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I used to love to go to sears. As a kid I would spend hours thumbing through the Sears catalog, and circle Christmas gifts to give hints to my parents. At one point most of the appliances and tools in my house were Sears brands. Unfortunately, reading some of the comments to a story gives me headache. Especially the "corporations are evil" type comments. Sears was killed by two factors: 1) Lampert's self-dealing and attempt to extract personally enrich himself, and 2) optimizing everything to extract as much cash as possible, from every facet of the business. When I was younger, there was a classic business case presented in an MBA program regarding frozen pizzas. A food company sold frozen pizzas that was great and had a very strong customer loyalty. In search of more revenue, an MBA calculated the cost savings if they reduced the number of pepperoni. Unsurprisingly, they made more money and no one complained. Bonuses were handed out. Year after year, they started to "optimize" the pizza. After several years of this, sales tanked. Customers stopped buying. They hired consultants who performed focus groups and they found out that customers didn't want a cheese pizza with a few toppings. They never fully recovered revenue back to the original levels even after trying to win back customers. Once they broke the customer's inertia, customers started exploring other options and found better ones. The key take away is: don't be myopic and only focus exclusively on short term gain because you may run your customers off. I have seen this pattern repeated over and over. Amazon is the now biggest example. Every interaction I have with Amazon is getting more onerous. It used to be I would go online, search amazon and order. Now the product search results are festooned with ads, sponsored products, and the product that I want at higher prices, while the lower priced products are hidden. They arbitrage postage. New ads on prime video. I can go on and on. Eventually people aren't going to take it anymore, and when they do they will find better, cheaper options. I know I have. This happened at Sears. Every time I interacted with sears it was less enjoyable. The products became cheaper and lower quality. Recently, I wanted to purchase an olympic weight set. Heavy cast iron weights. Sears used to have home a large selection gym equipment. It is one of places where someone will go in to buy a barbell, and will return for more products like a curl bar, more weights, and pick up a few other items while you were there. Nope, they had determined it was more profitable to become a market place and take a commission and not hold inventory. They optimized the inventory to only hold items that sell well or have high mark-ups. Being a cynic, I really don't think Lampert cares. Although I don't think BK was the plan all along, he is obviously using it as a financial engineering tactic to shed obligations while he owns all the real estate. His self-dealing was so bad a number of investors were threatening lawsuits a few years ago. Ultimately, he will kill the company and still walk away with a dump truck full of money. |