National Post (National Edition)
The REAL reason Sears FAILED
TERENCE CORCORAN,
The decline and fall of great names in North American corporate history is now so common that nobody much notices when another former giant is added to the list. The latest falling star is Sears. The legendary retailing pioneer, already under bankruptcy protection in Canada, staggered into U.S. bankruptcy court on Monday, an ignominious place for a company that for much of the last century stood as a storied symbol of American capitalist achievement.
A few editorial writers and TV commentators along with retail experts emerged to lament the decline of the once-dominant Sears Roebuck & Co., the 126-year-old company that went from catalogue pioneer to retail/ insurance/investment conglomerate to struggling takeover target. Observers put the blame on everything from decades of strategic errors, the arrival of Amazon competition and the alleged predations of Eddie Lampert, the hedge fund manager who oversaw its demise. Even The Wall Street Journal ended an editorial claiming that “Sears travails are a reminder that short-term management rarely prospers.”
Whatever Sears’ problems and no matter what role was played by a succession of owners and managers over the decades, talk of short-termism and botched strategies misses the real story: the dynamic success of the underlying competitive retail markets in both Canada and the United States.
One reason Sears bankruptcy is essentially going down as just another relatively standard corporate development, especially among consumers, is that these are insignificant and rather routine events within the constantly transforming retail sectors. Sears failed because others in the market succeeded in delivering what Sears did not, and maybe could never have delivered no matter how smart and long-term the strategies of their owners and managers.
Few sectors of the North American economy are as revolutionary and transformative as retailing. No other sector is as free of government intervention, subsidies, bailouts and favouritism. Retail firms come and go. Survival is rare, not the norm. Big or small, the market works wonders at providing consumers with new and better services and products.
A comparison of the top retailing companies in Canada in 1978, as measured by the annual FP 500 tabulations, with today’s list illustrates the dynamics of competition and the market’s ability to sweep away retailers who are not up to the competitive challenge (see accompanying chart). Half the companies on the 1978 list are gone, replaced by retailers who have shaken up the industry — from Walmart to Home Depot to Amazon, Winners and Best Buy. Canada’s biggest retailer by revenue is Alimentation Couche-tard, which only started in business as a single convenience store in 1980.
Another measure of the transformative power of competition is Toronto’s landmark Eaton Centre. Only a handful of the 80 or so original tenants from its opening in 1977 still exist, swept away — along with the T. Eaton Co. — by competition.
The idea that Sears maybe could have survived had it not been taken over by Lampert, had it not been merged with Kmart in 2005, had it not been drained of cash, had it not become a mega-conglomerate with investments in stock brokers and insurance firms, had it not, well, you name it. But none of this is really relevant nor is it a realistic assessment of the market. Nor can Amazon be blamed.
The Sears business model succeeded half a century ago, but it got taken over by healthy competition. Mark Cohen, the former CEO of Sears Canada, told a U.S. news network that Sears was toast the minute it merged with Kmart in 2005. There was no viable plan and no strategy to drive the companies forward, he says. But that’s because there could have been no viable strategy. Competitors — Home Depot, Best Buy and others — were moving in with better services, better products and a new business model that simply left Sears and Kmart and all the legacy retailers in the dust. A competitive revolution filled with innovation and new business models simply overthrew the status quo. Many other legacy retailers will soon follow Sears to the grave. And that’s good.
Sears is dead, but nobody really cares all that much. Consumers killed the company because they found better things elsewhere. But that’s no one’s failure. That’s the success of the market structure and competition that are constantly delivering what consumers want.