Sears has been heading for the end of its game for several years. It's in the Whirlpool now, and we can be sure it won't come out. We can go back to when Sears dropped its catalog to see the first sign of putting costs before customers, and completely missing how competitors were changing and leaving Sears without an advantage. But the next big hurt happened when customers found out they could get credit for purchases from banks – via credit cards like MasterCard and Sears – that made it unnecessary to get a line of credit from Sears, or a Sears credit card (which eventually became Discover.) Increasingly, what made Sears stand out became difficult to find. And Sears lost market share year after year to the discounters (KMart, Target and Wal-Mart) as well as lower-priced soft goods retailers (J.C. Penney and Kohl's) and then DIY retailers that offered mowers and tools (Lowe's, Home Depot and Menards).
Why anyone would shop at Sears became a lot less clear – yet Sears kept trying to do more of what it had always done in its effort to stay alive. So hedge-fund jockey Ed Lampert swooped in and bought Sears with lots of hoopla about turning it around. But his approach was to do less of the same, not more, and he had no ideas for how to be more competitive. As he cut inventory, and cut costs, and closed stores it became easier and easier for customers to shop somewhere else. Sears was shrinking, not growing, and all the focus on the bottom line, in an effort to manage earnings rather than the business, just kept making Sears less relevant to customers, investors, vendors and employees.
Sales keep declining – down some 13% in the recent quarter (see article here). Increasingly, Sears is looking for distinction by going further down the credit quality spectrum. It's most promising "bright spot" was an increase in lay-away. Lay-away, for those not accustomed to the concept, is when people who can't get credit at all offer to put down 30-50% of the value of an item (say $100 on a $300 washer) and ask the retailer to hold it (literally, hold it in the back room) until the customer can come up with the rest of the money. Sometimes buyers will come in multiple times dropping off $10 or $20 until they come up with all the money for the washer, or a new suit, or a dress, or some tools. Only people that can't get credit at all buy on lay-away. For retailers it has the downside of increasing inventory as they wait for payment. It's the bottom-of-the-barrel for retailers that can't keep up with merchandise trends, and often requires they raise prices to cover the cost of increased inventory holding.
Increasingly there is little else Sears can do. The company has closed another 28 stores, and sales in stores remaining open the last year have declined on average more than 8% for each store (see article here). Net income has plunged 93%. Five years ago, about when Mr. Lampert took over the company, it was worth just about what it is worth today (see chart here). At that time, investors were thinking Sears (which had recently been de-listed as a Dow Jones Industrial Average component) might not survive. But those investors had a lot of dreams about Mr. Lampert turning around the company. They saw the shares increase 6-fold as analysts talked-up Mr. Lampert and his supposedly "magic touch." But all that value has disappeared. Mr. Lampert would like to blame the economy for his lack of success, but reality is that the economy only made more visible the Lock-in Sears has maintained to its outdated business model and the complete lack of Disruption and White Space Mr. Lampert has allowed during his personal direction of the company. Sears has had no chance of success as long as it remained Locked-in to a retail business model tied to the 1960s. And as retail crashed in 2008/2009 it's made obvious the complete lack of need for Sears to even exist.
Note: I was delighted with responses I received from many readers about their views on newspapers. Mostly folks told me they found the value gone, or dissipating quickly, from newspapers. Although there is still ample concern about where we'll find high-quality journalism once they disappear. Folks seem less confident in broadcast and network television – and wholly uncertain about the quality control of on-line news sources. I think we're all wondering how we'll get good news, and aware that there is bound to be a period of market disruption as the newspapers keep declining. But please keep your eyes open, and let myself and all readers know what quality news sources you find on the web. Keep the comments coming. During these periods is when new competitors lay the groundwork for new fortunes. I'd watch HuffingtonPost.com, and don't lose track of the big on-line investments News Corp. has made.
Likewise, please give me some comments (here on on the blog or via email) about where you are shopping today! Have readers all become Wal-Mart single-stop shoppers? With retail sales numbers down almost everywhere, where do you concentrate your shopping? Are you doing more on-line? Are you finding alternatives you favor during this recession. Let's share some info about what we see as the future of retailing. There are a lot of execs out there that seem in the dark. Maybe we can enlighten them!
Costco, Trader Joe’s, Whole Foods (quite a gamut, I know) for food.
Costco often has great buys on clothes, also LL Bean.
Amazon for books.
I have not changed the places I shop, although one, Old Navy, closed its mall store where I did some of my shopping for clothes.
JC Penney, Kohl’s, Elder-Beerman–for clothing; I have cut back on the number of clothing purchases I make.
Kroger’s for groceries (occasionally, Trader Joe’s, although less and less because I tire of the drive (closest one is about 60 miles away).
a few personal care products, household products: Wal-Mart, occasionally, KMart
health/nutrition items: GNC, local health food shops, Mercola.com
personal care products: DrBronner.com
I shop at Sears and other brick and mortar stores because I can try on my clothes and make sure they fit without having to buy them first, give my credit card info out over the Internet, wait for shipping, then possibly have to ship them back.
And I can buy the clothes when they are on sale, and take advantage of coupons, etc. – that I get from my newspaper.
Something that is a pain to do on the Internet. And when I make my purchases, I also pay sales taxes, which benefit my state.
I buy my gas at Costco, and some of my food in bulk. Otherwise I buy at my local grocery stores – Kroger, Harris Teeter, and Lowes Foods. I buy prescription drugs at Rite-Aid and Kerr Drugs. I do buy some clothing at K-mart because it’s easier to get in and out than at Sears at the Mall.
I shop for hardware and home improvement supplies at small local hardware stores. I don’t mind paying extra because the people who work there know what they are talking about.
I do not shop at Wal-Mart – they are a “race to the bottom” store.
Oh – and your comment on lay-away is off-base as well. Many people can’t get all the credit they used to get due to the greedy banks that cut people off who have paid all their bills on time.
People who have been down-sized in their jobs still need to buy washers and dryers and other appliances. They appreciate lay-away, and they also tend to make other purchases in the same stores they make big purchases from.
That being said, I like purchasing appliances and tools made in the USA. I haven’t bought a Craftsman power tool for years because they make them overseas – in China. I’d rather buy a pre-owned quality tool and have it repaired than buy some cheap crap made in China that comes broken or DOA right out of the box – like I did with a Porter-Cable grinder a few years ago. It was made in China.