Case Analysis: Sears Holdings (SHLD)

Case Analysis: Sears Holdings (SHLD)

Over the years, the existence of Sears Holdings Incorporation has progressively been threatened by poor business and corporate management strategies. Consequently, the firm has lost most of its market to rival competitors with better and more adaptive management practices. As such, the operational capacity of Sears has shriveled. The number of employees in the company shrunk from 350,000 to 68,000 (Thomas, 2018). Additionally, the number of Sears’ stores reduced. In 2007 alone, about 2000 stores were announced for closure (Halzack, 2017). Seeing that Sears’ investments failed to yield substantial returns, the company decided to file Chapter 11 for bankruptcy in October 2018 (Corkery, 2018).

Historical Trend of Sears Holdings

Before its downfall, Sears was the leading department store till the early 1980s. Sadly, Sears’ executives felt that the number of stores was sufficient, and the company did not need to invest in more stores aggressively. Meanwhile, Target and Home Depot invested billions annually to increase their retail stores. Sellers and Caminiti (1988), warned that Sears had become too complacent in the industry and would likely be overtaken by other retail store merchants. Sears executives introduced price-reduction strategies that failed to make the company compete favorably with other retailers. Already, the company’s reputation was ruined by poor customer service. Store mannequins were in poor condition and were adorned in torn stockings (Sellers & Caminiti, 1988).

Furthermore, the 1990s were characterized by a steeply deepening growth curve. Sears was overtaken by Walmart in 1991, losing its reputation as the nation’s top retailer. Sears posted approximately $4 billion in losses in 1992 (Howard, 2017). As Sears struggled to compete with Target, Walmart, and Kmart, an alternative liquidation strategy was devised. In addition to the Sears tower, Coldwell Banker and Sears Mortgage group were sold in 1993. The year 1993 also marked the closure of the catalog division. This business decision had negative ramifications since Sears lost its niche to Amazon. In 1995, Amazon joined the mail order business. Overtly, Sears lost a significant opportunity to become a multi-billion dollar online business just like Amazon (Pruitt, 2019).

The 2005 merger between Kmart and Sears was profitable for a few years. Conversely, in five years, Sears’ revenue decreased by 14% (Halzack, 2017). The decline in revenue is attributed to its rival, Amazon, and poor management strategies. Sears failed to retain its customers who shifted to online purchases, preferring Amazon. Accordingly, Sears Holdings reverted to unloading stores. In 2006, 1200 stores were unloaded as Sears’ chief executive officer, Edward Lampert, attempted to raise $770 million liquidity for the failing company. Another critical mistake was the termination of hundreds of stores (Mourdoukoutas, 2018). The closed stores were left in dilapidated conditions that reduced the satisfaction of customers. Once again, Sears lost its customers to other retailers.

As such, a new business strategy was introduced in 2014. It was centered on customer satisfaction as the company attempted to retain its customers. Hence, the mission statement for Sears was re-branded to: “To grow our business by providing quality products and services at great value when and where our customers want them, and by building positive, lasting relationships with our customers.” The ‘Shop, Your Way program,’ is an example of a reward program that was introduced to promote the loyalty of customers.

However, in an attempt to retain customers, Sears Holdings has neglected the needs of their employees (Mourdoukoutas, 2018). From suppressing the unionization of employees in the 1950s to discriminative employment allegations in the 1980s, Sears previously portrayed ethical shortcomings (Howard, 2017). The uncertainty of store closure has left the employees in an apprehensive state since they are at risk of losing jobs. Subsequently, low morale among employees has contributed to a slump in sales. The merchandise sales decreased by 35.95% for the fiscal year ending in 2018 (SHLD, 2018).

Business-level and Corporate-level Strategies

The business-level strategy for Sears involves a transformational approach. The main agenda of the transformational strategy will involve initiatives that generate more liquidity for the holding company. These initiatives will entail the extension of loan facilities and the sale of business assets or real estate properties— if the transformational strategy takes a turn for the worse (SHLD, 2018). Sears’ strategy involves the closure of 142 unprofitable stores. Stores will re-brand the assortment of merchandise that is displayed. Primarily, more store space will be allocated to appliances and tools (Wahba, 2019). An integrated retail strategy, banking on the ‘Shop Your Way program’ will also be applied to increase customer satisfaction (SHLD, 2019). For the corporate-level strategy, Edward Lampert will step down and serve in the capacity of chairman. Sears hopes to negotiate a $350 million hedge fund from ESL Investments, an affiliate of Edward Lampert.

