Sears: The one thing that could have saved them

As much fun as it is to call out Eddie Lampert on his misguided, selfish and seemingly delusional decade-plus leadership of Sears Holdings, when the world’s slowest liquidation sale is ultimately complete–I’m guessing, for all intents and purposes, by this time next year–we should acknowledge that Sears fate was probably sealed well over 20 years ago, when Crazy Eddie was not even involved.

First a bit of context. I worked at Sears from 1991-2003 and my last job was head of strategy reporting to then CEO Alan Lacy. I also led the Lands’ End acquisition integration team. During my tenure, in addition to various operating and marketing assignments, I was either the #1 or # 2 strategy guy when we implemented the “Softer Side of Sears”, created and piloted The Great Indoors and Sears Grand concepts and launched or accelerated the growth of free-standing Sears Appliance and Sears Hardware stores. I worked on or led teams that evaluated the acquisition of Kmart, Lowes, Best Buy, Circuit City–and Builder’s Square and Eagle Hardware when they were still around. We also seriously assessed turning all Sears mall locations into home only stores (among other concepts) and, in 2003, analyzed selling Kenmore and Craftsman to Home Depot or Lowes. So it’s safe to say I have more than a passing knowledge of how Sears evolved (or more accurately devolved) over an extended period of time.

With the benefit of that experience (and a good amount of hindsight) my conclusion is this: the only thing that would have given Sears a chance to thrive–not merely survive–was to have either launched their own home improvement warehouse concept or to have acquired Home Depot or Lowes’s at a time when they were realistically affordable–and that’s probably prior to 1995.

The reasons are simple. First, well before Amazon was even a thing it was becoming abundantly clear that the moderate department store space was structurally challenged and that Sears weird mix of hardlines and apparel was not a winning formula. Even if the soft home and apparel business got significantly better that was neither a particularly good nor a sustainable outcome. Second, far and away what Sears had that WAS relevant, remarkable and highly profitable were its appliances and home improvement categories. Importantly, Sears also had several leading market share brands- Kenmore, Craftsman and Diehard–that were only available at Sears.

Yet by the early 90’s it was becoming increasingly clear that Home Depot and Lowes were transforming those categories by winning on more convenient locations, better pricing and the ability to serve a broader set of purchase occasions. As they rolled out their stores Sears share (and profits) in those markets dropped precipitously. And it was also clear–or should have been–that Sears could not mitigate those competitive advantages through its mall-based locations.

So what Sears missed (or more accurately, was unwilling to act on) was that the only way to meaningfully counteract the inevitability of the dominance of the home improvement warehouse (and preserve or grow the value inherent in their proprietary brands and strong customer relationships) was to become a leader in that format. Instead, Sears spent the past 25 years wringing out costs (when it mostly had a revenue problem), vainly trying to grow its off-the-mall presence with too few (and way too mediocre) formats, investing in cool digital stuff while starving their physical stores to the point of irrelevance and embarrassment and, apparently, hoping that the Kardashians could somehow turn around an apparel business that has struggled for more than a decade to consistently get to a 30% gross margin and $100/sf in many stores (or what I like to call the “lame brand instead of name brand” strategy).

To be sure, one can argue that there were any number of things Sears could have done over the past 25 years to have meaningfully altered its course. Certainly had Sears not run its catalog into the ground they would not only have had more money to invest in the core business but would have been beautifully positioned to benefit from the dramatic rise in direct-to-consumer commerce. Without a doubt, virtually all of the new formats that were rolled out could have been much better executed. And some of the fantastic consumer interest created by the Softer Side of Sears campaign was not fulfilled by store and merchandising execution. The Lands’ End deal, while strategically sound and potentially transformative, was botched by a too aggressive store-rollout and mishandled marketing. And on and on.

Of course, we will never know for sure. But ultimately, from where I sit, it would all probably just have been lipstick on the pig.

In my view the real fault lies at the leadership all those many years ago that was too busy diversifying Sears into insurance, real estate and mutual funds, while taking their eye off of the customer and the core business and, thereby, letting Home Depot and Lowes (and to a lesser degree Best Buy) gain an insurmountable lead. And that’s a real shame, not to mention a heartbreaking disservice to all those men and women who worked so hard to make Sears a retail icon.

Dead brand walking.



14 thoughts on “Sears: The one thing that could have saved them

  1. why doesn’t sears turn into a “home depot” or “lowes?” it’s the only thing I can think of that could make this company a screaming buy at $6 a share

      1. Yes I read that, but I do not understand why they can’t get into it now. They have plenty of real estate, are they under obligations/contracts for current supplies, where they couldn’t eventually get rid of clothing and replace it w/ sheetrock etc etc? Barrier to entry very high in this business? Thanks for your time!

      2. The reasons are too numerous to mention, but there are three big ones: a) they are at a disadvantage on every important driver of consumer advantage: real estate, # of locations, brand line up, cost position, consumer trust, etc. b) the market would not support a major new entrant c) it would costs billions of $ to address real estate and branding issues, which there is zero change they could finance.

  2. About 19 years ago I did something I’ve never done before or sense. I called the corporate headquarters of Sears in Chicago and lodged a customer service complaint that the local Sears store in Roseville and Auburn, California chose to not only ignore, but to treat me with such disrespect that I couldn’t ignore what I was seeing happen to the iconic Sears of my childhood growing up in the 1940’s and ’50’s.
    To make a long story short, the response from the “customer service” department personnel at the Sears headquarters was the same as the local “customer service” department personnel. I ended my conversation with the last person I talked to at Sears headquarters with a prediction: ‘Sears will be out of business in ten years!’. To my amazement and surprise, Sears has lasted this long with the crappiest attitude I’ve ever witnessed in the retail business.
    Every word of your article, Mr. Dennis, has resonated with me on a very personal level. Thank your for affirming my observations.

  3. I can think of one other thing Sears could have done…. they could have been what Amazon is today. They shut down their catalog service in 1993 just years before Amazon started. They could have brought their name recognition and consumer trust into E-commerce, which let’s face it, is the catalog shopping of the 21st century.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.