses by using a loyalty program called Shop Your Way. Sears believes the membership scheme will be a long-term play for the company, and it will enhance repeat business and customer loyalty.

In late 2016 and early 2017, some significant steps were taken by Edward Lampert, president, chief executive officer and top shareholder of Sears Holding Corp. Lampert, with personal assets estimated at $2 billion, is also the founder and manager of the hedge fund ESL Investments Inc. He provided an additional loan of $500 million to the company and said he would provide letters of credit to Sears for additional amounts, reportedly totaling $200 million and possibly increasing to a half-billion dollars in the future.

Lampert also concluded an arrangement that sold the Craftsman brand to Stanley Black & Decker Inc. for approximately $900 million. During this period, the company also announced that it would close 150 stores (109 Kmart and 41 Sears outlets), in an attempt to cut its losses after a decline in sales of 12 to 13 percent during the holiday shopping season and the largest quarterly loss since 2013.

In February 2017, Sears announced a restructuring plan that is hoped to cut costs by $1 billion via selling more stores, cutting jobs and selling brands. During the second quarter of 2017, 42 Sear’s stores in 40 states will close. Later on, Sears announced that it would close an additional 12 stores. In July 2017, Sears announced it would close another 43 stores (8 Sears and 35 Kmart stores). Those closures are in addition to the previously announced closures.

Since 2010, Sears has gone from more than 3,500 physical stores to 695 US stores. Sales at Sear’s stores dropped 10.3 percent in the final quarter of 2016 when compared to the same period in 2015.

Annual revenues have declined from $31.2 billion in fiscal 2015 to $22.1 billion in fiscal 2017, and annual losses have gone from -$1.68 billion in 2015 to -$2.22 billion in 2017.

Sears has recently come out of bankruptcy with Ed Lambert’s company buying some of the assets, including around 400 stores that he is now in the process of restructuring to focus on a much narrower product line in the hope to keep the Sears name alive and return to some level of profitability. Many investors and business analysists are skeptical.

Several factors contributed to the downfall of Sears, as is often the case with business failures. In this Discussion Board, examine three factors. Use the information presented in this Discussion Board (above) as well as additional outside research.

Your analysis should address the following three issues:

1. What were the General Environmental Trendsthat contributed to the decline of Sears Holdings (review each of the six categories in the PESTEL analysis), and how does each one affect Sears (positive or negative and to what extent)? How has Sears responded to these trends? Has there their response been effective? Why or why not? What prevented Sears from an effective response to the changing conditions?
2. Describe the changes in Competitive Environmentthat were and are occurring in the brick-and-mortar retail industry that Sears and K-Mart compete in? What prevented Sears from responding to these changes?
3. How has the leadershipof Edward Lampert as CEO and major shareholder, contributed to Sears’ downfall? Explain how and why.

4. ANSWER

5. The Decline of Sears Holdings: Factors Contributing to its Downfall

   Sears Holdings Corporation, once a retail giant, experienced a significant decline over the years, leading to its eventual bankruptcy. Several factors contributed to this downfall, including general environmental trends, changes in the competitive environment, and the leadership of Edward Lampert as CEO and major shareholder. This essay will analyze these factors and evaluate Sears’ response to the challenges it faced.

   General Environmental Trends

    Political Factors: Sears faced regulatory challenges, including compliance with labor laws, consumer protection regulations, and tax policies. Additionally, changes in trade policies and international relations impacted the availability and cost of products, affecting Sears’ profitability.

   Economic Factors: The economic landscape greatly affected Sears. The 2008 financial crisis and subsequent economic downturn resulted in decreased consumer spending and a shift towards online shopping (Momin, 2023b). Sears struggled to adapt to the changing economic conditions and experienced declining sales and revenues.

   Sociocultural Factors: Changes in consumer preferences and behaviors played a significant role in Sears’ decline. As demographics shifted and urbanization increased, Sears failed to effectively cater to the evolving needs and desires of consumers. Additionally, the rise of e-commerce and the convenience it offered undermined Sears’ traditional brick-and-mortar retail model.

   Technological Factors: The rapid advancement of technology, particularly the rise of e-commerce and online retail platforms, disrupted the retail industry. Sears struggled to keep pace with technological innovations, leading to a decline in competitiveness and market share.

   Environmental Factors: While not as directly applicable to Sears, growing concerns about environmental sustainability and responsible business practices influenced consumer attitudes and purchasing decisions. Failure to align with these trends may have further eroded Sears’ relevance.

