Analysis of the Fall of Sears Canada
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Analysis of the Fall of Sears Canada
Executive Summary
Sears was excelling in the 1980s. Its revenue was five times that of Walmart. Walmart took over as it listened to its consumers shifting demands and used information technology. They used the “cutting edge technology” in order to manage their shelf space. Sears went through an identity crisis, failing to differentiate themselves. Their services did not stand out, nor did they understand who they were targeting. During the 1980s, Sears focused on other aspects of its business, besides retail and its core customers. Moreover, there are many reasons to explain why Sears did not maintain its success. One of the reasons was that Sears dealt with personnel and the running of the company’s internal affairs. The management style was not improved because of their authority, who made decisions without any collaboration. Lastly, Sears’ fall can be explained by its attempt to diversify. It was not consistent with the company’s core business strength
Introduction
Founded in 1953, Sears Canada was once a leading company in the retail industry. Unfortunately, Sears did not maintain its success because it could not avoid internal weaknesses or neutralize threats, nor did it use its internal strengths for opportunities (CBC News, 2018). Its lack of modernism, its inability to adapt to its competitive environment, the lack of teamwork, and not diversifying led Sears into a black hole. First, Sears failed because it kept its traditional ways of shopping, nearly failing to keep up with new trends. Sears did not seem like it took care of its image. It had outdated stores. Their products were not fashionable or up to date. More importantly, they did not invest in e-commerce during the appropriate time frame. Sears Canada had an identity crisis failing to be distinguishable among its competitors. Sears’ competitors, Walmart and The Bay had a clear identity and vision, which Sears did not.
Sears’s crisis
Sears was excelling in the 1980s. Its revenue was five times that of Walmart. Walmart took over as it listened to its consumers shifting demands and used information technology (Charan, 2008). They used the “cutting edge technology” in order to manage their shelf space. Walmart also knew which items were most sold in specific locations. This made it clear to Walmart where and what consumers were buying most. Due to this, by 1990, Walmart took over, and Sears was only making half of Walmart’s revenue (Charan, 2008). Walmart focused on providing its consumers with affordable products, and it is still known for that. The Bay is known for its right quality products. In 2008, Vice Chairman Bonnie Brooks added 250 new brands and dropped 800 brands that were not performing well (Retail Insider, 2014).
Sears went through an identity crisis, failing to differentiate themselves. Their services did not stand out, nor did they understand who they were targeting. During the 1980s, Sears focused on other aspects of its business, besides retail and providing for its core customers (Charan, 2008). This shows that Sears did not know its target audience. According to Charan (2008), Sears focused on some products more than others. This confused customers as to what Sears’ specialty was. For example, Sears focused on their appliance department, which was their strength; however, they neglected other departments. They closed the catalog in 1995 and then reopened it in 2002, which portrays Sears’ inconsistent and unorganized vision (Charan, 2008).
Edward Lampert Leading Sears Down the Drain
Moreover, there are many reasons to explain why Sears did not maintain its success. One of the reasons was that Sears dealt with personnel and the running of the company’s internal affairs. The way Sears managed its company was not even close to perfect. They had flaws in their management style. The company was missing an essential element, leadership focusing on customer service (Peterson, 2017). This shows that clients may have felt unwanted and not taken care of. Customer service dissatisfaction is one of the most crucial factors that caused them to dislike Sears. These emotions could have been avoided if the right team was in charge of the right strategies. A person who seems to have played a big part in the falling of sears is CEO Eddie Lampert. One reason, according to Forbes magazine, is the lack of teamwork. Lampert made most significant decisions with no consultation from the lower to mid-level managers. They were forced to comply with orders from someone who was out of touch with retail trends and customer needs (Hartung, 2016). Lampert just wanted people to agree with him and conform to his ideas, thus not having any diversity of opinion within their team.
The management style was not improved because of their authority, who made decisions without any collaboration. Lampert goes on to say that “in the case of Sears Canada, several management teams attempted to turn around and transform the company over many years, but the specific strategies pursued did not drive meaningful operational improvements in the changing retail environment.” (Kopun, 2018). He mentions that the previous leaders did not themselves apply the right strategies for Sears. The employees did not have someone to take an example from. There was no leadership. Lampert acted as a boss and not a leader, which was an obvious foreshadowing of the downfall of Sears.
