Here’s an under-appreciated fact: businesses (every one of them) face every-day risks that can destroy them.
The rise and fall of the retailer, Sears, provides an illustration of the reality of such risks and how those risks ultimately prevail—even for the best and most-profitable and successful businesses.
Illustrative Sears history is in, “Quit: The Power of Knowing When to Walk Away,” by Annie Duke (Penguin Random House LLC (2022)).
Specifically, the book provides fascinating information on the rise and fall of Sears: from its mail-order beginnings, to its dominance among retail markets, to its ultimate fall into bankruptcy liquidation.
What follows is a summary of that information.
Beginnings—1896 & First 30 years
Beginning in 1896 and for the next 30 years, Sears sells merchandise exclusively through small order catalogs, taking advantage of the expansion of railroads and the newly-established Rural Free Delivery program of the U.S. Postal Service.
Sears succeeds quickly: in 1906, it becomes the first retailer to go public, with a $40 million initial public offering (that’s $26.2 billion in 2018 dollars);
Competition, Market Changes & Success—1920s to Early 1970s
In the 1920s, Sears faces new competition and market changes, caused by the advance of automobiles, by greater competition among retailers, and by population movements from rural areas to cities.
Sears responds to such competition and changes by establishing retail stores. By 1929, Sears has 300 retail stores and then doubles that number through the Great Depression years of the 1930s.
From 1941 through 1954, Sears’s annual sales triple to $3 billion . . . and then triple again over the next two decades.
By the early 1970s, two out of three Americans are shopping at Sears within any three-month period.
Trouble Brewing—1969 to 1980
In 1969, Sears announces plans to construct the world’s tallest building in Chicago as its headquarters. The 110-stories Sears Tower is competed in 1973.
But as Sears moves into its new headquarters, trouble is brewing from new competition and from changing demographics. For example:
- Sears had cultivated an image as the thriftiest place to shop—but (i) Walmart, Target and Kmart become tough competitors for bargain shoppers, and (ii) shoppers wanting more upscale products favor the likes of Saks Fifth Avenue, Nordstroms, Macy’s and Nieman Marcus;
- Sears had expanded into suburban shopping malls—but that strategy backfires by introducing Sears’s customers to competitors by placing those competitors under the same roof and within walking distance from, if not next door to, Sears’s stores; and
- Sears’s earnings are plummeting—and by 1980, the return on investment for Sears is nearly 40% below Walmart’s return on investment.
The Fall
Beginning in the 1980s, and through the 1990s and 2000s, many Sears stores become outdated, decrepit or shuttered.
Then, in 2005, Sears merges with Kmart—which proves to be a disastrous move.
And so, in 2018, Sears files bankruptcy and liquidates.
Profitable Divisions
Meanwhile, Sears had developed many profitable non-retail divisions of its business, particularly financial enterprises like Allstate, Dean Witter, Discover and Caldwell Banker.
Instead of leaning into those profitable enterprises, and expanding upon them, Sears takes a different approach: it sells those profitable enterprises in an effort to salvage its failing retail enterprise.
The result is this: Sears loses all its enterprises.
Conclusion
Businesses fail. Even the best of them.
Failures happen because of a constant that all businesses can count upon: i.e., changing times. Products become obsolete. Business strategies become outdated. And businesses that do not adjust accordingly . . . die.
That’s the harsh reality of business. And there is no better illustration of that reality than the retailer, Sears.
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