CASE 1-4 SEARS: A DYING COMPANY? Written by Dr

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CASE 1-4 SEARS: A DYING COMPANY?

Written by Dr. Venessa Funches, Auburn University, Montgomery

Ashley is on her way to her local mall. She pulls up to the mall and finds a great parking spot close to the Sears entrance. She walks briskly through tools, lawn, and garden, as well as kids apparel, noticing nothing. In fact, no one seems to notice her either. She is not approached or greeted by any salespeople. What a relief! The store seems empty. Ashley is a little concerned. She came to hang out with friends, but this place seems pretty dead. Just as she rounds the corner through the women’s department, a shirt catches her attention. As she glances at the price tag, she decides she can get it cheaper elsewhere. Just then her cell phone rings. It’s her friend; everyone is waiting for her at Aéropostale near the food court. She picks up the pace as she rushes through men’s apparel, jewelry, and finally bedding. She is relieved as she catches a glimpse of her friends through the crowd in the interior of the mall. She is looking forward to a good time shopping with her friends. As she nears the food court, she is distracted by all the cool outfits displayed in the windows of stores like American Eagle, Abercrombie & Fitch, and Buckle.

Ashley represents many of today’s shoppers, who hurry on about their business—shunning department stores like Sears and its competitors. The entire department store category has been experiencing a decline in recent years.

Sears has a rich history spanning over 100 years. In the past, Sears was a retail force to be reckoned with. According to the Sears Archives website (www.searsarchives.com), from the 1950s to the 1980s Sears was the largest U.S. retailer. The Sears catalog could be found in virtually every home in America.

Sears has been serving the American consumer since the turn of the century. The firm began in 1886 as a watch company, founded by Richard W. Sears. At that time most Americans lived as farmers in rural areas with limited access to the products they needed. As a result, the local general store served as the farmers’ primary retail establishment. Due to the limited availability of products, price gouging was rampant. Richard W. Sears and Alvah Roebuck teamed up to form their own mail-order company. They began by selling only jewelry and watches but quickly added other products in order to meet the need in the marketplace. The catalog business flourished and grew quickly.

It was not until the 1920s that the firm’s management saw the need to alter their business model. The country was changing, and many people were now moving to city centers. As a result, new chain retailers were gaining popularity. Sears joined the fray by opening its own retail locations and expanding vigorously. Sears experienced great success and kept on expanding well into the 1970s. In 1973, Sears built a new headquarters located in Chicago called Sears Tower. At that time it was the tallest building in the world. By the 1980s Sears was not only expanding but also diversifying into different businesses like Allstate car insurance, Dean Witter financial services, and Discover credit cards.

Today, Sears offers a broad array of products and services. Its offerings include appliances, consumer electronics, tools, sporting goods, outdoor living, lawn, and garden equipment, certain automotive services and products, home fashion products, as well as apparel, footwear, jewelry, and accessories for the whole family. Sears offers proprietary brands like Kenmore, Craftsman, DieHard, Lands’ End, Covington, Apostrophe, and Canyon River Blues. These brands are important to the company because they signify quality and drive consumer traffic. Despite the strong brands, many consumers find Sears’ selection bland, unattractive, or too costly. Instead, they opt for specialty stores like Home Depot, Best Buy, or discounters like Target or Walmart.

The tide has shifted and Sears is struggling. Over the past two decades, Sears has ended its catalog services and closed numerous store locations.* In addition, the company has gone through multiple restructurings and divestitures of Dean Witter and Allstate in an effort to refocus and strengthen the business.

In 2005, Kmart bought Sears. The newly formed company became the nation’s third-largest retailer behind Walmart and Home Depot. The hope was that the combined firm would allow for greater cost savings and result in lower prices to consumers. Many questioned the deal, and a lot of the proposed benefits never fully materialized and the K-mart division is deeply troubled.

Sears asked the Kardashian sisters, Kim, Kourtney, and Khloé, to develop their own product line. Sears management hoped to use the Kardashians’ success and popularity to create excitement, especially among younger consumers. The advertising campaign has tried to capitalize on the sexy Kardashian image. The ad campaign has showcased Kim, Kourtney, and Khloé in seductive lingerie and topless in a denim jean ad. The product line, which includes denim jeans, dresses, shoes, jewelry, handbags, intimates, belts, and sunglasses, has thus far been disappointing and unsuccessful. Despite management’s efforts, sales continue to plummet.

Sears has been generally unprofitable for years. The causes of Sears’ problems are multifaceted. Sears’ business model has failed to keep step with changing consumer tastes. Many of its locations are out of date and need remodeling. Competitors have outspent Sears in terms of modernizing their locations by a wide margin. Second, many of its stores are located in malls that are decreasing in popularity and expensive to rent. Third, today’s consumer has a vast number of shopping options. Many consumers are opting for convenient one-stop shopping at open-air shopping centers rather than enclosed malls, or avoiding them altogether for discount retailers. Finally, Sears’ traditional mid-range pricing strategy has left them stranded, unable to compete with the low prices of discount stores or the broad selections of specialty stores.

Sears is down but not out of the game. The remaining stores and brands are still valuable assets. The company’s management has a daunting task ahead. Can Sears refocus and find a new way to deliver value to its customers?

QUESTIONS

1. Describe how some of the trends mentioned in the textbook are affecting Sears.

2. Describe the external and situational influences that steer shoppers like Ashley away from Sears.

3. Compare and contrast the total value concept for Sears and your favorite retailer.

4. What types of utilitarian and hedonic value does Sears presently provide to its customers?

5. Can Sears be revived? If so what should their new value equation be? If not, explain.