What Made Sears, The 90 Year Old Innovation, Difficult To Sustain?

According to the world clothing shoes and hats net, for us department stores giants, last winter was very long.

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Kohl, s, Target, and almost no large department store has left over 100 shops.

This is not surprising, analysts say.

Overseas tourists are being reduced due to exchange rate and policy factors. The new generation of consumers has also increased their demand for experience and service, while the product mix in department stores is all the same, making profits only by discount retailing.

Moreover, the US has the largest per capita retail area in the world, and each person owns 23.5 square feet (about 2.2 square meters).

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It is already too saturated, and large shopping places are pforming to small footprint stores.

At the beginning of the new year, Messi also started all kinds of "self rescue".

In January 6th, Nieman Marcus revoked the IPO application submitted a year and a half ago. At the end of 1, Messi announced that it would close 68 of its 730 stores and remove more than 10 thousand management positions, and had been discussing the sale plan with Hudson Bay Group of Canadian retail chain until February, and Barneys began to liquidate its assets since June last year.

But for last year's 130 year old Sears (Sears), such a winter has lasted for nearly ten years.

2012 Q1 to 2017 Sears Q3 operating cash flow changes, except 2013 Q2 are negative.

2007 Q4 to 2017 Sears Q3 same store sales change, except 2010 Q4 is negative.

From 2012 to 2017, the number of Sears shops in Q4 was changed, of which the red line was Sears, and the purple line was Sears's one hundred other chain K mart.

Changes in Sears's stock price from 2008 to 2016

In 2000-2015 years, Sears's sales fell to 15 billion US dollars from third US $41 billion.

Since 2011, it has not been profitable for 5 consecutive years and has lost a total of 80 billion.

In April 2007, its stock price reached $142.51 per share; recently, the figure was 8.9.

Although CEO Eddie Lampert has spent $500 million in its own funds to support Sears in January this year, and announced that it will close 150 stores to save the company, most analysts still believe that the company will no longer exist at most 2 years later.

What you see is not a commercial runner who will eventually vanish in history.

On the contrary, this is the dusk of a giant who has maintained the first retail business in the US for 91 consecutive years.

At the end of the nineteenth Century, Sears started by mail order retailing, and successively created the supply chain management, store brand and credit consumption, which are all very important to the global retailers today.

At its height, it had 41 private brands and 4010 stores, and only contributed 1% of the GNP to the US, and sales were the top four retail brands.

In the 60s of last century, one of every 200 workers in the United States worked in Sears.

In 1972, when it built the Sears Building of the tallest building in Chicago, half of the families in the United States owned Sears's credit card, and 3 out of every 4 Americans visited their stores, more than the total box office of Wizard of oz.

This scene has ceased to exist.

2 years ago, if you went to Sears's first store in Chicago State Street in 1932, you will meet William Taylor who has worked here for decades.

He looked sad and wore a sign. He said, "Sears closes down to 75% off. Please act at once."

The pformation of the retail industry is more elusive than any other industry.

What sustains Sears's 90 years of innovation and what makes it difficult to keep up now? The answer to this question may be an inspiration to the difficulties faced by today's department stores.

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1. Winners of information asymmetry era, "consumer Bible" and the formation of the national market.

Sears's story begins with railways.

In 1886, the 23 year old Richard Warren Sears was also an agent of the Redwood Falls City railway station in Minnesota.

He bought a batch of watches rejected by local jewelers from Chicago wholesalers at a price of 10 US dollars, and sold them to the farmers who could only judge the time by the sun at a price of 14 dollars. They earned 5000 dollars in 6 months.

So he took the money and set up his own mail order business company.

Ambitious retailers will set business goals as national or even global markets.

But in the United States at that time, the unified market had not yet formed.

The population of the United States is only 56 million, which is distributed in 38 states.

70% of them live in rural areas, and daily consumption can only be completed in small shops nearby.

This is very painful for buyers and sellers: because of information asymmetry, consumers can choose fewer and more expensive products; on the other hand, retailers are even hard to predict local demand, and shortages or backlogs are normal.

The only way to cross geographical restrictions is mail order retail business.

This model was first created by Chicago Aaron Montgomery Ward in 1872.

You can think of it as the original version of Amazon and Taobao: by distributing detailed catalogues with detailed drawings and articles to attract consumers to order, they can save the cost of opening stores and hiring salesmen, and can also cover vast but scattered rural markets.

