Friday, November 19, 2004

The Fall and Rise of a Retail Giant

With the recent announcement of the Kmart and Sears merger I reflected on the Sears brand while growing up in my childhood home. Flashback to the 1940's, 1950's, and 1960's where Sears was a paradigm of the retail establishment. While other retailers, J.C. Penny's and Montgomery Ward come to mind, emulated the 'Sears model' one has to ask, "What caused this retail giant to fall from it's once coveted status as the number one retailer in the nation?

Many will cite the Sears Catalog operation that started in 1886, but completely phased out in 1993. Sears however, has a history of stagnant growth since the 1970's where it had about 870 stores; approximately the same number as today. Others blame its loss of status on bad retail product choices. While all those reasons and more were likely contributors, I believe it was Sears' inability to shift from its paradigm created in the earlier part of the 20th century.

Think about it! For those who grew up in the era of Sears, why did our parents shop there? Was it that Sears offered the best products or the best pricing? Not really.

Sears' one-time strong hold on the retail world can be pinned to one major development. They offered low and middle class consumers a credit card. Actually, in those days it was called a 'charge plate'. Eventually competitors followed suit, but Sears was 'king' of retail because they 'invented' and developed the credit card market earlier than anyone, and offered more lenient terms.

As we all know the problem with paradigms is once developed they are difficult to break. And so it goes that in the 1970's a new retail phenomenon surfaced. The BankAmerica Card -- a credit program that developed into the VISA and MasterCard networks we know today. BankAmericard was one of the first 'bank' credit card systems established so consumers could use one credit card at many different retail establishments. Without realizing the impact of this developing phenomenon Sears continued to follow its old business model stubbornly refusing to accept the new VISA and MasterCards being issued to millions of consumers.

To make matters worse Sears failed to realize these new 'bank cards' permitted the Sears customer to purchase (on credit) products from the smallest of retail outlets. This quickly chipped away at the Sears customer base. It wasn't until circa 1980 or so that Sears finally reversed its long-standing policy when it decided to accept the VISA and MasterCard program. By then the damage had been done, due to the fact that Sears simply failed to recognize the paradigm shift. By then middle class America was shopping at the numerous and more 'trendy' retail outlets in the new malls being built throughout the nation.

I'm not sure if anyone else has ever looked at the fall of Sears from the number one ranking due to the public's acceptance of the bank credit cards of today. It's an interesting business lesson. Although it's an example I've never heard discussed in any business class.

With Kmart purchasing Sears we can expect major changes in the way the new company does business. It has no choice if it expects to compete against the likes of Walmart, Lowes, Home Depot and the rest!

Reference Link