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Barbara Farfan

Death of a Legendary U.S. Retail Industry Founder Reminds Sears to Reclaim Its Identity As One of the Great American Retail Brands (SHLD)

By June 18, 2010

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Sixty-two years ago today, the U.S. retail industry lost a leader who we now recognize as a legendary founder of a great American brand. Alvah Roebuck was a watchmaker from Indiana who answered an employment ad, and was hired by Richard Sears to repair the watches that Sears was selling with a then-revolutionary direct marketing system. Somehow the two men went from a watchseller-watchfixer relationship to become business partners, and in 1893, Sears Roebuck and Co. was incorporated in the state of Illinois. Roebuck stayed involved with the company in several different capacities until he died on June 18, 1948 at the age of 84.

The relationship between Sears Roebuck and Co. and the American consumer has endured 117 years, and like any relationship, it's had its high points and low points. Currently, that relationship seems to be at a low point, and perhaps on its way to an even lower point.

Sears Holdings (SHLD) stock prices have dropped 7% since the beginning of 2010, and are about 37% lower from their 2010 high in April. Sears' stock losses can be compared to the 350% increase of Cost Plus, retail's best performing stock so far in 2010, or to the 5.0% increase of the S&P Retail Index in 2010. Either way Sears doesn't come out looking good in the comparison. It's clear that Sears is bucking the retail trend in 2010, and not in a good way.

Sears saw its first quarterly sales comp increase in six years in the first quarter of 2010. A plus sign is always better than a minus sign when it comes to sales comps, but it was only a 0.3% increase in domestic same store sales, and it took a "dollars for dishwashers" government incentive and some deep discounting to eke that out. After a six-year downward trajectory, it's easy to believe that Sears might be feeling a little bit desperate these days, and its recent throw-it-against-the-wall-and-see-if-it-sticks approach to retailing seems to indicate that may very well be true.

I wonder what the dearly departed founders of Sears Roebuck Co. would think about the company's recent moves and management philosophy? By all accounts Roebuck and his partner Sears were wildly successful retailers back in the 1800s. Richard Sears started the R.W. Sears Watch Company. in 1886, and sold it in 1889 for $82,000. Adjusted for inflation, that's the equivalent of selling a 3 year-old mail order company for $1.7 million today. It wasn't YouTube, but it was a respectable transaction.

The Sears Roebuck Co. sales exceeded $1 billion way back in 1945. Again, adjusted for inflation, that's the equivalent of $12.1 billion today. Compare that to 2010 revenue of $44 billion for Sears Holdings, which included $15.7 billion from Kmart and $4.6 billion from Sears Canada. Effectively, Sears sales have only grown 95% since 1946, an average of 1.46% per year. It seems as if the first 52 years were relatively more successful than the last 65. So, what might Sears and Roebuck, the men and the founders, have to say about the Sears of today?

Founded on Innovation

The Gofer.com grocery and merchandise delivery concept that Sears piloted last year and is expanding this year is seemingly far beyond Sears' core competencies. But the original Sears and Roebuck leadership duo would probably point out that that this new offering actually harkens back to the company's roots. Grocery delivery was a cornerstone of Sears' business beginnings.

Rural families felt like they were being price gouged by locally-owned general stores in the late 1800's. Sears and Roebuck didn't compete with the general stores, they created a retail system that bypassed the general stores instead. Today we may see the Sears brand as steady and stalwart, but its retail legacy is all about innovation.

The multi-channel integration of the Gofer.com concept really isn't all that innovative or radical, but the successful execution of it for household consumables in a new century could be. Reportedly Sears executed its fulfillment processes so well back in the 1900's that Henry Ford studied their conveyor system before developing his own.

Because of the company's successful beginnings with innovative merchandise delivery, I think the original Sears and Roebuck management duo would wholeheartedly support the Gofer.com concept. They'd probably have a few valuable suggestions about how to make it work better too.

Giving Away the Store

When SHCRealty.com was launched in May, many were surprised that Sears Holdings was quite publicly advertising its belief that other retailers could make better use of Sears Holdings real estate than Sears and Kmart were making of it. This probably did not boost shareholder confidence much, and might help explain the 37% stock price drop that has occurred since April.

There are four ways that Sears Holdings is proposing that other retail companies can capitalize on its retail real estate. One option is a store-in-store concept, which Edwin Watts Golf Shops is trying out in 12 Sears stores this year. Another option is "demised space," which divides a Sears or Kmart space and allows another retailer to operate adjacently, but separately from Sears. Reportedly Forever 21 is planning to do this with 40,000 square feet of a Sears mall store in Orange County, CA.

The most logical (and most humorous) option is the "outlot" option which allows another retailer to establish a presence in a Sears or Kmart parking lot. As long as there aren't any shoppers' cars making use of the parking lots, the company might as well let another retailer make productive use of the asphalt.