More importantly, mail order business has seized the turning point of the US pportation industry from water to rail: before 1871, the United States laid a total of 45 thousand miles of rail only; however, in the 19 years from 1871 to 1900, the new railway was 170 thousand miles long, and 5 cross continental railway lines had been crossed.

In 1907, the Sears factory advertisement said, "all goods are sold only by mail order, such as unsatisfactory guaranteed refund, freight or rail freight borne by us."

Sears is nearly 14 years behind Montgomery Ward.

Like the latter, he aimed at farmers.

They are huge, and only buy important goods and daily necessities. These goods are most standardized and most suitable for mail order.

But Richard Warren Sears is a better marketers.

For example, considering that farmers like to stack their catalogues on the small coffee table on the porch, he deliberately makes the catalogue a small one, so that Sears's products will always be the first to be looked through.

When a local retailer boycotted, he turned the regular customers in the districts into product catalog distributors, and used sewing machines or stoves to reward those who attracted the most sales.

At the same time, he also established a consumer's trust in Sears's brand through leaflets, advertisements and visits to the community.

In terms of services, Sears seems to be more willing to take risks than Montgomery Ward.

Benefiting from the friendly agreement with the railway station agents, it can provide cash on delivery, refund guarantee and repair services. The most prominent product catalog is the "satifaction guaranteed or money back".

When the US government implemented the Rural Free Delivery policy in 1896, farmers no longer needed to go to the railway station to pick up the goods. This means that free distribution has become a new strategy to attract customers.

After moving the company to the railway pportation hub in Chicago in 1893, Richard Sears and partner Alvah Roebuck jointly established a more complete Sears, Roebuck & Company.

From glasses to lawnmowers, from garments to furniture, a Sears handbook can satisfy all the needs of ordinary farmers' families.

It is known as the "consumer Bible", and the special edition released every Christmas has another nice name: Wish Book.

All this sounds nothing new -- good but inexpensive necessities, convenient shopping methods and excellent services -- but very effective.

In 1894, the number of Sears's mail order manual rose to 700 pages, and the total number of goods was over 6000, but the price was only half of that of ordinary shops.

This year, its sales exceeded 750 thousand dollars.

In turn, a huge national market has been gradually formed under the birth of mail order business.

This market is made up of numerous rural consumption communities, characterized by not shared values but highly consistent in consumer behavior.

Sears's slogan in 1900 was regarded by historians as one of the signs of American consumerism: "millionaire class goods, millions of people can afford the price" ("goods for the millionaire, at prices in reach of the millions").

With the help of product catalog, this business logic has created standardized consumer tastes and desires before film and television.

Lofgren, a German scholar, even defined the Sears mail order manual as the most critical medium for the homogenization of rural population: "isolated villages and individuals are linked together with new cities in a very close way, and this modernization process also makes the whole country an organic whole."

In 1900, Sears sold $10 million to replace Montgomery Ward as the largest retailer in the US.

6 years later, it became the first retail enterprise to complete the listing in the history of American finance.

2, automobiles, shopping centres and the rise of the middle class

But the change came soon.

From the "roaring 20s" to the eve of World War II, another mode of pportation and popularization is the automobile.

We recall the number of ups and downs in the US Department store when we mentioned this figure: in 1921, Ford T sales exceeded 5 million.

From 1921 to 1935, the newly built highway mileage in the United States increased from 620 thousand km to 1 million 620 thousand km.

In 1930, the number of cars registered in the United States reached 23 million, nearly three times that of 1920.

This new means of pport and the 40 world war broke out in two years, which brought about two changes in population and urban structure: before the war, people surged from the countryside to the cities; after the war, the high urban land prices, the expansion of the family population brought by the baby boom, and the government's offer of preferential housing loans to the soldiers, brought people back from the city to the countryside.

In these two rounds of change, Sears's management has always been sensitive.

As the target population moved from the countryside to the city, it opened the first Sears store in the mail order factory in Chicago in 1925, expanding 319 in 4 years.

In 1931, Sears's retail business surpassed the mail order business for the first time, accounting for 53.4% of the total sales volume ($180 million).

Its growth is also diversified.

Also in the 1931 year of the year, recognizing the growing demand for cars in the United States, Sears set up a Allstate Insurance Co., a sub brand of the main automobile insurance business, and put the business point in the physical store.

In addition, by creating or acquiring, the proportion of private brands has increased to 90%, which enables them to control costs and have the advantage of exclusive goods.

