Embrace change to survive
Rapidly declining revenues made it impossible for Sears to reinvent itself in time
The demise of Sears Canada, announced this week, is a reminder that size works powerfully against a large enterprise’s ability to reinvent itself.
General Motors failed to reinvent itself and the erstwhile world’s biggest corporation landed in bankruptcy court in 2009. IBM was twice compelled to reinvent itself, as a punch-card maker betting the company on mainframe computers, and later morphing into a computer-services provider.
Each of those transitions was a trial-by-fire experience, which is why firms like Sears are loath to fully commit to change even when a renaissance is their only hope of survival.
If the Canadian retail sector is to give meaning to the legacy of the combined workforce of approximately 32,000 Canadians that Sears and Target Canada employed when they perished, it will have to quicken its pace of embracing e-commerce, invest more heavily in information technology to better ensure rapid turnover of inventory and at lower cost, and to be absolutely clear with consumers what they stand for.
Eddie Lampert, 55, the U.S. hedge fund manager who has long controlled Chicago-based Sears Holdings and is still the largest shareholder in its Canadian affiliate, Sears Canada, has a demonstrated incompetence in retailing with few equals in the annals of North American merchandising.
That sorry track record, and Sears Canada having struggled for so long — its liquidation follows four straight years of losses — makes it possible to miss how significant a place on the retail landscape Sears Canada has occupied.
Deeply rooted in Canada, having launched in the 1950s, Sears Canada at the time of its death had a sprawling network of big-city and suburban department-store emporia, a network of small-town catalogue distribution outlets and a renowned Wish Book catalogue. Together, those assets made Sears a household name with a truly national reach that perhaps only Canadian Tire could match.
At its peak, Sears Canada was a go-to source for auto repair. And its Kenmore appliances and Craftsman tools epitomized value — that is, high quality at a reasonable price. Those two factors — Sears’s sprawling “footprint” across the country and its “value proposition,” in retail parlance — kept Sears viable longer than it had reason to expect, given the chronic ineptitude of its absentee owner.
It’s no small irony that Sears Canada was early to get serious about e-commerce, back in the 1990s. Alas, it didn’t ramp up that capability. Only too late, starting last year, did Sears make a dedicated effort to upgrade its e-commerce operation, remodel its stores, experiment with stand-alone boutiques (“pop-up” stores), and refresh its product offerings.
But with sharply declining revenues and deepening losses, Sears Canada was running out of the money needed to keep the lights on, much less finance a thorough reinvention.
Because of the enormity of Sears Canada, even modest improvements rolled out across the company were very costly. And given Sears’s huge customer base, improvements also risked alienating shoppers averse to change — as the late T. Eaton Co. learned.
And it didn’t help that Sears could not achieve traction in reinventing the business because of a revolvingdoor CEO suite. That crippling disability can be laid at Lampert’s feet.
Canadians rejected Target Canada because its stores were understocked and overpriced. And the novelty of Target offerings that made its U.S. stores so popular with cross-border shoppers was utterly absent in the firm’s hastily launched Canadian outlets.
Canadians drifted away from Sears because of the unacknowledged identity crisis that it suffered in recent decades. What was the compelling reason to shop at Sears Canada, apart from the convenience of its many locations?
Sears Canada seemed helpless in distinguishing the “hard goods” at the core of its business from the appliances and furniture available at lower prices at Leon’s and the Brick. Meanwhile, the remodelled stores of Shoppers Drug Mart made a strong play for its cosmetics business, among the most lucrative product segments for department stores.
And like all retailers on the continent, Sears Canada was losing business to Amazon, the world’s largest online merchant, whose ever-growing banquet of offerings includes fresh produce, sex toys, motor oil and boxed CD sets of all nine Beethoven symphonies.
The shareholder value of Amazon, at close to $600 billion, is about 35-per-cent greater than the combined market cap of North America’s 10 largest traditional bricksand-mortar general merchandizers, including Wal-Mart.
In the short space of two years, Canada has lost two giant retailers. But one thing we can be certain of, in this moment of doubt in some quarters about Canada as a healthy retail environment, is that this country is a great place to be a merchant.
At the time of Target Canada’s demise, more than one Bay Street analyst said Canadians are too frugal to support merchants like Target.
In a week when Canada has yet again been admonished by an international authority for the overindebtedness of its shop-till-you drop consumers, that assessment could not be more off-base.
Canada has one of the highest per capita incomes worldwide. Canadians reward new retailing concepts like homegrown Dollarama, at the discount end of the spectrum, and Lululemon in premium-priced goods. And Canadian consumers happily patronize interlopers like and H&M, Ikea, Wal-Mart, Costco, Winners, Home Depot, Staples Inc., Nordstrom, Victoria’s Secret, Tiffany & Co., Saks Fifth Avenue and Cartier.
Other markets are not so welcoming. For now, at least, Wal-Mart is sticking with Japan despite consumer resistance, but has quit the huge German market, where shoppers and regulators treated the firm with disdain.
It’s worth noting that in Canada, the world’s largest branch-plant economy, unhappy customer experiences at the local foreign-owned store usually trace back to troubles at an offshore head office, and have little if anything to do with the Canadian operation.
Target’s arrival in Canada coincided with a massive hacking theft of the Minneapolis-based firm’s customer data, which prompted the ouster of the Target CEO spearheading that company’s first international expansion. Target had also abandoned its unique in-house designer lines as a cost-saving measure.
That blunder has weakened the parent company and accounted for the surprisingly bland product offerings at Target’s short-lived Canadian stores.
The demise of Radio Shack and Circuit City in Canada, and the underperformance of Abercrombie & Fitch and of Gap and its Banana Republic and Old Navy banners in Canada, derive from international over-expansion and other disastrous mistakes made at a non-Canadian head office.
And so, another hard lesson from the Sears and Target debacles is that prospective employees, suppliers and landlords are bound for trouble if they fail in their due diligence about the sagacity or chaos at an international headquarters before committing to its Canadian operations. dolive@thestar.ca