Sears, a 125-year-old century-old store, finally filed a bankruptcy protection bill in New York this week, with a physical retail store that filed for bankruptcy. The physical retail chain, founded in 1888, was once the US retail* and the number of employees in the United States* at the time. After the Second World War, Sears, after the American baby boom, gradually gave the throne of the US retail* to Wal-Mart in the 1990s. After Sears made a mistake, especially the * hedge fund manager Eddie Lampert became the company’s CEO, but accelerated the demise of Sears. We shared from a Sears middle-level employee, Casper, and discussed with you what caused the sears of the century-old store to crash.
Three key factors that led to the death of Sears
The value of the company is not short-term profit data, but a long-term future investment. Sears, the CEO from Wall Street, is constantly investing in short-term financial value, leaving the company with a lost future.
How did the dinosaur die? It was difficult for the big ship to turn around when the times changed. Large enterprise diseases determine that the genetics of traditional enterprises are difficult to change. Speed is more important than your size.
How did the national army die? The collapse of all the great empire organizations began with internal contradictions. * The ultimate killer is not an external opponent, but yourself.
The case of Sears is very suitable for large companies with various transformation difficulties. It is suitable for industrial companies that stagnate innovation and invest capital into the capital market to make money.
Too short-sighted, ignoring the future:
Founded in 1888, Sears was once a nationwide retailer. There are almost everything in the mall, from home improvement tools to electrical appliances. The entire 1980s and 2000s have benefited from the rise of the American baby boom and the economy has continued to transform into consumption. The rise of various large chain stores, and Sears has been more than 100 years old. However, in the late 1990s, Sears was gradually overtaken by the cheap supermarket Wal-Mart. In 1999, Home Depot, a building materials chain, replaced Sears in the Dow Jones constituents. In the past few years, with the collapse of another retail chain, Woolworth, the market has begun to worry about the prospects of Sears.
However, after the combination of hedge fund manager Eddie Lampert, Sears merged Kmart, which was previously bankrupt by Wal-Mart. Eddie’s ideas are more based on the financial level, and they believe that the value of these landlords holding huge land has not been tapped. After that, Eddie took over Sears directly, became the company’s CEO, and started the nightmare of Sears!
Eddie Lampert is the founder of *Hedge Fund ESL and previously worked at Goldman Sachs. He looks at the value of Sears from a financial perspective. When we look at the company, we always think about the margin of valuation. If a company is liquidated today, it can be worth much. In fact, running a company is not a digital game. This is also the mistake made by Eddie Lampert.
He puts a lot of the company’s cash into *where it is easy to get a return on investment (ROI), such as buying a lot of real estate and opening a new store. He turned the value of Sears into a real estate company, arguing that the company holds a lot of cheap land. You can make money by buying and selling real estate. At this time, it ignores the future investment in the company: changes in all aspects of products, technology, and organizational structure.
Sears had the opportunity to annex Home Depot, the current competitor, to monopolize home-built building materials, but Eddie Lampert was more optimistic about investing in real estate and missed the huge opportunity to reverse Sears. From a business perspective, the Wall Street legendary hedge fund manager is more concerned with the growth of volume than the “quality” of the retail industry*. For example, its competitors Amazon and Wal-Mart are all upgrading their business – better products and more product lines, * user experience and brand polishing, technology upgrades, industry chain integration, The establishment of a big data platform and so on.
This two directions in different directions caused Sears to become very cumbersome. A “traditional department store with a lot of real estate.” The e-commerce brought by Amazon is getting lighter, the user experience is better, and the operating leverage is higher. Sears has become heavier and heavier, and the subsequent transformation cannot be reversed.
In our research on Amazon, we found that the company’s growth today is actually from the investment of a few years ago. Great management often has a very forward-looking vision and strategy. One key point here is that the management of these companies tends to grow with the company, and the perception of the industry is evolving. While Sears’ management is from Wall Street, Eddie Lampert’s idea is to dig out the company’s value through the so-called “value investment” model, and there is no clear understanding of the future direction of the industry.
Gradually, the up-and-coming talents gradually began to pay back, and began to erode Sears’ market share. When the company began to decline and showed losses, Sears was like a huge but slow-moving dinosaur, it is difficult to turn around quickly. Sears has had several problems:
Products can’t keep up with the times, and there are a lot of outdated products in stock. The company’s stores are still selling tape recorders. In order to make a profit, the company is not willing to do a lot of clearance, from every product line to the pricing department, it is instructed to squeeze out higher profits from these products. With the rise of e-commerce, the profit margin of physical retailing is getting less and less, and the management sway back and forth between “price increase, customer price reduction and profit reduction”, and inventory is accumulating. These inventories have also become a stumbling block to the company’s subsequent transformation.
The brand is aging and the customer experience is poor. The age structure of users is especially important for a department store. In addition to the grandfather who knows Sears and Kmart, the younger generation has no idea about it. The CEO has severely reduced the cost of traditional marketing (such as advertising, shopping guide flyers, etc.), and hopes to use new digital means (such as online links, member SMS push) for brand promotion, but there is no technical accumulation before it is difficult. * The end result is that the younger generation has no awareness of Sears, the company’s traffic has not spread, but in the stock of users. The age of these stock users is getting bigger and bigger, and the final result is the severe aging of the Sears user’s age structure.