Perhaps the least appealing option presented is the "inline leasing" option which allows retail businesses to operate or build adjacent to an existing Sears or Kmart store and "enjoy all the benefits that proximity to our store has to offer." With all due respect, if there was a substantial amount of Sears or Kmart customer traffic to benefit from, the company probably wouldn't be looking for retail tenants to help pay its property taxes.

It would be very easy (and expected) for Sears to be too arrogant about its behemoth status to publicly pursue junior retailing partners in this transparent way. Kudos to the Sears management team for realizing that there's no such thing as a too-big-to-fail retail organization. If this kind of location partnership strategy is the alternative to store closings and selling off real estate in what is still a greatly recessed commercial market, then I think the original Sears and Roebuck leadership team would vote "yes" on these actions too. Sometimes you just do what you need to do in order to set yourself up for success in the next 117 years.

Fathers Day Promotion and Hail Mary Marketing

To convince consumers that shopping at Sears for Father's Day is "life well spent," the retailer is giving a $50 bonus to shoppers who purchase $50 worth of men's clothing. It's a clever way of offering a 50% discount during a gift-buying occasion.

The extra $50 might beef up the perceived value of the Father's Day gift itself, or the shopper may decide to keep the $50 for themselves as compensation for their gift-giving generosity. The only downside to this offer is that fathers and grandfathers somewhere in America are going to have to wear those Sears fashions.

There's something about Sears promotions in the past year that has the feel of Hail Mary marketing. For some reason their marketing efforts come off as desperate, but perhaps that's just my perception. The Sears and Roebuck Co. was wildly successful for 39 years before the first physical retail location was even opened. Much of that early success was due to its low-margin, high-volume business model, and its creative marketing. According to Sears history archives, Richard Sears established an ultra low-tech affiliate program way back in 1905 and gave commissions to customers for purchases made by their neighbors, family and friends.

So, it seems plausible that the original Sears and Roebuck management duo would support any kind of marketing and sales promotions, as long as those marketing efforts don't confuse activity with the accomplishment of some kind of profit margin, no matter how small.

Come See the Techno Side of Sears

Sears released its Personal Shopper app in January, which allows shoppers to take a photo of an item, and put the Sears Personal Shopper Crew to work locating the item. In April Sears made an iPhone app available that is integrated with GPS satellite technology. The company opened up its API in April to attract some more developer creativity (free from the hassle of paying developer health insurance benefits).

As further proof that Sears Holding is embracing technology, the Sears and Kmart brands each have their own "social" website, Facebook page, Twitter account, and YouTube channel. Mostly these social media outlets are being used as promotional broadcast channels rather than interactive touchpoints, but at least the companies will have the infrastructure in place when they decide to adopt a more engaging social media strategy. Props to them for at least showing up on social media platforms and making the effort.

Most recently, Sears signed on as one of the inaugural iAd advertisers. And reportedly a pilot program will start this summer in Sears stores that will give store credit for trade-ins of old electronic devices with the purchase of the latest and greatest gadget. Obviously, SHLD is participating in the quickly-evolving retail technology game, but are consumers viewing the legacy retailers as viable contenders on that playing field?

Maybe it's just a generational thing, but I have a hard time getting my head around seeing "the techno side of Sears." But just as the "softer side" campaign of the 1990's successfully brought females through their doors, perhaps a similar "techno side" image campaign could shift perceptions and attract techno savvy shoppers to its portals. The problem is, once they have arrived, what will the techno generation find at Sears that they want to buy?

The Great American Retail Opportunity

And that's what I think the original Sears and Roebuck leadership team would see as the major challenge for today's Sears and Kmart businesses - identity crisis. The standard 4P's marketing formula doesn't seem to be "right" right now.

Sears and Kmart don't seem completely certain about where they fit into the American retail landscape any more. Every major retailer is infringing on its product offerings, and consumers of all generations seem to have the opinion that Sears and Kmart stores are "so yesterday." Theoretically the greatest value of the Sears chain rests in its well-known proprietary brands, and yet it seems like the company is having to pimp out those brands and use a fair amount of promotional bribery to persuade consumers to take those valuable brands home.

I suspect Richard Sears and Alvah Roebuck would want to remind the current SHLD management team that their greatest competitive advantage lies in something that very few of their competitors can lay claim to. Sears and Kmart are part of a dwindling group of great American brands. Both companies have roots that stretch back to the 1800's, and for that alone they have a certain amount of well-deserved consumer respect just for surviving.

While there is no suggestion that Sears and Kmart are going to become successful in the future by taking a giant step back into the past, it could work to their advantage to own and embrace their great-American status. In order to do that, though, they're going to have to embrace what it means to be an American in a new decade of a new century after the bubble of unconscious consumption has burst.