Cosmetics shopping area in Sears's department store in 1955

But what is more important is Sears's pformation to the suburban shopping center after World War II.

Robert Wood, then chairman of the board of directors, said that the new retail opportunities were in the suburbs, so from 1946 to 1952, the new shopping centre opened 92 stores in the suburbs and extended more than 200 original stores or migrated to the suburbs.

Just like the "consumer Bible" that made the consumption of rural communities homogenized quickly, the rise of suburban shopping centers also made the rising middle class a standardized American dream.

This is a large number of people with strong consumption potential.

In the late 20 century, they accounted for 70% to 80% of the total population.

Freelance writer Tim Krohn still remembered that people were shopping in Sears Lee in 60s and 70s.

"It's a place for family members to shop together.

On the other hand, there are wives' favorite handbags, jewellery and clothing. On the other side are the Craftsman card tools and grills that husbands love to use. The 16 year old daughter can choose cosmetics.

You can even mail a house -- a three bedroom with plumbing and lighting for only 1800 dollars. "

It is unthinkable for all consumers who are seeking differences today to read the same product catalog and shop in the same chain store.

But at that time people pursued the life template set up by Sears.

The Matthew Weiner, the screenwriter of the American drama "madman" written in the 60 era of the last century, mentioned that in order to ensure the sense of reality, "not only will I know the style of the dress from the cover of Vogue, but I will learn a lot from Sears's mail order product handbook."

In an internal commodities planning conference in the 70 years of the year, a senior Sears executive pointed out their target consumers and their characteristics very directly: "Sears is a family department store belonging to the middle class of the United States.

We are not a fashion shop.

We are neither serving the deviant nor serving the rich.

We do not live on discounts, nor do we advocate the trend.

We only faithfully reflect all the desires, concerns, problems and fallacies of the middle class in the United States. "

The house built under the Sears mail order manual costs only 4000 dollars.

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3, the dilemma of innovators.

The executive's words were a prophecy.

Just two years after the completion of Sears Building, which symbolized the heyday of this company (now renamed Willis building), the United States entered the great depression brought by the Middle East oil crisis in 1974.

In those days, Sears's profits were reduced by 1.7 billion.

Similar to the reason why the US economy stagnated in 70s, the great depression also hit the blue collar middle class that Sears lived on. In 1973, their average wage reached the peak of 341 dollars and then continued to decline in the following decades.

Their purchasing power is weakened, their age is increasing, and they are not as good as they used to be.

The bigger crisis comes from WAL-MART.

Similar to Sears's start from the rural market and the first barrel of gold in the economies of scale, Sam Walton opened the first store in 1962 to Rodgers, a small town in Arkansas, a small town in the central part of the United States with a population of less than 6000, and has been looking for expansion in a town with a population of less than 1.

It then changed the pricing rules of the entire retail industry with the low price strategy, and doubled the operational efficiency of the supply chain with the help of the newly rising communication and computer technology.

Dynastic change seems to be a flash in the air.

WAL-MART's sales jumped from 1 billion dollars in 1980 to 32 billion in 1990, more than Sears became the world's largest retailer.

By 2001, its sales volume was 6 times that of Sears.

"Sears didn't take WAL-MART as a competitor until 80s, and he didn't know what it did."

Sears, former employee of Steve Kirn, told Chicago local media in 2012, "it's just a group of people in Arkansas.

But all of a sudden, WAL-MART was on the side of us.

In fact, even at the time of being overtaken, Sears's executives were not too worried.

According to New York Times's 1991 report, the then spokesman, Gordon Jonews, said that Sears and WAL-MART and Kmart had different business, and only 30% of them had direct competition relationship, so even though they were overtaken, they were not worried.

Faced with the low price positioning of the two companies, Sears believes that his goal is not a low price, but a "strong professional brand in every business field".

Why is a long successful company losing new markets and new opportunities? Clayton Christensen Christensen, a Harvard Business School professor, in the opening of the "innovator's dilemma", takes Sears and WAL-MART as an example to sum up three reasons: customary reliance on consumer feedback to make decisions; habits to maintain an edge in the existing market, but important innovations often occur in smaller markets, which do not initially solve the needs of large companies for growth; large company market analysts are only good at analyzing existing data, but it is hard to predict those business opportunities that have not yet emerged.

Throughout WAL-MART's rapid pursuit of the whole 80s, Sears did not focus on innovation in retailing.