Technology is backward, data is not shared, the system is outdated, and many operational processes are still used 20 years ago. After the merger of Sears and Kmart, the progress in data and system integration is slow. Both process and technology are long-term investments. When management does not see short-term returns, it is constantly reducing its budget and is more willing to spend resources on projects that can quickly increase profits.
We see that *End Sears has entered a vicious circle: stocks are too large, products are poor, brands are bad, passenger flow is reduced, data is deteriorating, and technology is slow to react, making it more difficult to accurately determine customer pricing and product optimization strategies.
Rome was not built in a day. Finally, when Eddie Lampert saw Amazon’s user data, saw Costco’s strict selection model and low SKU, and saw the new retail online and offline. He deserved that Sears can also accomplish slimming and transformation. However, his strategy was not realized within the company at all, and Amazon and Coscto were not built in one day. The convergence of data and user experience takes a long time to establish an operational model. The fruits of its competitors today are derived from long-term investment. At this point, Sears is like: I found that everyone else was flying, so I wanted to build a rocket directly, but I found myself still holding a hammer in the Stone Age.
The ridiculous thing is that *Nearly opened a new retail store, and put it into the slimming product line and *good products after the slimming, the members can seamlessly switch the whole product online and offline. It can be said that The company has tried to create a brand new brand, a new experience, let people see the future, but unfortunately, it is ten years late.
How did the national army die?
Historically, the defeat of an army must not be the number of armaments. The national army of that year was far superior to the army in terms of equipment and number, but it still could not avoid the result of defeat. For a company, capital is not a factor of its needs, the core is the right strategy and outstanding talent. However, it is easy to talk about maintaining strategic and talent competitiveness. Sears has long injected funds in a variety of ways, but has ignored strategic approaches and talent.
I have been in Sears for four years, and the leaders of the high-level management team changed almost every year, which led to the failure of any project to last for a long time and the target strategy was not sustainable. If any project can’t produce results within three months, it will be stopped immediately, so everyone is more willing to launch a short-term solution, rather than long-term investment and polishing of all aspects. The project changes back and forth and leads the new and old alternates. *There are resources that are meaningless.
Sears is a super-large company with a deep-rooted organizational structure. Sears+Kmart has more than a dozen lines of business, each with a retail model of the last century. The management understands the products and channels but the knowledge is outdated, but firmly controls their performance. The CEO is committed to building a data-based future of the retail industry, but the traditional department will have great interest disputes with central support departments such as marketing, inventory, pricing, analysis and technology on almost every project, and the efficiency of departmental cooperation is extremely low. The company’s middle-level cadres occupy more than 90% of the meeting time each day. The communication is not smooth and the execution level is poor. * At the end of each department each fight. The same analysis tools, each department will create their own, and will refer to a completely different database, resulting in a huge waste of resources.
From the perspective of game theory, the various departments’ own strategies for their own superiority will have a lot of contradictions at the company level. For example, several horse-drawn carriages are running in different directions at the same time. The harder they work, the more they can’t move forward. Other common problems of big companies: complex personnel relationships, unclear responsibilities, kicking each other, bullying, etc., Sears can almost be said to be an encyclopedia. At this time, Sears, in the case of a strategic completion error, still wants to use the sea tactics to destroy the competitors, and the outcome can only be defeated.
CEO Eddie Lampert began to introduce third-party consulting companies in 2016 to focus on the restructuring of the organizational structure, but the resistance, the merger and restructuring of each department will cause conflicts of interest. Restructuring has led to massive staff turnover, changes in incentives, and disruptions in business and projects. A company without talent is like a body without blood, and it will eventually become a walking dead.
This $100 million lesson
It can be said that the 100-year-old Sears crashed down, and there were three factors, from time to time, from the ground up, and from people. From the perspective of time, the background of the era is that after the rise of the mobile Internet, e-commerce has eroded traditional retail enterprises. In the past 10 years, Amazon’s market capitalization has expanded rapidly and it has become a company with good stock price performance. Behind the rise of Amazon, the market value of a large number of traditional retail companies has shrunk. Including Sears, Macy’s, TJ Max, Target, Best Buy and more. From a geographical point of view, the company’s core executive Eddie Lampert used a “value investment” thinking mode to business operations. What he values is not the future strategic direction and growth investment of the company, but how to dig from the revaluation of land value, which also accelerates the bankruptcy of Sears. * After people and see, after the merger with Kmart, the company’s big company is getting more and more serious, there is a serious internal struggle between various departments, everyone is protecting their own interests, and it directly leads to the company’s problems. serious.
Just like running a football club, it’s not as simple as playing a “soccer manager”. Running a business is definitely not a game. The death of Sears is inseparable from the practice of hedge fund Eddie Lampert. The latter’s long-standing practice is to increase the company’s real estate investment and sell it, and continue to sell assets. This capital game based on ROI directly led to the death of Sears. *At the end, you didn’t use the money to really change a business!
Another lesson to be pondered is that it is extremely difficult to change the genes of a company. In a company, the traditional business is often the income department, and it is in a relatively strong position in the status of the enterprise. To cut off the income sector, the transition to new business will inevitably encounter many obstacles. The old blood is a vested interest. From the perspective of human nature, they will inevitably start from the perspective of defending their own interests. * The end result must be at the expense of long-term wear and tear of the company’s interests.
When the economy is facing a transformation today, those companies that say that they want to change their lives will find out how difficult it is. Perhaps, the continuous reincarnation is the inevitable path to maintain economic vitality.