Overview
Sears, Roebuck and Co. is one of the largest retailers in the United States, operating in all fifty states and Puerto Rico. The company’s only international operations are in Canada. Total revenues in 2001 were $41 billion, with 87% of the revenue coming from sales of goods and services. A majority of Sears’ operating income (58%), however, came from its credit operations.
Sears is a mid-tier retailer, selling goods that, in price and quality, fall between those of discount stores and full-service department stores. As a whole, the mid tier is struggling, unable to sustain rapid or consistent growth in revenues and profits. Montgomery Ward, Sears’ long-time mid-tier rival, declared bankruptcy and began liquidation in 2000.
Sears was the dominant retailer in the US for most of the 20th century, and it seeks a return to its former glory. Sears is a general retailer: its full-line stores offer a wide variety of hard and soft lines. Today’s customers do not seem to value general retailing, preferring instead to shop at different stores for different kinds of items.
The company has floundered for the last 20 years, trying first one approach and then another, looking for sustainable growth and momentum and an improved image. In the 1980s, Sears diversified into financial services and specialty retailing. It has since divested its financial services operations and some of its specialty retailing stores. The company has restructured several times in an effort to cut its costs. None of the strategic changes has been maintained long term, and none has shown the ability to provide much growth in revenues or profits. The company’s most recent venture into specialty retailing is The Great Indoors, a home decorating and remodeling store. Since 2000, Sears has been engaged in a turnaround strategy. Under the leadership of Lacy, Sears has cut costs and revised its approach to soft lines, seeking to avoid direct competition with discounters. To date, the strategy has shown some promise. Sears’ efforts over the last 20 years show how difficult strategy changes can be in such a large company.
The Sears case provides an excellent opportunity to explore the evolution of a company’s strategy. Most students will be familiar with Sears, Roebuck and Co. which operates 867 full-line retail department stores and 1,318 specialty stores located throughout the United States. Through its subsidiary, Sears Canada, the company also has merchandising operations in Canada. Sears is one of the best-known retailers in the U.S., having been in existence for more than 100 years. For much of the 20th century, Sears was the largest retailer in the country, but it lost market share to discounters and specialty retailers. In 1990, Wal-Mart passed Sears and became the largest retailer, and by 2001 Wal-Mart’s sales were six times those of Sears.
The evolution of Sears’ strategy began with its foundation in 1893 and the commencement of its catalog operations in 1895. In 1911 Sears began extending credit to its customers and in 1931 Allstate Insurance Company was created as a wholly-owned subsidiary of Sears. In the early 1980s Sears’ managers resigned themselves to the belief that their segment of retailing was a slow- growth market. Accordingly, the company began searching for new ventures that could support more rapid growth. In the early 1980s Sears expanded into financial services by acquiring Dean Witter, which was divested in 1992, and began development of specialty retailing chains. During much of the 1990s, Sears’ soft lines, including apparel, performed poorly and increasing percentages of profit from retailing operations came from hard lines and company credit operations.
In the midst of continued slow growth, Alan Lacy became CEO and President of Sears in 2000. Lacy seemed to accept that Sears would not experience fast revenue growth and that the company must reduce its operating costs if it is to increase profits. Under his leadership the company expanded its credit card operations, looking for increased profits in that segment of its business.
The case looks at Sears’ operations in the United States and concentrates on the condition and future of the full-line stores.
Suggestions for Using the Case
You can position this case in your business strategy in either of two ways. One way is to assign the Sears case shortly after covering Chapter 1 and using it to have students assess how a series of Sears’ executives have dealt with the 5 phases of managing the strategy process and the struggle they have had in coming up with a strategy that produces good results. The last several Sears executives have all launched strategic initiatives to revitalize Sears’ business and generate strong revenue growth. The results have been minimal, as first one strategy and then another has been tried. With this positioning, the focus of the class discussion is on “Why have all the recent strategic initiatives more or less struck out?” Have the various Sears CEOs all been weak strategists? Is the company becoming desperate for a strategy that boosts revenues and profits? What strategy should/can Sears try next? Are there any good strategies left to try? The main teaching point and lesson to be learned from the Sears case is that without a good strategy a company simply cannot be a winner in the marketplace.
