| July 05, 2017
Sears was founded as Sears, Roebuck & Company in 1886. Its catalogs offered an attractive alternative to rural town stores by offering a wider selection of goods at attractive prices. Unfortunately, the once-iconic brand is now struggling to survive and its potential demise has a lot to do with a company that is doing to Sears what Sears once did to the general store.
The fundamental problem that Sears faces is the same one faced by all department stores. E-commerce offers convenience, low prices and fast delivery - the modern consumer’s trifecta - and Amazon has led the shift from bricks to clicks. One result of Amazon’s success (and the Great Recession) has been a growth in price sensitivity among department store shoppers. Between 2008 and 2015 the proportion of people who stated that it was more important to get the lowest price than choose a specific department store rose from 39 percent to 51 percent.
By the time I arrived in the U.S. Sears was no longer the institution that it once had been, but I feel some sense of connection with the venerable brand. Why? Because the first house Jill and I owned in the U.S. had been chosen from the Sears catalog and delivered ready-to-assemble over fifty years before we arrived in the country. Back then you could buy pretty much anything you needed from the Sears catalog, but now Amazon more conveniently serves most needs – offering prefab houses next perhaps?
Looking at BrandZ, Sears is still a salient brand but lacks meaning and differentiation. Given its reputation for low prices the lack of differentiation might not be an issue, but compared to a brand like Kohl’s which is perceived to be in a similar price range the lack of meaning is a problem. The issue is that while Sears is equally likely to be seen as relevant, it is simply not liked as much as Kohl’s; perhaps a function of a degraded in-store experience.
The upshot is that while Kohl’s has a good Potential to grow versus other department stores, Sears does not. Based on the consumer data alone, the odds are that Sears will continue to decline, and given the pressure from e-commerce, Kohl’s will struggle never mind Sears. Despite the fact that Sears declared a first quarter profit in 2017, things do look pretty grim. Revenue is still declining, in part a function of store closures but same-store sales are also down by 12 percent and there is open doubt as to whether the company will survive, the company’s own annual report stating,
“Our historical operating results indicate substantial doubt exists related to the company's ability to continue as a going concern.”
The company’s plan to remedy this situation appears to be more of the same: reducing marketing spend, closing stores, selling off assets and restructuring debts. If you thought my post about the spiral of doom only applies to packaged goods, think again.
Sears opened its first department store in 1925 in order to better serve the population in fast-growing cities. That proved to be a good decision. In 1993 Sears shuttered its once famous catalog. That might not have been such a good decision. A year later Amazon was founded. But what do you think? Is there any way out for Sears? Please share your thoughts.