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How to Make Sears More Competitive

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Introduction

Sears Holdings is the parent company of Kmart and Sears, Roebuck and Co (Porter,& Norton, 2008, p.295). It was established in 1893 as a mail-order business. Over time, management moved into store-based retailing and expanded its chain of department stores nationwide. Sears stores sold a wide-range of products, and auto-related products (Gilson, 2010, p.117). To analyze the present situation of Sears Holdings Company, it is necessary to overview the history of the company`s development. The history of Sears Holdings has come through different stages. The first stage began in 1886 when Sears, Roebuck & Company was established because of an inventory mistake.  In 1886, a shipment of gold watches was mistakenly sent to a jeweler in Redwood Falls, Minnesota. When the jeweler refused to accept the delivery, an enterprising railroad agent, who saw an opportunity to make some money, purchased them. Richard Sears sold all of those watches, ordered more, and started the R. W. Sears.  Within the next years, Sears moved his operation to Chicago, where he found a partner Alvah Roebuck, a watchmaker, and in 1893, they incorporated a company under the name “Sears, Roebuck&Co” (Albrecht, Stice, & Stice , 2008, p.284). It began as a mail-order company that sold farm supplies and other consumer items. In the mid 1920s responding to changes in American society, the first retail store was opened (Trevino, & Nelson, 2010, p.285). In the 1980s, Sears diversified its operations and apart of retailing began selling auto insurance. During the next years much attention was put on clothing sales (Albrecht ,Stice, & Stice , 2008, p.284). In the 21st century, the operations of Sears became more diversified. Nowadays, on the company`s site it is defined that Sears is “a leading integrated retailer with over 2,600 full-line and specialty retail stores in the United States and Canada and the home of SHOP YOUR WAY, a social shopping experience where members have the ability to earn points and receive benefits across a wide variety of physical and digital formats.  Sears Holdings is the leading home appliance retailer as well as a leader in tools, lawn and garden, fitness equipment and automotive repair and maintenance” (Sears holdings corporation). Although, Sears is quite successful, it faces many difficulties in the sphere of business and needs some strategies to become more competitive.

Analysis of the Current Business Situation of Sears Holdings and Ways of Its Improvement

2013 has not brought success to Sears Holdings Corporation. Christmas sales did not bring expected results. Sears Holding indicated “the fourth quarter sales were disappointing with sales dropping – and earnings are also likely to be below last year” (Loeb, 2013). Unsuccessful sales have had a great impact on the well-being of the company at all as the “business is seasonal, with a high proportion of revenues, operating income and operating cash flows being generated during the fourth quarter of year, which includes the holiday season” (Sears Holdings Corporation , 2013, p.8). Thereby, the fourth quarter operating results significantly impact annual operating results. Fourth quarter operating results may fluctuate significantly, based on many factors. Firstly, the small amount of earnings during the fourth quarter is a reflection of management’s ability to cope with complexity by planning and budgeting – defining targets or objectives for the future, developing detailed steps for achieving those targets and then getting resources to achieve those plans. It means that managers failed to define fashion trends and the right level of mark-up on merchandise; moreover, they did not organize intelligent staffing and did not bring to life the proper level ofinventory. In the article Moment of Truth: Will JC Penney and Sears Survive? by Walter Loeb we can see that the author`s opinion is quite pessimistic:  “I continue to worry that some retailers – like Sears and JC Penney — have not grasped the need for reporting profitable growth in the fourth quarter.  Only through intelligent and innovative management can a store thrive; 4Q earnings will show some retailers are missing the boat” (Loeb, 2013). To some extent, we share his opinion because without strong management company will not be able to survive in a competitive and volatile business world. Secondly, the problem is not only in the disappointing Christmas sale results but also in overall tendency of profit to decline. Sears Holdings stated their revenue for 2012 as $ 39,854 million in comparison with $ 41,567 million in 2011 (Sears Holdings Corporation, 2013, p. 20). This decline of profit is not only typical for these two last years. This decline has started in 2009. It is clearly seen from the histogram.

The reducing number of successful Sears’s stores also contributes to negative revenue tendency. In comparison with number of stores in 2008, the number of store in 2012 reduced by half (Sears Holdings Corporation, 2013, p. 20).