According to Larry E. Greiner and his theory of “Evolution and Revolution as Organizations Grow, “Collaboration is the last phase in an organization’s growth. Collaboration is defined as “spontaneity in management action through teams and the skillful confrontation of interpersonal differences.” (Greiner, 1994) Greiner mentions that to be successful, one must go through all the five phases of revolution and evolution. This explains why Sears did not have long term success because it did not perform the last phase known as “Collaboration.” This stage focuses on solving problems through team action, and Lampert did the opposite (Greiner, 1994). He only gave instructions and acted as an authority, but he did not discuss it with his employees or allow them to have a voice. Teamwork was not a part of the equation. This resulted in a tense and uncomfortable relationship between top managers and Lampert. Managers did not enjoy working with Lampert, leading to a separation and, therefore, not allowing the company to use its strengths to their full potential (Peterson, 2017).
Failed Attempt at Diversification
Lastly, Sears’ fall can be explained by its attempt to diversify. It was not consistent with the company’s core business strength. According to Alfred D. Chandler’s “First Movers” theory, to fully exploit industrial success through economies of scope, notably, size is insufficient. Economies of scope consist of a large production of a variety of complementary goods or services, and where the cost per unit decreases as its output increases. Diversification is, therefore, essential, but only relevant to the business core strength of the organization (Chandler, 1990). The strategy is poor if it is unrelated because it expands in areas where there is a lack of expertise and no particular knowledge.
Selling home and outdoor appliances, furniture, and clothing was the essence of Sears’ successful business. However, as mentioned in the Sears Canada Inc. Market Line company profile, in 2002 and 2009 respectively, Sears entered in the sales of travel services and launched the offering of financial services such as real estate services (Sears Canada Inc.,
2016). The company developed a service in Canadians to buy or sell a home with a Sears certified agent, guaranteeing them to earn a 0.6% of the selling price, which would be transferred into Sears gift cards (Cision, n.d.). An opposing view could suggest that finding new markets or directions, regardless of relevance with its primary business, is indispensable for the growth of an organization. This statement is not entirely false, since diversification is better than not changing at all. Nonetheless, Sears could not avoid its downfall despite those measures at attempting to expand their market, which only reinforces Chandler’s argument that diversification must be related in order to be rewarding.
Findings from a study of Indian business groups from 1998 to 2012 even suggests that “unrelated diversification resulted in poorer performance as institutions developed and market reforms took root” (Ramaswamy et al., 2017). The above examples of services provided by Sears demonstrate the inconsistency with the core products sales that made the organization a giant in the Canadian retail industry. New initiatives must strengthen the value proposition but also align with the proper capabilities and skills of the organization. Unlike entrepreneurs, consumers are in no need to take risks and will, more often than not, rather choose certainty when making decisions. When a company with limited expertise in a field offers a product or service in that same particular field, there is no reason why the customer would not prefer purchasing it with a specialized firm elsewhere. With this lack of knowledge, the company also risks negatively affect its image and credibility by failing to deliver successfully.
In 2013, the department Sears Home Services, which provided home repairs such as carpeting or roofing, went into receivership with a loss of $14 million in just nine months, as noted by business reporter Francine Kopun (Kopun, 2013). Clearly, the offered services were not a success and led the company to financial issues. Sears was not known or favored by consumers for home installments and repair services, or even for selling vacations or real estate, but rather for home appliances, furniture, and clothes. The company lost much money and resources to provide unrelated services instead of focusing on being innovative and improving capitalization on its strengths.
Sears attempted to become all things to all people. However, what was important for consumers consisted of how the retailer would change or improve with respect to increasing competition. It was quality over quantity in their eyes that mattered, and it is that uniformity in quality that made many of them change retailers or stop shopping at Sears.
Had Sears avoided unrelated diversification, it could have had addressed its weaknesses and opportunities earlier and perhaps change the outcome of the retailer. Alternatively, if the company wanted to exploit the path of diversification, it should have remained in its area of expertise or core business. An example we could use is a famous and successful Ikea. Although it is not a Canadian company, they integrated electronics, such as televisions, into furniture solutions. Ikea did not enter the electronics markets. Rather it increases the value proposition of its current business, which is functional home furnishing (Favaro, 2014).
Strengths
Sears worked hard over the years to build a strong culture among its dealers and suppliers. This relationship allowed for those dealers to promote the company’s products and work efficiently to bring the items to the locations quickly. Sears had been able to special order products and got them to the stores or the patient’s homes rapidly and set-up when appropriate. However, one way to improve on this strength was to incorporate more training from the dealers and suppliers when it comes to appliances and equipment. This could have ensured that the floor staff and mechanics be incredibly prepared to give confidence to the customers and meet their needs.