Competition

The listed competitors in the Sears Holdings Corporation 10-K annual Report include Macy’s, Home Depot, Target, Kohl’s, Home Depot and Amazon. Generally, the department stores of some of these companies apply differentiation strategies during their marketing campaigns. For instance, Kohl’s and Target shrunk the sizes of their stores (Wahba, 2019; Khol’s, 2019). This strategy, commonly referred to as rightsizing, is aimed at achieving an engaging experience for customers. Additionally, Home Depot’s strategy is primarily focused on home appliances as opposed to Sears, which focuses on both the apparel and appliance market.

Strategic recommendations

1. Averting Sears’ ventures in the automotive business. The 1998 Sears Auto Centers and National Tire & Battery stores digressed the company from its core business. Essentially, Sears Holdings owed its business success to mail-order catalogs and should have avoided deviating huge investments in opportunities that had little synergies.
2. Increased investments in mail-order catalogs. Instead of spending a huge portion of its expenditure on re-modeling stores, Sears ought to have improved the wishbook.com. This would have potentially prevented the site from going down during the holidays. Possibly, more investments on the online platform would have made Sears to rival Amazon. Sadly, Sears lost this opportunity to Amazon.
3. Early intervention of Porter’s five forces strategies. In the 1998s, Sears failed to acknowledge the future prospects of establishing an efficient online sales platform. The application of Porter’s strategies would have made Sears dominate the online market.

Reference

Cokery, M. (2018). Sears, the Original Everything Store, Files for Bankruptcy. The New York

Times. Retrieved from https://www.nytimes.com/2018/10/14/business/sears-bankruptcy-filing-chapter-11.html

Halzack, S. (2017). The big missteps that brought an American retail icon to the edge of

collapse. The Washington Post. Retrieved from https://www.washingtonpost.com/business/capitalbusiness/the-big-missteps-that-brought-an-american-retail-icon-to-the-edge-of-collapse/2017/06/01/19f4bee4-35a3-11e7-b4ee-434b6d506b37_story.html

Howard, S. (2017). The Rise and Fall of Sears: How the retail store that taught America how to

shop navigated more than a century of economic and cultural change. Retrieved from https://www.smithsonianmag.com/history/rise-and-fall-sears-180964181/

Khol’s (2019). Updates on Kohl’s Store Optimization Initiatives. KHOL’S News. Retrieved

from https://corporate.kohls.com/news/archive-/2018/march/store-optimization

Mourdoukoutas, P. (2018). 4 Strategic Mistakes Distanced Sears from Customers and

Employees. Forbes. Retrieved from https://www.forbes.com/sites/panosmourdoukoutas/2018/10/13/four-strategic-mistakes-distanced-sears-from-customers-and-employees/#5b22df57e721

Pruitt, S. (2019). When the Sears Catalog Sold Everything from Houses to Hubcaps. Retrieved

from https://www.history.com/news/sears-catalog-houses-hubcaps

Sellers, P. & Caminiti, S. (1988). Why bigger is badder at Sears. Retrieved from

https://archive.fortune.com/magazines/fortune/fortune_archive/1988/12/05/71354/index.htm

SHLD (2018). SEARS HOLDINGS CORPORATION. Annual Report Pursuant to Section 13 of

the Securities Exchange Act of 1934 for the year ended February 3, 2018. Retrieved from http://www.annualreports.com/Company/sears-holdings-corporation

Thomas, L. (2018). It was once the biggest retailer in the US. 125 years later, Sears looks a lot

different. Consumer News and Business Channel, CNBC. Retrieved from https://www.cnbc.com/2018/05/18/125-years-later-sears-looks-a-lot-different-heres-what-happened.html

Wahba, P. (2019). Here’s The Problem With Sears’ New Strategy. Fortune. Retrieved from

https://fortune.com/2019/02/14/sears-hedge-fund/