The Downfall of Sears

Read the case study and answer the questions that follow.

Sears, a department store company that sells clothing, home goods, exercise equipment, electronics and so much more, was founded by Richard W. Sears in 1886 as the R. W. Sears Watch Company in Minneapolis, Minnesota. In 1887, Sears moved his company to Chicago where he partnered with Alvah C. Roebuck and the two began the Sears, Roebuck and Co. in 1893. By 1895, Sears was producing a 532-page catalog which included a large variety of items for mail-order sale including clothing, shoes, wagons, furniture, china, musical instruments, firearms, seeds, watches, jewelry, and more. Sears mail-order business grew quickly. When it opened its $5 million plant and office building on Chicagos West Side in 1906, the mail-order plant, with more than 3 million square feet of floor space, was the largest business building in the world. A second office was opened in Dallas, Texas and quickly became another mail-order plant to service the demands of the customers in the Southwest. In 1906, Sears began selling stock on the open market and became a publicly owned company.

In 1925, Sears Executive Robert E. Wood realized that change was sweeping postWorld War I America, including a move to brick-and-mortar retail shopping. From 1925 to 1927, Wood successfully opened 27 retail Sears stores in various locations. By the late 1920s, Sears had also began selling some of its mail-order merchandise under Sears own trade names including Craftsman, Kenmore, and DieHard. The retail stores were so successful that in 1931, Sears retail sales surpassed their mail-order sales. Sears had realized the change that was happening and had reacted quickly to modify its business processes to include brick-and-mortar retail stores in addition to the mail-order catalog offerings. This allowed Sears to continue to flourish and expand.

As personal car ownership gained popularity, in 1931, Wood launched Allstate Insurance Co. as a wholly owned Sears subsidiary. Recognizing that the majority of the insurance business was being generated from smaller towns and not the metropolitan markets, Sears innovatively installed insurance sales locations within Sears retail stores to further enhance the consumer experience. Once again, Sears realized the changing demand and changed its business model to successfully compete in the new marketplace.

Over the next several decades, Sears continued to lead and innovate, customizing its retails stores to bring efficiency to customer shopping. Sears opened stores south of the border as well as in Canada, where Sears Canada Inc. became one of Canadas largest retailers. In another pioneering effort, Sears built the 110-story Sears Tower to house the company headquarters in downtown Chicago. When it was opened in 1973, the tower, at 1,454 feet, was the worlds tallest building.

In 1981, Sears went through another restructuring and as part of its wildly successful financial services strategy, acquired the Dean Witter Reynolds Organization, Inc. and Coldwell Banker & Company, forming the Dean Witter Financial Services Group and the Coldwell Banker Real Estate Group. In 1985, Sears introduced the Discover Card. Continuing to respond to market demands, Sears reorganized to concentrate on its apparel, home, and automotive businesses, and closed many of its underperforming retail locations. Sears even closed its now unprofitable general catalog operations. Through the 1980s, Sears was the largest retailer in the United States and did not lose its lead to Walmart and Kmart until 1990, after which point Sears never recovered.

In the early 1980s, as computer technology evolved and internet shopping began taking shape, Sears launched Prodigy, a commercial online service that provided customers access to weather, games, shopping, travel, and more. Sears was an early leader in e-commerce, and CEO Edward Lampert, the hedge fund billionaire who acquired Kmart in 2003 and two years later merged it with Sears, pushed Sears into online retailing for he believed that e-commerce would transform the retail marketplace. Sears was among the first to offer in-store pickup of online orders, invited other merchants to sell on Sears.com, and offered a free shipping program similar to Amazon Prime. Sears tried to pivot into bricks-and-clicks and prioritized selling some of its products online well before launching Sears.com in 1999. Online shopping, particularly with the rise of Amazon.com, changed consumer shopping preferences. However, Sears saw plummeting profits even as e-commerce sales boomed. Lampert failed to turn Sears into a meaningful online competitor to Amazon, Walmart, Target, and others. The convenience of purchasing online, without ever leaving ones home posed a significant challenge to companies, like Sears, that were operating a large number of brick-and-mortar stores. In 2000, Sears had 863 mall-based retail stores with an additional 1,200 retail stores. As other retailers poured money into their online strategies, Sears continued to experience a decline in profits and was forced to cut spending in its retail stores. This led to a poor consumer shopping experience and the reputation of efficient, enjoyable, and convenient one-stop shopping that Sears had once enjoyed began deteriorating. At the same time, Sears failed to invest appropriately to establish its online presence in the new digital marketplace and further failed to transition their previously successful catalog to the online environment. By 2010, Sears was no longer profitable and filed for Chapter 11 bankruptcy on October 15, 2018.

Sears online innovation by itself proved to be insufficient. Sears failed to invest in new products while Amazon and other e-tailers made large varieties of merchandise readily available online, often with low prices or free shipping. Sears lost its advantage in both product and convenience. And Amazon offered lower prices than Sears and garnered customer loyalty, in particular with its growing Amazon Prime program. Amazon vigilantly transformed its business many times in order to compete with Sears, Walmart, Target, and other stores that offer both online shopping and the convenience of in-store pickup. For example, realizing that it lacked a brick-and-mortar presence, Amazon purchased all 460 Whole Foods in 2017 and leverages these physical stores to further solidify its online position, which now includes its own grocery pickup service. Furthermore, a number of Whole Foods locations, gas stations, college campuses, and other brick-and-mortar locations also house Amazon lockers, where customers can securely return and pickup packages. Sears already had the physical infrastructure and logistics in place. However, entangling in too many diverse businesses, being bogged down in too large of a brick-and-mortar presence (especially following the acquisition of Kmart), and significantly cutting costs in retail stores contributed to its downfall. Furthermore, deficiencies in its digital strategy for establishing a strong online presence has brought the one-time retail giant close to extinction.

Sears was the leader in catalog sales and spent millions in building mail-order plants to fulfill their catalog orders. How did Sears innovate to maintain their market presence post World War I?

Multiple Choice

shut down their mail-order business and only operate physical retail stores

begin printing colored catalogs to increase sales

complement their catalog only business with physical retail stores

began transitioning to online sales