   Legal Factors: Legal challenges, such as litigation and compliance issues, added to Sears’ burdens. These challenges resulted in reputational damage, financial strain, and diversion of resources from core business operations.

   Sears’ Response

    Sears attempted various strategies to address these trends. They closed underperforming stores, launched loyalty programs like Shop Your Way, and emphasized online sales. However, their response fell short of reversing the company’s declining fortunes. Sears struggled to innovate and invest adequately in e-commerce, allowing competitors to outpace them in the online retail space. Furthermore, their efforts to revitalize the brand and adapt to changing consumer preferences lacked a coherent and compelling vision. Internal challenges, including organizational inefficiencies and a lack of agility, hindered effective responses to the external environment.

   Changes in the Competitive Environment

   The brick-and-mortar retail industry witnessed significant changes that affected both Sears and Kmart, making it challenging for them to remain competitive.

    Rise of E-commerce: The growing popularity of online shopping disrupted traditional retail models. Retail giants like Amazon quickly gained market share, offering a wide range of products, competitive pricing, and convenient delivery options. Sears struggled to establish a strong online presence and failed to effectively compete with these digital disruptors.

    Increased Competition: Other traditional retailers, such as Walmart and Target, adapted better to the changing retail landscape. They invested heavily in e-commerce, optimized their supply chains, and created seamless omnichannel experiences. Sears struggled to differentiate itself and lost customers to these more agile competitors.

    Price Sensitivity and Discount Retailers: The economic downturn led to heightened price sensitivity among consumers (Accenture, 2022). Discount retailers, such as Walmart and Dollar General, gained popularity by offering competitive prices and a broad range of affordable products. Sears, with its historically higher price points, faced challenges in attracting value-conscious customers.

   Sears Response: Despite recognizing the importance of e-commerce, Sears struggled to adapt to the changing competitive landscape. Their investments in online platforms and fulfillment capabilities were insufficient, leaving them unable to effectively compete with agile and customer-centric rivals. Furthermore, Sears failed to differentiate its brand, resulting in a loss of relevance and customer loyalty.

   Leadership of Edward Lampert

   Edward Lampert’s leadership as CEO and major shareholder has been widely criticized for contributing to Sears’ downfall.

    Lack of Retail Experience: Lampert, primarily a hedge fund manager, lacked direct experience in the retail industry. His strategic decisions and operational choices may have reflected this knowledge gap, leading to suboptimal outcomes (Wiles, 2007).

   Financial Engineering Over Operational Excellence: Lampert’s focus on financial engineering, such as cost-cutting and asset sales, detracted from the core operations of the business. This limited investment in areas crucial for long-term success, such as store renovations, technology upgrades, and customer experience enhancements.

   Ineffective Capital Allocation: Lampert’s allocation of capital to non-retail entities and the purchase of other struggling retailers (e.g., Kmart) diverted resources from Sears’ core business. These diversions, combined with insufficient investments in growth initiatives, weakened Sears’ competitive position.

   Lack of Clear Vision and Strategic Direction: Sears lacked a clear and compelling vision under Lampert’s leadership. The absence of a coherent long-term strategy hindered the company’s ability to adapt to changing market conditions and seize new opportunities.

   In conclusion, several factors contributed to the decline of Sears Holdings. The general environmental trends, changes in the competitive environment, and leadership under Edward Lampert all played a role in Sears’ downfall. While Sears made efforts to respond to these challenges, their response proved ineffective due to a lack of innovation, agility, and strategic vision. Ultimately, Sears’ inability to adapt to a rapidly evolving retail landscape and address internal deficiencies contributed to its significant decline.

   References

   Accenture. (2022, September 30). Widening Gap Between Consumer Expectations and Reality in Personalization Signals Warning for Brands Accentur. Widening Gap Between Consumer Expectations and Reality in Personalization Signals Warning for Brands Accentur. https://newsroom.accenture.com/news/widening-gap-between-consumer-expectations-and-reality-in-personalization-signals-warning-for-brands-accenture-interactive-research-finds.htm 

   Momin, A. (2023b, May 29). Sears SWOT Analysis: Can it Regain its Past Glory? PESTLE Analysis. https://pestleanalysis.com/sears-swot-analysis/ 

   Wiles, M. V. (2007). The effect of customer service on retailers’ shareholder wealth: The role of availability and reputation cues. Journal of Retailing, 83(1), 19–31. https://doi.org/10.1016/j.jretai.2006.10.003