Wednesday, December 7, 2011

Will Sears be able to get Back?

For nearly a century, Sears deserved the title, ”America’s best place to shop” by being the leading retailer. According to the Wall Street, it followed “stocks and socks” strategy. It founded AllState insurance in 1950 and diversified into financial services in 1980. It was a one stop destination for consumers who could buy a house, finance it, insure it and stock it with furniture all under one roof. With the financial services performing substantially, its earnings grew by 55% from 1884 to 1990. But on the other hand, its vast chain of 850 outlets was failing fast. In the span of 7 years its earnings declined at the rate of 7.7 percent. In the 1990, they were not even able to achieve its own goals. It was a disastrous year for the company with earnings and stock prices at 1983 levels, a return on equity of 6.8 percent, and a loss in the first nine months of $119 million. Sears finally lost its century-long title as America's largest retailer.

This diversification tore Sears away from its core business, retail sales. Sears missed the bus by being slow in remodeling and trimming costs. Moreover, Sears cost structure; one of the highest in the industry did not allow it to offer everyday discounts like Wal-Mart and K-Mart. Sears had now become an old man’s place. Its Catalogue was also stagnated.

Sears started investing in computerization but failed to realize its high operating cost. Information Systems helped it to keep the dictionary of its customers so that it would follow up with deals and discounts in the future.

Investment in technology did not help Sears to gain a competitive advantage. Reason being high operations’ costs which was double than that of Wal-Mart. It accounted for around 38% of its total cost. Moreover, Sears had lost ground in its core business.

Even after knowing the poor performance, the management did not take any substantial step to improvise. Sears stocks kept falling and reached a new low in the early December of 1991. Public had already lost confidence in Sears. In 1992, Arthur C. Martinez was hired who went on to become the CEO of the company two years later.

Martinez tried to focus on its core business operation by focusing on its core businesses and paying more attention to the women merchandising as it is considered to be highly profitable. Sears have taken the following measures to pull up the sales:

·      They realized that they could not compete with Wal-Mart on price alone; hence they focused on superior service. They relieved its managers and clerks from administrative tasks so that they can focus on sales. Their salaries were linked with the customer service.

·      It has reduced paper work from the order process to accelerate the flow of goods to its stores.

·      They renovated their stores to make them more efficient and convenient by making the system centralized.

·      They have eliminated customer service desks and sales personnel are responsible for handling the returns and queries.  They installed telephone kiosks for the queries.

·      Martinez hopes that Internet would help Sears get back into business. Customers are now able to view and shop online. They can even arrange the repair services online. Customers can also check their invoices online.

·      Sears has built a large database for Sears Credit and household businesses. They have consolidated 90 million households; 31 million Sears card users and their credit score so that they can use this information for finely targeted database marketing.

Now the question is can Sears get rid of this image of “Old Man’s store”?
Will Internet help Sears turn around? Sears has very high operating expenses, so what measure should it take to survive in spite of that? Sears is still lagging in the domain of Women Apparel. Its new CEO Alan J. Lacy, sees Sears as a single-destination source of consumer brands rather than focusing on the price.  Can the company remain competitive now and in future?


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