Reference no: EM132261466
1. Explain how the interrelationships between the different parts and functions of the company featured in the case can maximize positive outcomes with customers and suppliers in a competitive market. The case is listed below!
After working late one evening, Joan stopped off at Sears to return some items she had purchased online from Lands’ End—a Sears-affiliated brand since 2002. She couldn’t remember the last time she’d set foot in a Sears store, instead usually shopping at other department stores or discount retailers. As she walked in, she noticed that the store felt old and a bit run-down. She also noticed that she was one of few people in the entire store. The store seemed to stock a hodgepodge of products and brands, arranged in a pedestrian way. On her way out of the store, she wondered to herself, “Who shops at Sears? Why?”
Younger shoppers might find it hard to believe, but until the 1980s, Sears was America’s largest retailer—the Walmart of its day. It’s once-famous slogan, “Where America Shops,” wasn’t just a clever tagline conjured up by Madison Avenue. It was a positioning statement with power. Sears catered to all, selling merchandise in just about every category to just about every customer segment.
But the once-dominant Sears has since fallen so hard and fast that some analysts are now predicting its complete demise within the next few years. Its once-famous slogan seems almost comical now, as its stores are often deserted, even during peak times. What caused this decline? Sears lost its focus. Whereas many retail brands have forged strong positioning strategies targeting specific segments, Sears no longer stands for much of anything. Mention Walmart and people think “Save money. Live better.” Bring up Target and they know to “Expect more. Pay less.” At Macy’s you get “the magic of Macy’s,” and Nordstrom promises to “take care of customers no matter what it takes.” But say Sears and most customers draw a blank. The chain has neither an image nor an apparent value proposition that gives people a compelling reason to shop at its stores.
Founded in 1886, during the next century, Sears grew to become America’s iconic retailer. It began as a mail-order catalog company in the 1880s, grew into a national chain of urban department stores during the early to mid-1900s, and became an important anchor store in the fast-growing suburban malls of the 1960s and 1970s. Through the 1980s, Sears was the nation’s largest retail chain. Almost every American relied on Sears for everything from basic apparel and home goods to appliances and tools. But during the past two decades, as the retail landscape has shifted, once-mighty Sears has lost its way. Sears has failed to refresh its positioning to make itself relevant in today’s marketplace.
A look at Sears advertising or a visit to the Sears Web site testifies to the retailer’s almost complete lack of current positioning. Headlines scream “Buy more, save more on appliances,” “50% off your favorite apparel brands,” “Lowest prices on Craftsman lawn and garden,” and “Big brand sale: great values, top brands.” It seems that about the only thing Sears has going for it these days is that everything it sells is always on sale. However, price is not a convincing value proposition for Sears, which has trouble matching the low prices of competitors such as Walmart, Target, or Kohl’s.
In 2005, a struggling Sears merged with an even more distressed Kmart to become Sears Holding Corporation. The merger of the two failing retailers left analysts scratching their heads and customers even more confused about the value propositions of the respective chains. Following the merger, the corporation jumped from one questionable tactic to another. For example, Kmart stores began carrying well-known Sears brands such as Craftsman tools, Kenmore appliances, and Diehard batteries, diluting one of Sears’s only remaining differentiating assets.
Sears Holding has also tried a variety of store formats. For instance, it converted 400 Kmart stores to Sears Essentials stores, which it later changed to Sears Grand stores—Walmart-like outlets that carry regular Sears merchandise plus everything from health and beauty brands, toys, and baby products to party supplies and groceries. It has also dabbled with a confusing assortment of other formats carrying the Sears name, such as Sears Hometown stores (a franchised smaller version of full-sized Sears stores), Sears Hardware stores, Sears Home Appliance Showrooms, Sears Outlet stores, and Sears Auto Centers.
Despite the variety of store formats, Sears has done little to refresh its positioning. “A lot of traditional department stores have reinvigorated themselves through merchandising. You haven’t seen that from Sears,” says one analyst. To make matters worse, whereas most competing retailers have invested heavily to spruce up their stores, Sears has spent less than one-quarter of the industry average on store maintenance and renovation, leaving many of its outlets looking old and shabby. “There’s no reason to shop at Sears,” concludes a retailing expert. “It offers a depressing shopping experience and uncompetitive prices.”
Many critics place the blame for Sears’s lack of sound marketing and positioning on Sears Holding Company chairman Edward Lampert, a hedge fund manager and the driving force behind the Sears/Kmart merger. Lampert and his funds own about 60 percent of Sears Holding’s stock. Critics claim that since the 2005 merger, Lampert has run the company more as a portfolio of financial assets than as a retail chain. A fierce advocate of free-market economics, Lampert restructured Sears into approximately 40 business units, each set up to operate as an independent business with its own set of c-suite officers, boards of directors, and profit-and-loss statements. The intention was for the decentralized structure to foster independence and competitiveness and to make each part of the corporation more accountable.
