Three things retailers can learn from the Sears bankruptcy

Sears Holdings, once the world's largest retailer, has filed for bankruptcy, signaling that the fast-changing retail business isn’t waiting for anyone.

October 19, 2018

Sears filed for Chapter 11 bankruptcy protection earlier this week after it reportedly could not pay US$134 million of debt  that had come due – just part of the US$5 billion total it owes its lenders and bondholders.

For the company, it’s “a positive outcome,” says Greg Maloney, CEO of retail at JLL, Americas. Bankruptcy “allows for a potential reorganization” around a smaller number of successful stores that remain open.

But for other retailers, the change in fortune carries many lessons. “The moral of the story is that retailers that evolve and change and invest parallel to the consumer have a much higher probability of succeeding — compared to the retailer that wants to do it their own way,” says Naveen Jaggi, President of JLL’s retail brokerage in the Americas.

Here are three key takeaways for today’s retailers from the Sears’ story:

Focus on what you're good at

Sears began in the 19th Century selling a single product: mail-order watches. It steadily expanded to deliver virtually any item one could need in its textbook-like catalog. It first opened stores in the 1920s.

But consumer tastes began to change towards the end of the century, with the emergence of big box stores and discount retailers. Rather than going to one place to buy everything, shoppers began bargain hunt, Jaggi says. Sears didn’t adapt.

“The U.S. consumer became more product aware and better informed on what to buy, where to buy it, and how much it should cost,” Jaggi says. “Sears remained firm in their belief that middle America would remain loyal to Sears first and foremost. Unfortunately for Sears, the Information Age gave consumers the power of data, which marginalized loyalty in favor of value.”

Without beating the discount retailers on price, and without outlining its niche in a world where the one-stop-shop was no longer in vogue, Sears began the struggle that culminated with bankruptcy.

“Trying to be everything to everybody in 2018 is a losing battle,” Jaggi says. “Going forward, Sears should focus on core goods that consumers come in for and not the things they buy online or can buy for cheaper at a warehouse club. People still understand that Sears is great for home goods – they can organize around that.”

Invest in physical stores

The rise of e-commerce was another challenge to brick-and-mortar retailers. But many of them went to bat by investing in online shopping platforms and expensive upgrades to physical stores that made the in-store experience special.

Sears underinvested in both, Jaggi says. Its technology spending paled in comparison to that of Target and other big box competitors. Meanwhile, chronic underinvestment in the company’s physical stores meant that properties were outdated. “Experiential retail” it was not.

“Either you invest in experiential retail or you play in the world of discount,” Jaggi says. “Sears fell into that black hole where they weren’t discount but were also not relevant to the modern consumer.”

Market directly to your core customer

In the late 1990s and 2000s, mall developers began seeking aspirational consumers, choosing high-end department stores like Nordstrom to lead the way.

Sears, not associated with luxury, was no longer the go-to mall anchor – but it didn’t fit the discount, big-box mold either. Instead, it suffered from a lack of definition around its target customer.

“Retailers need to realize who they are and who their core customer is, and market directly to them,” Jaggi says. “If your core consumer is value, go there. If it’s aspirational, go that way.”

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