It is also a tremendous strength to carry the “Sears” name, which was a highly recognizable logo and tremendously respected in Canada. According to Thomson (2007), the iconic name of Sears claimed exclusive rights to Joe Boxer, Route 66, and the Kardashian Collection. Sears was known for having large “product and service offerings which help the company to serve diverse needs and preferences of customers and thereby enhancing its top-line performance” (Progressive Digital Media, n.d.).
Weaknesses
Canadians have changed their shopping habits. According to Jamerson (2016), in the mid-’80s, 45% of all consumer spending was on goods and apparel. Today, it is less than 31%. Partly because Canadians have shifted their tendencies to online and away from malls, this has helped comparable stores that are in stand-alone buildings or smaller strip-malls garner customers. Sears’s competitors, like Walmart, Costco, T.J.Maxx, and Target, have all benefited from modern shopping preferences.
Perhaps the biggest internal weakness has been self-inflicted. The decline of Sears has much to do with its retail practices and tired strategies. They routinely understaff their stores, which has caused customer service practices to struggle. For instance, Sears decreased their scanned items per minute from 18 to 5, simply because of staffing shortages and confusion.
Opportunities
Although there are many weaknesses recognized at Sears, this section will identify the opportunities to improve upon those weaknesses
Transformational Strategy
There must be a transformational strategy put into place to assure exceptional customer service. The inconsistencies experienced in the financial side of the business are heavily influenced by the customer care side. For instance, investing in training and development focal points would be a key to achieving their retail strategy. At the time of their fall, Sears locations were understaffing, which in turn affected the orientation and training of all new staff members. When staffing ladders are not effectively utilized, locations that are short-handed are placing new hire team members on the floor without the proper training. Sears could have staffed correctly and get back to the fundamentals of good service. This commitment to the team could have increased their longevity, suppress turnover, improve morale, which rolls over to the bottom line.
Location, Location, Location
In its hay day, Sears anchored nearly every mall in Canada. However, when the habits and desires of shoppers changed, Sears failed to change with them. Gone are the days when most shoppers chose to go to a large mall. Most prefer the convenience of a department store in a stand-alone building or an online business. While Sears remained in the large malls, many competitors struck and struck often. Walmart, Kohls, Target, and Amazon all found a different way to meet their goals. Most use stand-alone buildings, apart from Amazon, who excels at online ordering. In the current times, Sears should cease closing stores as a way out of their financial problems and correct real-estate and location problems. Look for alternatives to closing the location, why not move it. Downsize the operation in that city and move it to a stand-alone business in a heavily tracked area.
This idea could spark a new “discount” store located in areas easily accessible and sized for “neighborhoods” instead of anchoring malls. Aim these locations at younger families, expecting mothers, high-school children, and younger. Add a fresh-face to Sears, bring them forward along with new advertising and clean, modern looks.
Threats
If Sears could play to their strengths, find advantages within their weaknesses, and utilize their opportunities, they can then find the confidence to push-back their threats.
Competitors
A significant threat for Sears was online ordering from competitors like Amazon. Amazon is correctly set up to challenge big-box retail companies that have much overhead. “They have no stores, no store clerks, and minimal inventory due to “e-storefront” selling” (Isidore, 2018). The benefit of operational efficiency with e-selling is mostly financial. Removing overhead saves a tremendous amount of money and frees up that money for other endeavors and expenses.
Sears Holding has begun selling their name brand appliances to other retailers. This is a desperation move that may backfire. The fear is that customers who have purchased these items in the past from Sears will no longer use them for their appliance needs.
Conclusion and Recommendation
Overall, Sears’ fall was inevitable. They did not put much effort into their customer service. When under the public eye, mistakes are hard to recover from, and they influence a company’s reputation easily. Unfortunately, all the damage had been done when Sears tried to recover. Sears failed to develop their shopping methods; they did not focus on their strengths, expertise, leadership, nor diversity.
Considering the options listed above, it can be recommended for Sears to move into a positive bottom line would be the following approach. A change in business structure and direction is sorely needed at Sears Holdings. The company needs to appeal to a younger generation by having a clean, fresh, new look. Excitement would be built by identifying the locations that could be moved into smaller, more efficient buildings. This would give the company advantages that they have not had before.
Firstly, positive public relations as advertising can focus on bright, efficient stores that are not within the confines of malls—a new logo for these “neighborhood” stores, with a new paint scheme and focus. Next, the company can focus on the advantages of bringing in brands that will appear to a new generation of Sears shoppers. Increase the exposure of newer brands that will pull in customers from sporting good shops across town, or take on Lowes head-on by cost-cutting many of the same tools.
These efforts can bring a new public image to a company that has been around for much more than a century. A new generation of customers will appreciate the aggressive nature and efforts to get their attention.
References
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