TRENDS: Covid-19 has accelerated a lot of trends. Few more than retail. Oddly some people have taken the view that Covid-19 changed retail. Actually, it didn’t. The pandemic has merely accelerated trends that have been driving industry change for almost two decades.
Back in 2004, Eddie Lampert bought all the bonds of defunct Kmart and used those assets to do a merger with Sears – creating Sears Holdings that encompassed both brands. The day of announcement Chicago Tribune asked for my opinion, and famously I predicted the merger would be a disaster. Clearly both Kmart and Sears were far, far off trends in retail, both were already struggling – and neither had a clue about emerging e-commerce.
Why in 2004 would I predict Sears would fail? The #1 trend in retail was e-commerce, which was all about individualized customer experience, problem solving for customer needs — and only, finally fulfillment. By increasing “scale” – primarily owning a lot more real estate – this new organization would NOT be more competitive. Walmart was already falling behind the growth curve, and everyone in retail was ignoring the elephant in the room – Amazon.com. Loading up on a lot more real estate, more inventory, more employees, more supplier relationships and more community commitments – old ideas about how to succeed related to fulfillment – would hurt more than help. Retail was an industry in transition. All of these factors were boat anchors on future success, which relied on aggressively moving to greater internet use.
Unfortunately, Eddie Lampert as CEO was like most CEOs. He thought success would come from doing more of what worked in the past. Be better, faster, cheaper at what you used to do. In 2011 Sears asked its HQ town (Hoffman Estates) and the state (Illinois) for tax subsidies to keep the HQ there. Sears had built what was once the world’s once tallest building, named the Sears Tower. But many years earlier Sears left, the building was renamed, and Sears was becoming a ghost of itself. I pleaded with government officials to “let Sears go” since the money would be wasted. And it was clear by 2016, that Lampert and his team’s bias toward old retail approaches had only served to hurt Sears more and guarantee its failure. Now – in 2020 – Hoffman Estates has taken the embarrassing act of removing the Sears name from the town’s arena, admitting Sears is washed up.
It was with a multi-year observation of trends that I told people in 2/2017 that retail real estate values would crumble . Now mall vacancies are at an 8 year high and 50% of mall department stores will permanently close within a year. We are “over-stored” and nothing will change the fast decline in retail real estate values. Who knows what will happen to all this empty space?
Trends led me in March 2017 to advise investors they should own NO traditional retail equities. Shortly after Sears filed bankruptcy Radio Shack and storied ToysRUs followed. And with the pandemic acting as gasoline fueling change, we’ve now seen the bankruptcies of Neiman Marcus, JCPenney, J Crew, Forever 21, GNC and Chuck e Cheese (but, really, weren’t you a bit surprised the last one was still even in business?) After 3 years of pre-Covid store closings, Industry pundits are finally predicting “record numbers of store closings”. And, after 15 years of predictions, I’m being asked by radio hosts to explain the impact of widespread failures of both local and national retailers ( ).Ignominious ends are abounding in retail. But – it was all very predictable. The trends were obvious years ago. If you were smart, you moved early to avoid asset traps as valuations declined. You also moved early to get on the bandwagon of trend leaders – like Amazon.com – so you too could succeed.
As we move forward, what will happen to your business? Will you build on trends to create a new future where growth abounds? Will you align your strategy with the future so you “skate to where the puck will be?” Or will you – like Sears and so many others – find an ignominious end to your organization? Will the signs change, or will the signs come down? The trends have never been stronger, the markets have never moved faster and the rewards have never been greater. It’s time to plan for the future, and build your strategy on trends (not what worked in the past.)
But don’t lose sight of the lesson. TRENDS MATTER. If you align with trends your business can do GREAT! Like Facebook. But if you don’t pay attention, and you miss a big trend (like demographic inclusion) the pain the market can inflict can be HUGE and FAST. Like Facebook. Are you aligned with trends? What are the threats and opportunities in your strategy and markets? Do you need an outsider to assess what you don’t know you don’t know? You’ll be surprised how valuable an inexpensive assessment can be for your future business (https://adamhartung.com/assessments/)
Give us a call or send an email. Adam @Sparkpartners.com
Nice article, but I doubt Hoffman Estates was embarrassed about taking the Sears name off the arena. They were still getting paid (Sears never missed a payment) and had several years left on the naming rights agreement. Now Foods just offered more money for the naming rights plus a long-term agreement. More money and a longer term, seems like a win to me.
Thanks for your compliment Mike. A win for Hoffman Estates and Now Foods – not so much for Sears. Once the company was so powerful it built the largest building in the world, and now it can’t even afford to keep its name on a suburban arena. And it really didn’t have to end this way. The signs were clear when #FastEddieLampert took over the company that the future was e-commerce. If he had committed to redirecting Sears and KMart he could have built a compelling alternative to Amazon.com. Instead he ruined both companies hurting a LOT of employees and communities.
Weird things started happening at Sears when Fast Eddy took over. Craftsman tools lifetime warranty was famous for exchanging defective/broken tools for decades. Then not long after Sears became Sears Holdings, I took a Craftsman socket wrench with a broken internal cog back for exchange. The clerk reached under the counter and fished around in a bucket for a similar wrench, and came up with an obviously used wrench with grease and grime on it… apparently one from their Auto Center that was nearly worn out. I declined that exchange and insisted on a quality replacement. The store manager had to approve taking a new one off the shelf for the exchange, but finally and reluctantly agreed to do so. I went to a couple of other stores, then– on a hunch– went back with my new wrench and told a different clerk it was broken. He fished around under the counter and came up with: my old wrench as the warranty exchange. I just laughed and left and never bought another Sears anything and saw to it that everybody I knew was aware of the new shoddy business practices. Nice try, Eddie.
You are spot on Chester Field. Thanks for sharing your story. You caught on early that Sears was headed in the wrong direction.