When CEO Edward Brennan said that the profit margin of the retail business was not as fast as that of the rising financial business, she bought the Dean Witler Reynolds of the stock brokerage company and the Coldwell Banker of the real estate insurance company.

In 1986, they also launched Discover credit cards, hoping that these financial businesses could attract more middle class consumers outside clothing and home appliances.

This change has brought about a momentary growth in revenue, but it has made Sears's core retail business unable to keep up with the lack of attention. In the 1988 year of the year, it was robbed of the consumer by WAL-MART's giant Super Center.

Even though Sears listed and sold Dean Witter, Allstate Insurance and Coldwell Banke in 90s, and even went online in 1999, it was already late for competition in retail business.

4, the rise of the Internet, Sears lost

In 2005, Eddie Lampert, the Wall Street media's "Buffett second" investor, bought Lampert Mart after buying K Mart, and then bought ESL through its investment company ESL Investments.

This is also the largest acquisition in the history of American retailing, and K Mart Holdings has been renamed Sears Holdings since then.

Eddie Lampert did not have any retail experience before, but there were 20 years of investment performance above 20%.

The direction of his change is to attract young people to become a light asset technology company, selling user data as a new source of profit.

This sounds like anything that anyone who wants to catch the bonus of the Internet will have nothing to do with what a retail companies should do.

In the past 20 years, Amazon has changed its retail business again.

We have introduced in detail the innovations it brings, and the principle of expansion is the same as that of WAL-MART: by building "outlets" at all levels, we can become "within reach". Only in the context of e-commerce, the network has become a logistics center.

Besides making prices lower and shopping easier, Amazon also changed the habits of consumers with social media.

According to the data of Customer Growth 's Johnson, consumers spend 45% and 55% on products and services in the 80 mid - 2016, and the ratio is 31% and 69% respectively.

In addition, the consumption of goods in 80s was 10% in the department store, and 2016 in the department store, which fell to 1.7%.

People's consumption expenditure is shifted from goods to service and experience. From the perspective of consumption path, no one is willing to drive to distant suburbs for shopping. People either choose to place an order online or prefer the unique shops in the neighborhood.

This is fatal to Sears: the rapid growth of shopping centers from 30 to 60s in the 20 century has become a burden from high quality assets.

In the 2006-2016 years, the market valuations of us department stores changed rapidly, and most of them were Amazon and the most Sears.

Cutting costs by closing stores has become a more sensible decision on the agenda of Eddie Lampert and many other similar chain brands.

In the past 5 years, Sears has reduced the number of shops by half: in 2011, its total number of shops was 4010 (1338 of which were split in 2011 as Sears Hometown and Sears Outlet).

In 2015, the figure dropped to 1672.

On the other hand, the whole American society is also undergoing differentiation.

If a 1975 year old employee and his boss would buy shirts and ties in Sears, it is different now: employees will go to cheaper Amazon, while the boss may choose a more high-end boutique, such as Nordstrom or Fifth Saks Avenue.

"If you want to open a restaurant chain or become a retailer, you can either be a high-end niche or a low-end public.

Getting stuck in the middle is not a good choice. "

John G. Maxwell, PWC global retail and sales director, said in an interview with New York Times in 2014.

For the personalised mass consumers, Sears, who represents the standard middle class life, is no longer tempting.

Now they are looking for cost effectiveness and diversity.

In Sears's stronghold, Chicago, the most popular business district has changed from department store to Howard Street, which is a commercial street composed of bars, pawnshops, dental clinics, sports shoes boutiques, mobile phone stores, dollar stores and discount furniture stores.

It sells similar products to Sears, but cheaper than Sears.

In the face of change, the new question that Eddie Lampert managers need to answer is: who should Sears's core consumer be? What should the core assets be? These are not directly related to the Internet.

5, why is Sears's digitization doomed to failure?

In 2016, Forbes commissioned a consultancy firm to do a Sears composite index survey. It has been found that the past ten years, the largest group of visitors lost from Sears came from its core customers: people over 55 years old.

In addition, the number of customers lost in the two age groups of 18 - 34 - and 35-54 years old also worsened the situation.

Compared with 10 years ago, Sears's consumer share in softline (clothing, shoes, etc.) and hardline (sports equipment, bedding, home accessories, electronic products) decreased by at least 40%.

