In 2017, Sears announced the closure of 400 stores — and no one was taken by surprise. A company with hundreds of years of history, Sears has been unable to adapt to modern times, often struggling to find its place within the new markets.
While some analysts blame a slow e-commerce adoption for the company’s loss of market share, others blame its extraordinarily lax and customer-friendly approach to returns and exchanges. However, the reality may be neither of these things — it may simply be that Sears was outclassed.
The last two years have seen Sears dropping some of its most important brands in a desperate bid to save on cash. In 2017, Sears sold its Craftsman brand to Stanley Black & Decker for a total of $900 million, though it still intends to sell the products in its stores. Later that year, Sears pulled Whirlpool washers and dryers as well as Maytag dishwashers from its stores, citing pricing issues with suppliers.
These aren’t necessarily bad moves; this strategy is likely to create a leaner store with fewer expenses and more liquidity. At the same time, hundreds of stores are slated to be closed.
Sears obviously isn’t giving up. The legacy retailer recently entered into a new partnership with Amazon to provide local services for non-local products. Amazon sells tires, but has no way to actually install those tires except for third-party services. Starting soon, it will be possible for Amazon customers to purchase their tires from Amazon, and then have them installed by Sears. This is an interesting move by Amazon, as previously Amazon has used small, local businesses for its installation and home care services.
Sears’ Amazon tire installation will be available in 47 auto service centers across eight cities, and may be a promising move for Sears — for a couple of notable reasons. Not only does it break Sears into a different e-commerce sector, but it also makes a friend of one of its largest competitors.
These moves could fundamentally transform one of the oldest and most recognizable retailers in America.
In 1892, Sears began as a mail order firm. It was able to out-price and out-convenience many physical merchants, in much the way that Amazon would later compete directly with brick-and-mortar retailers. As the Sears catalog grew, the company slowly moved into the brick-and-mortar space that it had previously defeated — again, much like Amazon. In the case of sears, department stores were soon opened up across the nation, and the company began to diversify its holdings.
A significant amount of this diversification came in the form of non-retail investments, such as credit cards; these lost the company money. Eventually, its retail cards were sold to Citibank. Contrary to popular belief, Sears wasn’t slow at getting a foothold into the e-commerce market — it started its online storefront in 2000, a year after Amazon began to sell books and magazines. Sears’ major downfall was that it was competing in two sectors at once: its brick-and-mortar stores were being pummeled by Wal-Mart, while its e-commerce growth was pushed back by Amazon.
In 2004, the Kmart Holding Corporation acquired Sears for $11 billion. This was the beginning of the end; the company rallied until 2006, and then posted losses each subsequent year. Much of this was pinned down to poor management by its CEO, who continued to experiment with the company’s strategy and management techniques.
Throughout this time, e-commerce stores began to grow, while Sears began to sell off its major assets. Ultimately, Sears failed because the market was no longer right for it, and the retailer was pushed out of the market. Customer perceived no advantages to going to Sears over Wal-Mart or going to Sears over Amazon.
Purchasing Sears Holdings in 2018 is almost universally considered a risky move unless, as an investor, you strongly believe that Sears may have some new strategies that it has yet to engage. Its new trade with Amazon may indicate that it is about to enter into a new stage of development, but there are no guarantees to this. At the same time, it’s a rock bottom stock, and consequently can be invested in with little risk. As of May 11, 2018, Sears stood at $3.42 a share — a dramatic decline from May 9, 2014, when it closed at $39.97.
Sears has been headed on a downward path for quite a while, and it’s more likely than not that its changes now have come too little too late. On the other hand, the story of Sears paints an interesting tale — and one that retail investors may want to consider when investing in the future.
Regards,
Ethan Warrick
Editor
Wealth Authority