It had other, less appealing effects. For example, because the appliance unit could make more money selling products manufactured by outside brands, it began featuring brands like LG over Sears’s own Kenmore. A similar problem arose when the Sears Craftsman brand unit proposed a tool co-branded with the Sears DieHard brand. But under the new structure, Craftsman would have had to pay DieHard royalties, making the cost of the item prohibitive. Craftsman tools and Kenmore appliances still lead their categories, and the DieHard brand of automotive batteries remains strong. But the infighting has had a negative effect on the market positions and fortunes of these and other Sears brands.
The decentralized structure also created barriers to pricing Sears and Kmart products competitively relative to competing chains. After studying the company’s prices, a newly appointed president of retail services surmised that Kmart’s food and drugs were more expensive than those at Walmart and Target. He proposed reducing prices on these product lines, bringing them in line with competitors. The presidents of various business units agreed with the proposal. But no unit was willing to cough up the $2 million needed to fund the project. Corporate headquarters rejected a request for a loan. So prices remained at uncompetitive levels.
As day-to-day operations played out, cooperation and collaboration gave way to a “warring tribes” culture that made the lack of a solid marketing message even worse. As chief marketing officers fought over advertising space in the weekly Sears circular, the circular turned into what one former executive referred to as a “Frankenstein” promotion—a hodgepodge of product combinations with no overall cohesion. Screwdrivers were advertised next to lingerie, and lawnmowers sat next to ladies’ shoes. For the cover of one Mother’s Day circular, the sporting-goods unit purchased space for a Doodle Bug minibike—an item popular with young boys.
All of this speaks to a lack of leadership at the top. Since the 2005 merger, Lampert has hired four CEOs, not a single one with any retailing experience. After the last CEO left more than a year ago, Lampert assumed CEO responsibilities himself. But “being a successful hedge fund manager doesn’t make you a good retailer,” says one Sears watcher.
There are a few signs of a prosperous future for the nation’s once-greatest retailer. To streamline operations and free up cash, Sears is selling off parts of the company. Last year, Sears Holdings spun off Sears Hometown and Sears Outlet stores. Lampert also facilitated the sale of a portion of Sears’s stake in Sears Canada. Most recently, the company sold Lands’ End—now an independent company, although still located within Sears—in a transaction that put more than $1 billion in Sears’s coffers. Lampert is eying similar deals for other Sears businesses. Although some see this as a way to strengthen the company by focusing on its core business, others see it as little more than “continuing to burn the furniture to stay warm.”
One potential bright spot for Sears is online sales. As the company’s revenues continued to drop, its online sales have been on the uptick. With a strategy to become a fully integrated omni-channel retailer, revenue from e-commerce has been growing by an average of 10 percent over the past few years. In fact, Sears is the sixth-largest online retailer in the United States. This is no accident. Lampert is a believer in selling online. In a recent statement that accompanied a financial update to the press, Lampert came as close as he ever has to issuing a statement of corporate strategy. “We are transitioning from a business that has historically focused on running a store network into a business that provides and delivers value by serving its members in the manner most convenient for them: whether in stores, at home, or through digital devices.”
To support this assertion, Sears has developed the Shop Your Way loyalty program—a hybrid between Amazon and Facebook that allows customers to accumulate and spend rewards online or off. Sears has also experimented with a store pickup service, MyGofer—an initiative that essentially turns Kmart stores into a same-day pickup location for all Sears and Kmart brands and merchandise ordered online. With the omni-channel model very much in vogue, this strategy seems to put Sears right on target in terms of where the retail industry is headed.
But while Sears is apparently investing in the digital side of its business, it is neglecting the brick-and-mortar side. The chain hasn’t opened a new store in years. In fact, it’s selling off locations—235 this year alone. “Our stores are often in the wrong place and are often too large for our needs” was all that Lampert could say when questioned about the high rate of store closures. And Sears’s remaining stores are progressively becoming less appealing. One retail analyst, once a big Sears fan, remembers growing up in Chicago at a time when his family wouldn’t think of shopping anywhere but Sears. Now things are different. “I shopped for back-to-school clothes at a store [that’s] now so dark and depressing, I can’t bear to go in,” he says, “even though it’s [just] blocks from my home—a home that sits on a street that shares a name with an iconic Sears brand.”
Although Lampert and his team continue to claim that turnaround efforts will soon bear fruit, things don’t look promising for Sears. The lack of customer thinking and marketing strategy has taken a devastating toll. Sears Holding Corporation’s revenues have fallen for 29 consecutive quarters. Total sales for the most recent year were $31.2 billion, down 14 percent from the previous year and a far cry from a peak of $53 billion just eight years prior. Profits also paint a grim picture—the company lost $1.7 billion last year, more than it made from selling off Lands’ End. As a result, Sears’s stock price has fallen nearly 80 percent since 2007.
In a letter to shareholders after the release of the most recent year’s financials, Lampert boasted of his e-commerce plan, saying that otherwise, “we would be stuck on the same path that has claimed Circuit City, Borders, Radio Shack, and others,” all iconic retailers that have gone out of business. And yet, with no cogent marketing plan and seemingly no way out of its financial tailspin, many analysts predict that once-dominant Sears will soon follow the same fate and disappear entirely.