January 21, 2008

Sears is reorganizing, but is this enough? 

If you are alive and reading these words, then you can’t remember a day when there wasn’t a Sears, Roebuck & Company. The company began as a catalog sales operation in the late 1800s, when most Americans seldom ventured more than a few miles from home. Then when urbanization and the automobile permitted consumers to travel longer distances, Sears responded by opening department stores.   

Sears is presently called Sears Holding Corporation. (Sears merged with Kmart in 2005) After 121 years in business, Sears is in terrible shape. All retailers must cope with a crowded playing field, but Sears’ problems are unique: The department store business model is extremely difficult to defend in the face of competition from discounters like Walmart at one end, and specialty internet stores at the other.  

 

The department store is neither as cheap as a Walmart-style discounter, nor as loaded with selection as a specialty shop. Department stores have higher operating costs than the discounters that run at razor-thin margins. Meanwhile, their scoop-to-nuts approach only allows department stores to skim the surface of each inventory category.   

In short, the department store is neither fish nor fowl, and it might just be a dinosaur. It made sense 50 years ago---maybe even 25 years ago. But in 2008? I can’t remember the last time I visited a Sears store. For just about anything I might have once bought at Sears, there is someplace else where I can now buy it cheaper, or find a greater selection. 

The folks in the boardroom at Sears know that the situation is dire. Sears Holdings has announced that it will reorganize into separate business units. These units will mostly focus on revamping the Sears brands like Diehard and Craftsman. Another unit will focus on Sears’ real estate holdings. 

I might suggest taking the reorganization a step further: ditch the department store business model entirely. The department store was good for our grandparents’ generation; but its time is now in the past.