The original Sears and Roebuck team knew the American farmer and aligned the company's Four P's behind that knowledge. Then they knew rural America, and aligned the company's Four P's behind that knowledge. It's not clear that the Sears Holding management team of today knows the 21st century American consumer, and if they don't truly "know" their customer, it's impossible to align the P's of their business effectively.

Tonight I took a spin through a Sears mall store to see how the Father's Day weekend was kicking off. Even though the mall's parking lot was Christmas-season busy, the Sears store was mid-recession empty. No one - and I literally mean no one - was even looking at the Father's Day promo men's clothing. No one - and I literally mean no one - was looking at the merchandise with the valuable Craftsman, DieHard, and Kenmore brands.

I saw four members of the Sears "blue crew." One of them was pacing around the empty television department talking on his cellphone. Two of them were behind the cash register counter talking to each other. One blue crew member was engaging with a couple that was looking at grills. Actually he seemed to be hovering, but we'll give him the benefit of the doubt and call it "engaging." None of the blue crew members seemed to notice or care that I was wandering around their store in all of the departments where I might be looking for a Father's Day gift.

I couldn't tell by looking at the merchandise in the store who Sears thinks the typical American customer is. Where was the merchandise for the quality-minded Americans who are re-evaluating their priorities and rethinking what they really need to own in order to have a happy life? Where was the merchandise for the principle-centered Americans who want to work for and do business with companies with character and integrity? Where was the made-in-America merchandise for those who want to help put their neighbors, friends, and family members back to work? Where was the eco-friendly and socially responsible merchandise for the Americans who want to stop having a negative impact on the planet that their children will occupy?

It would be easy for Sears leaders to say, "We're not that kind of store." In response, the lack of bodies in the store tonight seems to be sending the message to Sears that "We are those kind of consumers and you don't have much to interest us."

This particular Sears store couldn't even plausibly use the frugality excuse to explain its lack of sales transactions on the Friday before Father's Day. There was a plentiful number of neon yellow "additional 30% off" signs attached to the red 50% clearance signs in just about every department of the store. No one - and I literally mean no one - was looking at any of these uber deals.

Few U.S. retail chains are in a better position to align with the newly emerging American identity than Sears and Kmart. But in order to avoid the fate of becoming one of the great American brands of yesteryear, the SHLD management team is going to have to prove that they know what the emerging American identity is, and then realign the 4Ps of their business plan to service those consciously-consuming, environmentally-responsible, politically-active, professionally-ethical American consumers.

If every marketing tactic and every retailing solution in the company's playbook is just a permutation of "sell-as-much-as-you-can," perhaps the SHLD leaders should consider closing the boardroom door, ordering a pizza, reading the comments on their Facebook page, and trying again.

Perhaps the sterilized version of Sears corporate history makes Sears and Roebuck, the founders, seem more savvy than they actually were. There's no harm, though, in believing that, especially if the philosophies you imagine that Richard Sears and Alvah Roebuck used to launch the business could also be used to launch the company onto an upward trajectory again.

"You must first be who you really are, then do what you need to do, in order to have what you want." Neither Richard Sears nor Alvah Roebuck actually said that, but it seems like they might have, if they had thought of it before singer Margaret Young did. In any case, it might be a good motto to hang in the SHLD boardroom for a while.

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June 22, 2010 at 9:11 am
(1) Jerry Birnbach F.I.S.P. says:

Sears is a classic case of a retailer that over the last twenty years has never been able to determine who they are and what role they play in America’s retail arena.

As a retail store design consultant for the last 30 years, I have had the good fortune to work with every major retail chain. Sears has always had difficulty making decisions because it was always by committee. All to often, great ideas, offerings or opportunity passed them by because of their inability to make a timely decision. Every two years another concept for merchandising or design would be announced and the end results were not helping the bottom line.

Ironically as Sears meandered in the dark, K Mart was doing the same exercise as well. I saw the rise of Walmart and Target from the early 70′s to the giants they have become today. Kmart and Sears on the other-hand were never able to focus and ultimately were all over the place with ideas and concepts. The bottom line is they never knew who their customer was or who their customer should be.

It never helps retail or our economy if a retailer fails, but to me Sears and Kmart are so broke I am not sure they can ever be fixed. Unfortunately if Sears had to close its doors the only customers that would miss them are the loyal Craftsman, appliance and electronics consumers.

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(5) THOM says:

It is a joke that there are people paid big money to run these firms who clearly have no understanding of business. You state, “As further proof that Sears Holding is embracing technology, the Sears and Kmart brands each have their own “social” website, Facebook page, Twitter account, and YouTube channel. ” and right there you have answer in my opinion why they are sliding straight down the sewer. American retail is in need of returning to REAL business and get off this social insanity that is not real business. Until then, I see nothing but declines (mark my words on that one.)

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