It Was Sears’s Time to Go

The retailer completed the circle of corporate life: it made lots of money for a long time, then competitors with different skills took its place.

Sears has filed for Chapter 11 bankruptcy, meaning it intends to reorganize and stay in business. But as we’ve seen with RadioShack and Sports Authority, that can be the prelude to a retailer’s liquidation.

A bankruptcy certainly feels like a failure, and to the Sears creditors who were expecting a $134 million payment today, it is one. Sears employees and some of its investors surely have reason to be angry with Chairman Eddie Lampert, who was supposed to save the retailer — though as Bloomberg’s Matt Levine notes, it’s not obvious the company would have thrived for longer without his controversial management choices.

When a person dies, we often hear we should celebrate that person’s life, rather than fixating on the sadness of his or her death. This is also good advice regarding Sears, a company whose time had run its course, but that contributed much to American commerce along the way.

Sears was built on two brilliant observations.

First, about 120 years ago, improvements in postal delivery made mail-order a practical way to reach rural Americans who lived far from major stores. Then, about 90 years ago, the automobile changed Americans’ relationship to retail, making drive-to chain retailers a viable model.

Sears capitalized on both of these realizations to build catalogue and department store businesses that shaped American retail for nearly a century.

Along the way, the company found related innovations; for example, Allstate Insurance arose in the 1930s from the realization that Sears catalogues and stores would be good channels to sell insurance to the new legions of car owners.

But eventually, retail changed two more times, and Sears failed to be the company that saw either trend first.

Walmart developed supply-chain and other efficiency innovations that allowed it to undercut Sears on price, selection, and ubiquity. And Amazon was the company with the technology and fulfillment competencies to dominate the second rise of mail-order.

It is tempting to say this means Sears made errors; that Sears should have become Walmart or Amazon, just as it had leveraged its catalogue business to get into department stores. But it seems to me Sears’s errors went mostly in the other direction: trying too hard to figure out what would be the next big thing, and thereby getting into businesses it wasn’t especially good at.

In the 1980s, Sears decided it should become a financial services company, adding Dean Witter and Coldwell Banker to its portfolio alongside Allstate, and launching the Discover credit card. It also got into cyberspace, building the Prodigy Internet service with IBM.

In 1987, then-Sears chairman Edward Brennan told the WashingtonPost combining retail and consumer financial services would create a synergistic situation where “two plus two equals six. … We may not be at six right now, but we’re at more than four and growing.”

But by 1994, Sears was selling off its consumer finance businesses, even Allstate. “The synergies just aren’t there anymore,” Brennan told the ChicagoTribune. (Prodigy would be sold, at a steep loss, in 1996.)

Getting out of these ancillary businesses was supposed to allow Sears’s executive team to focus on luring people to Sears stores to buy consumer goods again — but they had limited success.

The last decade and a half of Sears’s existence has been defined by hedge fund manager Lampert’s control of the company, and the complex financial engineering strategies he has used around its retail business and its real estate and its still-valuable assets like the Kenmore appliance brand. But like Levine, I am unsure Lampert’s actions have been as significant as they look. Sears’s core problem is that people don’t like to shop there anymore. Lampert failed to fix that problem through financial restructuring. He didn’t create it, either, though.

The knock on Lampert was he let Sears’ stores atrophy. Meanwhile, JC Penney went through a much-mocked revamp led by Ron Johnson, who had previously led Apple to great retail success. It is possible there is just no good way these days to be a general merchandise retailer positioned somewhere between Target and Macy’s.

Blockbuster is often mocked for passing on a chance to buy Netflix for $50 million in 2000. Instead of dwindling through its last handful of stores in Alaska, Blockbuster could have become the DVDs-by-mail giant, and then the streaming giant, and then the content production giant that Netflix is today.

But, could it have? Would Blockbuster have been any good at a move into streaming? It is quite possible that, if Blockbuster had bought Netflix 18 years ago, neither Blockbuster nor Netflix would have ever turned into Netflix.

It’s the circle of corporate life: Like Blockbuster, Sears had a good run. It made money in its core business while it could, and then someone else with a different set of competencies rose up to take its place when the market fundamentals shifted under its feet.

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Source: It Was Sears’s Time to Go

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