Established in 1886, there was a time when Sears, Roebuck and Company was one of the largest corporate powers in America. Initially a mail order catalog, Sears branched into everything from children’s toys to entire homes. Sears has established brands such as Craftsman and Kenmore, and introduced such ubiquitous things as the Discover Credit Card. Now in 2018, it finds itself declaring bankruptcy and closing an additional 142 stores,
A popular theory is that Sears was destroyed by the internet. Brick-and-mortar retail stores have found it hard-going in recent years, and there’s a certain irony to the idea of a once mail order company being destroyed by an internet company. This theory has been further propelled by the fact that Sears has been able to cling to life in part by starting to support Amazon’s own services.
But like many things, it’s not that simple. Sears was destroyed by a number of factors, of which online retailers was only one. Sears was also harmed by diversification, a stripping of its most popular brands, and its inability to remain agile due to its tremendous overhead.
It seems as though most of the large corporate megaliths today are extraordinarily diversified. Google, Amazon, and even Microsoft: the large companies today dabble in everything from cloud services to the retail sector. Yet it’s diversification that initially harmed Sears, as seen when it diversified into real estate (Coldwell Banker) and finance (Discover) in the 1980’s.
Sears wasn’t able to keep these industries integrated with their retail sales; instead, the divisions operated more or less separately. This is entirely different from the type of tight vertical integration a company like Amazon has achieved: Amazon’s equipment (like Alexa and the Kindle) is supported by Amazon’s online retail store which in turn is supported by its web services.
As Sears began to suffer, it began to sell off many of its core brands, in order to retain its wealth and operations. While this did streamline the company, it also reduced it to its weakest parts. By selling off the more attractive parts of the company, Sears also unfortunately devalued itself.
Sears also found itself having to support exceptionally large overhead as sales dwindled and the popularity of big box stores waned. Many Sears stores were immense, requiring not only tremendous inventory levels but also a number of employees to staff. Rent payments were similarly high in a world in which many companies have been reducing their brick-and-mortar presence entirely.
The last profitable year that Sears had was in 2010; since 2018, it has been struggling to find a path in the new market. A restructuring of debt may be able to help it establish a foothold.
Whether the Sears brand will be able to remain in operation depends largely on the choices that the brand is able to make now. Forming a partnership with the automotive division of Amazon was likely a positive decision, but there are still some modifications Sears would need to make to remain viable long-term. Some of this may include having to reduce its brick-and-mortar presence.
Sears needs to be able to restructure and reduce its debt, which will likely involve the closure of further stores. Sears has to address some of the core problems with its business model if it’s going to recover, and the answers to this may not be easy. Many retailers are currently struggling with the proliferation of online sales, shifting trends in retail, and new relationships that need to be formed with customers.
Regardless of where Sears goes from its Chapter 11 bankruptcy, it’s clear that the company is presently failing and has also been failing for some time. There are few reasons Sears or K-Mart would be a positive investment right now, and its greatest asset currently appears to be the potential for increased revenue as a brick-and-mortar maintenance location servicing online sales. At present, Sears has been stripped of many of its formerly popular brands, and has little to offer in the current market.
Regards,
Ethan Warrick
Editor
Wealth Authority
