When Dreams of Digital Transformation Burst

Banner_Sears.jpg

Sears finally filed bankruptcy on October 15, 2018, after a decade of implementing a series of efforts on digital transformation.  Now, it hopes to return to profitability someday with Chapter 11 protection. Fortunately, Sears has just secured $350m in November from the Great American Capital Partners to stay afloat during this holiday season. To see whether Sears can endure this cold winter, let’s take a closer look at how Sears has transformed over time.

Bigger than Amazon.com

Back in the day, Sears was the Amazon.com of its day. During the Industrial Revolution, Sears transformed the way Americans shopped. In 1886, Richard Sears, the founder of Sears, started a mail order company during the expansion of the growth of the railroads and postal offices.  The mail-order catalog started with selling just watches and jewelry and then grew into 500 pages long shopping catalog, where people can buy anything from shoes, stoves, musical instruments, tombstone, or even a house. It also had a radio station in Chicago and a credit card company. Sears Tower was the tallest building in the world from 1973 to 1996.  It sounds bigger than Amazon.com.  At that time, people live in small towns with access to only a few stores, and most of the time, they must build their own furniture, and make their own clothes.  Sears revolutionized the way of shopping since people can order anything by browsing the catalog and the purchased items will be delivered to a home. It sounds exactly like online shopping, where you buy something by reading about it without seeing or touching the physical objects first. The postal system resembled the Internet enabling connections and trades among people and businesses. Ironically, I believe if the founder were still alive in the digital age, he would not have missed the opportunity to bring his catalog online when the Internet just came out.  However, the massive base of the shopping mall is an enormous burden to the company, and Sears Holdings also need to manage other businesses.  The sheer size and its diversified business structure prove the complexity of transformation in the digital age. It is a daunting task by any standards.

Sears has stopped its catalog since 1993, and during that time, the corporate executives considered Walmart a non-competitor since it treated Walmart as a discount store. Sears was the king of retails and was considered untouchable by its rivals even in the ‘90s. But the seed of overconfidence was sowed and starting 2000s, and it had been lagging behind its peers amid a fiercely competitive market while Walmart kept gaining on Sears.

Undergoing Digital Transformation

When Eddie Lampert, CEO of Sears Holdings, took over the control of the company in 2005, it had also merged with Kmart to become the third largest retailer in the U.S. and everything went well, and the value of Sears shares peaked at $195.18 at April 2007. However, since then, after 11 years, the valuation of the company heading south from $131 to nothing without any peaks in its share.  There were many things the Sears had done it well and not so well. For the new businesses created from online and multi-channel sales, it had a 10% annual growth since the 3rd Quarter of 2012. It had strategies aimed at driving the business transformation of its retailing business, which is targeting and securing their best members, best stores, and best categories. 

Using Old Playbook

Nevertheless, by focusing on the brick-and-mortar stores, it is working against the tide of the digital trend. It is detrimental to use the old playbook while fighting the expensive war since the behaviors of customers have changed and the effectiveness of the old advertising method fades away.  Besides, digital transformation is not about just using the latest technologies like collecting the best data to analyze it or using the latest cloud technology. It’s a transformation in every layer of business from a business model, technological infrastructure, digital thinking to creating of digital-first mindset and corporate culture.  Another apparent reason for the fall of Sears is that the productivity of department stores was sluggish and frozen in time.  From my own experience in Los Angeles, either Kmart or Sears’ department store, the checkout time is unbearable. Other comparable stores like Target or even Home Depot, they are just doing fine with their checkout time. If the executives at Sears want to save their companies, they should pretend to be a Kmart or Sears shopper for a day.   The stores didn’t get the appropriate upgrades all this time.

SearsRevenue2005-2017.jpg

Bursting the Dream

Not many companies have the luxury or enough cash to burn like Sears, spending eleven years to do the digital transformation is fair enough, but surviving its bankruptcy does not look promising unless they realize that implementing short-term goal strategy is useless. Sears chose financial maneuvers to sustain the business especially we saw a peak in 2007, but in reality, it was one mishap after another, and it could not maneuver out from trouble without realizing the change in consumer shopping habits. Even if the company wants to spend more time thinking about the customers, there is no free time to do that because everything internally is still very manual, and business is too diversified. It is challenging to run more than one retail brand with different merchandise and consumer strategies. There are just too many factors contributing to the fall of the giant.

sears_10yearcomparision.jpg

The Light at the End of the Tunnel

In the old playbook, the marketing executive plays an essential role in creating business and operating model.  However, moving from industrial thinking to digital thinking is not only a big job, but the company should consider letting the digital leaders lead the team and devise a new infrastructure that ties the back end to the front end. In the old days, IT has played a role of support and enabled, but in this digital age, IT needs to play a more significant role than that. For an established business, a real digital leader is crucial for the survival of the company. I think the brick-and-mortar stores can survive the digital revolution if they can improve its productivity on the store ends because statically, online shopping has only 9% of the overall retail pie (Axios 2018).  New generation prefers to shop online because it’s much convenient when comparing to the old local stores. A good model of running an efficient retail store was the chain of the grocery store, Fresh & Easy Neighborhood Market. It was very convenient for customers with its friendly self-checkout ability, and the quality and selection were excellent.  There was no need to choose and pick because they were all good. I could literally get all the stuff that I needed under a few minutes from start to finish. Although the chain store went out of business in late 2015, it had served a role model that shopping in a brick-and-mortar store could be a great and comfortable experience.

Sears seems to have some connections to Christmas in the past. The “Wish Book” catalog from Sears had been a part of American’s Christmas tradition for generations. The misprinted one-digit phone number ad that led to NORAD’s Santa Tracker was also created by Sears unintentionally. This Christmas is likely to determine the fate of Sears and may be its Christmas dreams come true.

The ad that misprinted Sears phone number and led to NORAD’s Santa Tracker (public domain).

The ad that misprinted Sears phone number and led to NORAD’s Santa Tracker (public domain).

If you have any thoughts about Sears or the article, I would love to hear what you have to say. Thank you for reading.