Sears’ Bankruptcy Holds Lessons for Other Retailers

Sears used to have it all. It dominated the retail market for decades. It used to be America’s biggest employer. Its catalogs were distributed across the nation. It even built what was, for a while, the world’s tallest skyscraper. Then, on October 15th, the store filed for bankruptcy--what happened?

For one, Sears stopped doing what it did best: innovating. For a time, Sears was able to not only respond to customer needs, but shape what those needs were as well. Sears was first founded 132 years ago in 1886 as a mail-order watch business, but it quickly expanded to sell more items—for example, jewelry, clothing, and shoes—through their famous thousand-paged catalogs. At the turn of the 19th century, when people still largely made their own everyday items, Sears stepped in and offered a huge selection of mass-produced items. After World War II, when America’s middle class was rapidly expanding and needed a store to go to, Sears was there to offer any and all services required. When Americans started moving to suburbs, Sears established malls in those areas to help the suburbs grow. Sears also expanded into insurance (starting Allstate Insurance in 1931), Internet services (teaming up with IBM in 1984 to create Prodigy), and credit (creating the Discover credit card in 1985). It was truly an everything store, and it made America the way it is today.

By the end of the 20th century, however, Sears was in decline. In 1989, it was surpassed by Walmart in retail revenue. Other competitors, such as Home Depot, started sprouting up as well. Then came the rise of online retailers, which threatened the survival of all brick-and-mortar retail stores. In 2004, Sears was acquired by Edward S. Lampert, whose vision was to revamp the company to have a more online-based presence. By that time, however, it was too late. Sears, the once innovative store, was playing catch-up—and failing. Its online presence never gained traction. In order to generate cash, Sears started selling off its major brands (like Kenmore appliances and Diehard batteries). And, on top of it all, their physical stores started falling into disrepair. By October 2018, the store was bankrupt.

The bankruptcy of what was once America’s greatest retail store begs the question: is there still any place for these brick-and-mortar retail stores to survive? There’s been a lot of finger-pointing at online retailers as the main reason behind Sears’ decline. But perhaps the problem with Sears wasn’t that it was unable to generate an online presence—it might be more that it was unable to come up with ways to maintain its physical presence.

When you think about a Sears store, what pops into mind? You’d probably just imagine a generic-looking retail store, with nothing especially unique about it. On the other hand, consider what you imagine when you think about an IKEA store, with its elaborate displays and its famous cafeteria. Or, think about your idea of a Costco, with its free samples and famous Costco cards. Physical stores cannot simply be seen just as shopping outlets anymore: in order to survive, physical stores also need to market a certain aesthetic and experience for its shoppers. Shoppers need to have a reason to want to come to the store, rather than just buying a similar product online.

Sears has essentially squandered every reason why shoppers would want to choose their store in particular. It doesn’t offer anything unique or exciting for customers to look forward to, and, beyond that, the lack of funding given to the stores means that they have fallen into disrepair, and thus general customer experience has gone down. In addition, by selling its major brands, Sears has ensured that even customers with loyalty to brands like Kenmore appliances and Diehard batteries don’t have to enter a physical Sears store to buy their products.

Ultimately, the biggest problem with Sears is that the company has lost its direction, and, to some extent, its identity. Decades ago, you could easily tell what Sears was and why it was unique. Today, however, Sears has no idea where to go: should it try to expand online more? What kind of customer experience should it give consumers? Sears and, indeed, any other brick-and-mortar retailer store need to answer these questions if they hope to be successful.

Sources: CNN, CNN, Investopedia, The New York Times, Sun Sentinel, Business Insider, American Marketing Association