Among them, the decline of softline is particularly acute. In the most competitive category such as Walmart, Kohl 's and Macy' s in women's clothing business, consumers' preference for Sears slipped by 53% between January and January 2016.

But for its own household appliances brand Kenmore (fridge, dishwasher, etc.), more than 20% of consumers still think Sears is the first choice.

This means that Sears's core consumer should be a group of people over the age of 55.

Its core assets should be self owned brands that have long accumulated consumer reputation in the traditional advantages such as home appliances, home decoration and so on.

But in the past 20 years, Sears has made mistakes in judging these two questions.

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Sears's consumer age survey shows that the purple line is over 55 years old, the green line is 35-54 years old, and the blue line is 18-34 years old.

By this year, Sears's debt has reached 16 billion.

In order to increase cash flow and repay debts, the sale of existing assets has become a major strategy.

Sears's own household goods chain Orchard Supply Hardware was split up in 2011.

The 90 year old household appliance brand, Craftsman tools, was sold to Stanley Black & Decker Inc., a rival of 180 billion in the market in January 5th this year for $900 million, the market capitalization of which is 18 billion US dollars.

The other two core brands, household appliances brand Kenmore and battery brand DieHard, are for sale respectively.

The most competitive clothing brand has become the most important section.

Since 90s, "Sears has begun to stay away from his core blue collar group, hoping to attract more high-end crowds."

A more prominent performance is the introduction of the high-end makeup brand Circle of Beauty in the 90 years of the age of 3. "Tonality is higher than that of Sears's original consumers." in 2002, it spent 19 US $100 million to acquire the high-end sports brand Lands' End (later sold in 2014).

Eddie will even sell Sears's shop to Real Estate Company, a Real Estate Company holding its own share, and give it back to Sears in part, and the other part to other brands such as Dick, s Sporting Goods, Primark and other sports and clothing brands.

This is only exacerbating the situation.

Since 70s, Sears Forbes reporter Walter Loeb has commented on the visit to the store in 2012, and said: "fashion goods must be strong enough.

Sears's own clothing brand Land 's End is too conservative. It looks dull.

Similar to "Taobao" and Amazon Marketplace's third party sales platform Sears Marketplace

In order to pform from retail companies to "light asset technology company", Eddie Lampert has launched 3 digitization plans in 2009, but these plans show that Sears did not want to know who his core customers were, and the results were not reflected in the financial results.

Starting from 2014 Q3, Sears ceased to announce its financial performance or specific progress in e-commerce, and its online sales grew by 18% over the same period.

Since then, Sears has posted almost the same information on every revenue conference call - cutting entity stores and focusing on the business of electricity providers, and the e-commerce business mentioned is only Shop Your Way.

The new Shop My Way membership plan proposed in 2016 is somewhat similar to MySears.com. It takes young people as the main audience, integrating points, making friends circles, and buying or commenting on products.

But the website was soon released by the Wall Street post. The most active user on the website is Eddie Lampert.

According to Business Insider's interview with customers, because the cashier continuously promoted the plan, the longer the time of receiving the money, the lower the customer satisfaction.

"The fact is, when your main retail business has been declining, and the core customers are a group of middle-aged people who are only accustomed to consuming in the physical stores, it will not be effective to spend any effort in digitalization."

A retired senior executive told Business Insider.

Even if we really want to implement digitalization, Sears's core team may not necessarily include people who can really think over the Internet.

This can be seen from the way it rarely updates according to user experience.

In apple IOS store, Sears APP scored only 1.5, and the user commented that "it is slow to reflect and often fails to log on to member accounts".

Now, when you walk into any Sears shop, the reason why it fails is obvious.

The lights are dim, the ceiling is leaking, the salesmen are in low spirits, the fashion products are out of date, they can't find anything unique to buy here, and the price is not as cheap as that of WAL-MART and Amazon.

"I am 65 years old this year and I am very sentimental about Sears, because most of my memories in life are related to the commodities here.

But even after wandering around again, I couldn't find anything to buy.

A consumer told the visiting media.

When commenting on Sears's move to sell the home appliance brand Craftsman, The Retail Doctor CEO Bob Phibbs said to reporters that it probably sums up the generation of people over the age of 55 who disagree with this great company.

"Think about what Apple will sell to iPhone. Now Sears is almost the same.

When Kmart and Sears merged in 2005, some people predicted that the biggest acquisition in the history of retailing must be brewing a great plan.

Obviously, this plan does not exist.

It's sad. "

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