Sears And RadioShack: A Tale of Two Decaying Cities

Mar 4 2014, 6:44pm CST | by

We’ve had an interesting couple of weeks in retail as Q4 and full-year results were released. There was plenty of bad news to go around, but I am most interested in two troubled companies, Sears and RadioShack.  One company sent signals early on that it knew its stores were no longer interesting.  The company promised change.  The other defied virtually every single analyst’s (and potential customer’s) opinion when its CEO declared “… the entire retail industry is headed to where we already are.” He appears determined to stay the course.  Let’s take a look at those two companies.

It’s no secret that RadioShack has struggled mightily to find its place in the 21st Century. Acknowledging the obvious, the company produced an epic commercial for the 2014 Super Bowl. As the story goes, the 80’s called and they wanted their stores back.  Apparently they weren’t kidding.  While we saw those 80’s characters taking out all the fixtures, no one told us that was just the beginning.  On March 4, RadioShack announced it is closing as many as 1,100 stores, or roughly 20% of its locations.  Those 80’s characters are tough!  They’re taking back the real estate too.

I’m not sure what place RadioShack can carve out for itself in the age of Amazon, Best Buy and every mass merchant in the world.  Even looking at its web site, I couldn’t figure out its unique value proposition.  When was the last time you shopped at a RadioShack?  Did you buy something more than batteries for an obscure device? The financial results do tell the tale.  Would I like RadioShack to survive?  I would. I’m not sure if that’s just more 80’s nostalgia at work or the desire to have a convenient place to buy electronic odds and ends right nearby. Would I buy the stock and bet on its chances?  Not today.

Then there’s Sears. Its CEO, Edward Lampert is a Hedge Fund manager by trade and the largest single shareholder of Sears Holding Corp (including both Sears and Kmart).  Mr. Lampert took the reins of the company as CEO in 2013 after a revolving door of hires came and went. To his credit (sort of) he only took a $1 per year salary for his efforts. As one retail watcher friend said “That might be the most expensive dollar Sears ever spent.”  So, even as the drumbeat over the sorry state of Sears’ stores continued to get louder and louder, Mr. Lampert responded with a long and somewhat rambling letter to shareholders.  He defiantly informed the reader that the state of the stores are not the issue.  In fact, he claims inventory reductions, expense management and a ‘member-based’ business model have positioned the company well for the future.  Oh dear.

In fact, Sears has a lot going for it. Things that really could help the company thrive in the years ahead.  But for some unfathomable reason, they are not the things Mr. Lampert seems to value.  I actually put a challenge to some of my retail watcher friends.  If the retail industry is headed to where Sears already is, what are the warning signs?  In other words, “You might be turning into Sears if…”   But the seriousness of the situation and the number of jobs at stake in the Sears ecosystem demands a bit more gravitas.  So in the following paragraphs, I present a list of suggestions that might help Sears be a viable retailer again.

1. Honor your iconic brands:  Kenmore is a brand people trust.  So are Die-hard and Craftsman.  Why is Sears not trumpeting the value of these brands, and building an entire story around them?  By some estimates, those brands have been allowed to lie fallow for longer than a decade.  Sears had another such iconic brand – Lands End.  He opted to spin it off into a separate company in 2013.  Great for raising cash.  For good retailing?  Not so much.

2. Highlight what you’re good at:  I had two personal experiences over the past few weeks that reminded me why Sears really does deserve to exist.  Sears doesn’t get nearly enough credit for its customer service both in-store and in-home.

First, in-home: I had problems first with my refrigerator, and then with my dryer.  My go-to phone call was to Sears.  Both times I had a respectful, affordable, and successful experience.  I spoke a bit with the second serviceman.  He was saying they hadn’t had a raise in a very long time, but their division has been profitable every single year.  Who else should we count on for reliable repairs?  And why shouldn’t Sears shout it from the rooftops – our in-home service rocks!

Next, in-store:  While Mr. Lampert did give props to his employees, I wonder if he realizes just how often they’ll go the extra mile for their customers. I bought a microwave from Sears a few years ago.  It broke before the warranty period was over.  I arranged for an exchange on-line, and was able to drop off the broken one with a minimum of difficulty.  Then I went upstairs to pick up the new one.  They were temporarily out of stock.  The associate on the floor actually gave me a loaner to take home, and carried it down the stairs to my car for me.  I was completely impressed.  I mean, this was $150 item.

3. Walk away from what you’re NOT good at: At what point is Sears going to recognize that it is not an apparel retailer?  Why would anyone buy apparel at Sears vs. Target, JC Penney, Walmart, H&M, and any number of other companies that sell essentially the same stuff?  We’ve moved from the softer side of Sears through various incarnations and Kardashians.  None of it works.  Give it up. As one friend said “No one between the ages of 14 and 26 has ever entered your store.”  Stop trying to sell them.  They’re not buying.

4. Hire a Retail CEO and let him do his jobHistory has shown us is that retail is not like any other industry and requires a certain amount of long-term subtle knowledge.  At least two Jack Welch acolytes from GE have learned that the hard way.  After the disastrous reign of Bob Nardelli, Home Depot managed to get turned around under Frank Blake.  Albertsons was bought out after a disastrous period under Larry Johnson.  I’m sure Mr. Lampert is a great hedge fund manager.  He owns the most expensive single family home ever sold in Miami.  And that’s saying something.  Some of the most highly paid athletes in the world live here.  Billionaires establish residency in the city because of the climate and the absence of a state income tax.  But retail?  Based on his letter, It’s hard to see that he gets it even now.

One thing the JC Penney debacle should have taught us all is that running a large retail enterprise is not easy.  It’s a delicate dance. It takes sometimes counter-intuitive skills.

I sometimes think of the ironies – Sears abandoned its catalog in the 1990’s.  But what is Amazon.com today, but a 21st Century version of that same catalog?  And that’s what makes the whole topic more sad than amusing.  Two iconic American retailers are sliding towards oblivion.  And we’re begging them to give us a reason to keep them alive.

Source: Forbes Business

 
 

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