THE DOWNFALL OF SEARS: 5 KEY REASONS WHY THE RETAIL GIANT WENT UNDER
Founded in 1893, Sears is synonymous with the middle-class American dream of the 20th century. It smartly leveraged customer data, creative marketing, and a large store count to become a formidable retail juggernaut that would dominate the U.S. retail landscape during the post-war boom of the 1940s and 1950s. The company helped develop many brands that consumers still know and love. Brands like Whirlpool appliances, Craftsman tools, Schwinn bicycles and Allstate insurance owe a lot of their success to Sears. At its peak, “ Sears sales alone accounted for 1% of the entire U.S. economy, and two-thirds of Americans shopped there in any given quarter.” Sears was America’s largest retailer because it successfully predicted the major trends that shaped the latter half of the 20th century. It correctly predicted the importance of things like mail-order retail, suburbs, and the American mall.
The department-store chain operated over 3,500 stores in its heyday. Today, the American giant is a shadow of its former self with just 28 full-line Sears stores. In 2018, the company filed for bankruptcy after years of declining sales. The decline of Sears shows that any company can fail if it neglects to properly adapt to changing consumer behavior.
Here are 5 key factors that contributed to the downfall of Sears:
MALL ANCHOR LOCATIONS
During the 1970s and 1980s, Sears anchored many malls across the country. As malls began to decline due to competition from online retailers and big-box stores, Sears failed to pivot their business model away from their mall-based store model. Although it did experiment with smaller format stores, the brand didn’t invest heavily enough in the new formats even though those stores were twice as profitable.
In 1993, Sears canceled its legendary catalogue. For much of the 20th century, the catalogue was an important part of Sears’ business model and an important part of American culture more broadly. In its early years, the catalogue played a critical role in the company’s hugely successful mail order business. This mail order business was important for two reasons. First, it allowed rural customers to purchase items via the postal system, which dramatically increased their customer base. Second, the catalogue provided unique customer data to Sears at a time when few companies could leverage big data for their retail strategies. In many ways, Sears was the Amazon of the 20th century because it was able to effectively use its customer data to make key insights into consumer trends. By the 1990s, the catalogue had been unprofitable for decades, so it did make sense for Sears to cancel the project despite the catalogue’s sentimental value to many of its customers. Sears' key failure was a lack of innovation. Without a replacement for their catalogue, Sears gave up their edge and lost their advertising and consumer data advantage. This resulted in the downfall of sears.
UNCLEAR VALUE PROPOSITION
In 2004, Sears merged with the deep discount brand, Kmart. This was a misstep for the Sears brand because it muddied their value proposition. At the time, Sears held a unique position in the retail market. Their brand was a unique balance between quality and price. By merging with Kmart, Sears cheapened their brand, which put Sears in more direct competition with budget chains like Walmart and Target. These discount big box stores were able to out-compete Sears on price. On the other end of the spectrum, the rise of small upscale specialty stores also posed a serious threat to Sears’ value proposition. For example, the GAP was a big problem for Sears in the mid 1990s because the GAP positioned itself as a trendy boutique. They traded on their exclusivity and “coolness”. Nobody bragged about buying their clothes from Sears because they perceived it as “unremarkable.” This is a classic symptom of an increasingly bifurcated market. In this kind of environment, brands are forced to be “efficient and cheap or intimate and remarkable” to make a strong impression with customers. The danger is getting trapped in the middle, which is “an inevitable race to the bottom.”
As sales declined in the late 2000s, the company was forced to adopt dramatic cost-cutting strategies. They allowed their brand to stagnate and their stores to fall into disrepair. This created a negative feedback loop which further exasperated Sears’ financial troubles. Stores became dingy and turned away what customers remained loyal to the brand. “A report from Susquehanna Financial Group had said Sears in 2017 was spending roughly 91 cents per square foot to make upgrades both online and in stores, while J.C. Penney spent $4.13, Kohl’s was paying $8.12, and Best Buy was forking out $15.36 per square foot to make enhancements.” The physical state of many of their stores reflected consumers' growing attitude toward the brand: it was an aging company that couldn’t keep up. That impression did little to boost morale or sales.
In addition to the chipped paint, Sears didn’t have the resources to innovate with their assortments or inventory. Many clothing and retailer brands flatly refused to work with the company. “Even when Sears did lure desirable brands, its increasingly dumpy stores hurt momentum... Things got so bad that in a 2016 survey, female shoppers said they preferred thrift store Goodwill over Sears for clothing.” Poorly stocked shelves plagued the company during its final days. “The companies that supply Sears with the TVs, toys, and clothing in its stores are increasingly concerned about the retailer's ability to pay its bills, and some are cutting back on shipments to stores as a result.”
DOWNFALL OF SEARS CONCLUSION
The decline of Sears is a poignant lesson about the dangers of complacency. Even massive retailers must constantly refine their strategy in order to keep up with changing consumer behavior. Whether you’re looking to expand your domestic market, open new channels, or launch a new product, CASTUS can provide a clear strategy. Let’s Talk.