The second approach for positioning the Sears case is to delay assigning the case until you have covered Chapters 1-4 and then have the class do a more complete strategic assessment, evaluating how well the company’s several strategies have worked, perhaps doing a SWOT analysis, and coming up with recommended strategic approaches that Sears might try next. Such a positioning will work quite nicely for using the Sears case as a written case assignment or for an oral team presentation.
We think approach number one probably is the best approach if you want to use Sears as a vehicle for class discussion and it is the approach we envisioned when we selected this case for inclusion in the case lineup for this edition. It is an approach that illustrates perfectly how a company’s strategy evolves, why a company often begins to pursue a new strategic direction when a new CEO takes over, why the moves a company makes in one period (the acquisitions of Dean Witter, Coldwell Banker, the launch of the Discover Card) sometimes go awry several years later and have to be undone via divestiture, and how a big, successful company like Sears can lose momentum in the marketplace and never quite recover despite a series of strategic moves to rejuvenate the company and restore its luster. This is an excellent case for having students trace through and evaluate the pros and cons of the various stages of Sears’ evolving strategy. And it is a good vehicle for getting students to think strategically about the company’s latest big strategic move—the acquisition of Lands’ End—and whether this move is really a good one that will work out for Sears over the long haul. In short, we think this case is a perfect follow-on for the topics covered in Chapter 1.
There is no case preparation exercise for this case on Case-Tutor; students will, however, be able to use the Case-Tutor software to obtain the assignment questions presented in the section below.
If you elect to use the Sears case for a written case assignment or an oral team presentation, then we recommend consideration of the following question:
Sears top management, aware of your blossoming expertise in strategic analysis, has employed you as a consultant to evaluate its strategy over the past 10-12 years (starting with the Dean Witter and Coldwell Banker acquisitions and the launch of Discover Card) and to recommend what strategy the company should pursue over the next several years as it attempts to assimilate Lands’ End into its business lineup. Please prepare a 4-6 page report to Sears’ management that covers the following points: (1) the pros and cons of the strategic initiatives launched by each of Sears’ CEOs since 1992, (2) the grade you would give Mr. Lacy for his efforts in rejuvenating Sears to this point and why, and (3) your recommendations for enhancing Sears’ strategy in the years immediately ahead.
Assignment Questions
1.How has Sears’ business model and strategy evolved over the years—what specific phases or stages do you see during the period from 1886-2002?
2.Do you think the launch of Allstate made good strategic sense for Sears? Why or why not? What about the acquisitions of Dean Witter, Coldwell Banker, the launch of the Discover Card, and Western Auto? What specifically do you see as the pros and cons of each of these acquisitions?
3.What were the key elements of Sears’ strategy between 1992 and 2002?
4.Given Lacy’s background and the challenges facing Sears in 2000, what is your assessment of Lacy as Sears’ new CEO? Was he a good choice? Why or why not? What grade would you give him for his efforts in rejuvenating Sears to this point?
5.What pros and cons do you see regarding the strategy Sears implemented in 2000 for its full-line retail stores? Which aspects of the new strategy were borrowed from discounters? Which aspects were intended to make Sears less like a discounter? Is the strategy a clear improvement over the prior strategy or is it just “different”?
6.Describe the merchandising mix at Sears and the problems the company has had with its soft lines. Do you think that the changes in full-line stores since 2000 will lead to increased profits and revenues and to a long-term competitive advantage?
7.What do you think of the Lands’ End acquisition? Does it fit well with Sears’ new strategy? What are the potential risks of this acquisition?
8.What is your assessment of The Great Indoors store concept and format? What positives and negatives do you see? What would you predict to be the future of The Great Indoors?
9.What are Sears’ resource str