What Happened to Sears?

An American Icon: The Rise and Fall of Sears and Roebuck and Lessons Learned

Throughout the history of America, a few notable companies have risen above being a mere business among many, but became a symbol of the nation. Corporations like Wal-Mart and Coca-Cola come to mind. Globally, they are known as “Pure Americana” in what they represent.  With humble beginnings, Sears and Roebuck rose to become an American institution that at its height of success, had over 4500 locations nationwide that enjoyed decade after decade of prosperity and growth. (Colvin & Wahba, Fortune Magazine, 2018) However, missteps with business practices and an almost willful blind spot in recognizing market trends made this company a cautionary tale in the business world that led to Sears declaring Chapter 11 bankruptcy in 2018.

Establishment and Early Beginnings

Before the founding of Sears in 1886 by Richard Warren Sears, it is important to look at America’s expansion in the decades leading up to understand the economic foundation. In 1880, 71.8 percent of the country resided in rural areas. Only seven cities had a population over 200,000 at this time. This put the bulk of the people and wealth on small farms and rural communities. From 1860 to 1910, railroad companies averaged 3000 miles of track laid down per year. These developments for logistical ability across the country became an important cornerstone for Sear’s early success.  (Emmet & Jeuck, 1950)

R. W. Sears was a railway station agent who began the R.W. Sears Watch Company in Minneapolis, Minnesota. For the first decade, he, along with a watchmaker named Alvah C. Roebuck he had hired, only sold watches and jewelry to fellow station agents. By 1896 the company was moved to Chicago and had greatly expanded the mail order catalog beyond watches and jewelry. The Postal Service initiated a program called “Rural Free Delivery” that expanded mail routes into rural areas far from city centers. (Hsu, NYT, 2018)

Following the Civil War, the rapid expansion west of the Mississippi by settlers, along with the building of railroads to ship needed goods and supplies greatly aided the fledgling Sears mail order catalog company. The catalog or, “Wish Book” as it came to be known, contained simple products like pots and pans, dresses, firearms and also needed tools for communities that were stretching across the newly settled areas of the country. As long as it fit on a boxcar it could be shipped. In 1908, Sears began marketing home kits via mail order. By 1940, over 70,000 homes had been sold in 447 styles. (Hsu, NYT, 2018)

Prosperous Years and Growth 1925-1989

In 1925, The first retail store was opened in Chicago and became almost an instant success. Within five years, it had more than 300 outlets, selling in-house brands like Kenmore and Craftsman. Pushing this expansion was an industrious former WWI general named Robert Elkington Wood. During his time in the military, he showed to be adept at logistical management, becoming a brigadier general as acting quartermaster general. This put him in charge of purchasing, ordering and storing all army supplies except ordnance and aircraft. This experience and skills made him a valuable asset for his future position in the company. After becoming president of Sears in 1928, he began a determined drive to put more retail stores near heavily populated cities. Using census data and statistics, he plotted out almost all new locations to be built during his time as president from 1928-1939. After his tenure, he became a permanent fixture on the Sears board of directors. In 1931, retail sales topped mail order sales for the first time. (Emmet & Jeuck, 1950) Also in 1931, Sears created the popular Allstate Insurance company to provide services for the growing number of customers with cars.

After World War II and into the 1970s, employment at Sears was a reliable path to the middle class. The company paid well, offered generous retirement benefits and also profit sharing. Sears was the nation’s biggest retailer, with 350,000 employees at its peak. (Corkery, NYT, 2018) In 1969, sales reached 1% of the entire U.S. economy. Over two-thirds of Americans shopped there in any given quarter and half of the nation owned a Sears credit card. (Colvin & Wahba, Fortune, 2019) With a retail strategy of broad inventory, the utmost level of customer service and multiple in-house availability on popular household brands, Sears seemed to do no wrong.

Signs of Trouble

While a company’s demise can never be pinpointed to any one decision, some major choices stand out regarding Sears. One was the inability to find a worthy successor for Robert E. Wood. This indecision led to a series of CEO’s that averaged only three years of proper directorship of the company. The result was a blandly led company in a time of rapid change within the retail industry. In 1962, Walmart, Kmart and the Target companies were established which began direct competition with Sears for retail business. Without a change in marketing or discount strategy, this left Sears at a disadvantage. Sears leadership was aware of these new companies that were using the business model of low prices, minimal service and high inventory turnover, yet decided to stay the course in the belief that customers would stay loyal to the brand. This proved difficult in a changing economy that prioritized budget shopping for customers trying to stretch the family paycheck. (Waxman, Time, 2018)

As it is in today’s modern world, embracing technology and utilizing it for enhancing a business was important even decades ago. While competitors were getting onboard with computerized information technology cost-accounting programs to track merchandise, logistics, capitol and more, Sears used averages across the company to calculate profit. This made it nearly impossible to know which stores were turning a profit, what inventory was selling-or not. (Colvin & Wahba, Fortune, 2018)

Finally, beginning in the 1980s, Sears tried a desperate gamble to retain its market share by diversifying into more of the financial services. They began buying real estate and credit card companies while neglecting what they started as a retail company. This led to more company valuations drops and overestimation on the expected profits from these ventures. Sears sold off these companies by 1992 but the damage was too great. By then, Walmart had become the biggest retailer in the country. In 2005, a new CEO was hired, former hedge fund manager Edward S. Lampert who merged Sears with Kmart. For a brief moment, a turnaround for the company was seen as a possibility. But another recession coupled with the emerging e-commerce industry led by companies such as Amazon and others gaining traction in the economy stopped any chance of a comeback.

Lessons Learned

The decline of Sears shows that even a company at the top of its game can fail when introspection and self-analysis is not conducted. Not keeping up with market trends along with a belief that brand loyalty from the customer will suffice is a recipe for disaster. Sears arrogance in the face of the realities on the ground in the changing retail market only helped to quicken its decline. Not embracing new cost analysis technology to accurately predict and anticipate shifts in customer needs was a colossal blunder.

Conclusion

As the 21^st century unfolds, new companies and especially established ones will need to keep up with trends within the market and updated technology that can help or hinder a businesses growth potential. Sears is but one example of a company that began with a successful business model, yet failed to be flexible when conditions and customer expectations evolved.

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References

Colvin, G., & Wahba, P. (2019). Seven decades of self-destruction. Fortune, 179(6), 176–186. Retrieved from EBSCO Host.

Corkery, M. (2018, December 30). Former workers keep the Sears heyday alive. New York Times, p. 1-4. Retrieved from EBSCO Host.

Emmet, B. & Jeuck, J. E. (1950). Catalogues and counters. A history of Sears, Roebuck & company. Chicago, IL: The University of Chicago Press.

Hsu, T. (2018, October 16). From a gilded-age boom to a digital-age bankruptcy. New York Times, p. B3. Retrieved from EBSCO Host.

Waxman, O. B. (2018). Bankruptcy for Sears. TIME Magazine, 192(17), 11. Retrieved from EBSCO Host.