Thirdly, the major problem that stroke Sears Holdings is the replacement of management. On January 7, Sears Holdings announced that Louis J. D’ Ambrosio, the company’s Chief Executive, would leave the company because of family matters. It had a great impact on the company as they stated: “We depend on the contributions of key personnel, including Edward S. Lampert, our Chairman and Chief Executive Officer, and other key employees, for our future success. Although certain executives have employment agreements with us, changes in senior management and any future departures of key employees may disrupt our business and may materially and adversely affect our results of operations” (Sears Holdings Corporation, 2013, p.10).

Taking into consideration all drawbacks, the management of the company defines next objectives for the future development.  Managers plan to generate at least $500 million of additional liquidity over the next 12 months, to reduce peak domestic inventory in fiscal year 2013 by $500 million from $8.6 billion at the end of the third quarter of fiscal year 2012 and to reduce  fixed cost base by $200 million during fiscal year 2013. However, they state that the achievement of these objectives is subject to risks and uncertainties with respect to market conditions and other factors that may cause their actual results, performance or achievements to be materially different from their plans. There can be no assurance that transactions to monetize assets or other actions to generate liquidity will become available on acceptable terms as  company’s ability to reduce fixed costs, which include occupancy costs and certain payroll costs, may be limited by contractual obligations and other factors (Sears Holdings Corporation , 2013, p.82).

However, we suppose that the company`s objectives should not be only concentrated on profit growth. The way to success lies much deeper. In order to find it, it is necessary to analyze the best practices used by the best companies with the best benchmarks because only the companies, who are strong competitors, can survive in this turbulent time. Sears Holdings Corporation defines that they compete with a wide variety of retailers, including other department stores, home improvement stores, discounters, consumer electronics dealers, specialty retailers, wholesale clubs, auto service providers as well as many other retailers operating on national, regional or local levels in America and Canada. Online and catalog businesses, which present similar lines of merchandise, also compeete with Sears. Target, J.C. Penney, Walmart, Kohl's, The Home Depot, Macy's, Lowe's, Amazon and Best Buy are some of the national retailers and businesses, which are the main competitors of the company (Sears Holdings Corporation, 2013, p. 5-6). In order to be a strong competitor Sears needs to get competitive benchmarking data for the retailing industry. Of course, Sears can look for it on the websites of the competitors. However, as for us the most effective way is to conduct some researches and surveys in order to get customers` opinion about competitors because it will help to see the real picture of the situation and decide on which position to take.

Following this idea, we have identified the best practices used by the best companies with the best benchmarks according to different customers who took part in surveys (analysis of the surveys` results is a simpler way to determine how far reaching the study should be). According to an article of Eric Goldman Amazon's Merchandising of Its Search Results doesn't Violate Trademark Law, based on the customer’s surveys, the secret to Amazon’s success lies in a very interesting strategic approach to the presentation of goods. For example, “when Amazon customers searched within Amazon’s internal search engine for “mtm special ops” (the name of one of MTM’s watches), Amazon’s search results page did not contain any results for MTM watches due to MTM’s distribution control. Instead, the court says, “all of the watches retrieved by Amazon belong to MTM’s competitors, in particular Luminox and Chase-Durer” (Goldman, 2013). This approach gives buyers an alternative, and an invisible hand directs them to purchase goods, which are profitable for the company. The strategy of an interesting goods presentation is supported by Target Company that motivates customers using interesting short advertisement. However, in order to find the way to make Sears more competitive, it is necessary to analyze even negative experience of competitors. Analyzing the survey conducted by JC Penney, we can notice that customers do not like JC Penney due to automated customer service, not practical website, weak management, and absence of offers provided to customers (JC Penney Hate).

Thereby, considering all advantages and disadvantages, we can define steps and methods to build a solutions model for Sears. Firstly, it is necessary to improve the company`s management and to combine it with strong leadership by careful selection, improvement, and encouragement of talented, clever workers. Secondly, development of new original system of presented goods, which will motivate customers to buy them, is a good way to attract customers. It is clearly seen in the Amazon example. Thirdly, creation of an interesting promotional campaign with short, bright ads and a well-organised website is a way to success. It is also possible to start the promotional campaign on mobile phones.  Finally, a good old method of encouraging flexible discount system and friendly service together with previous ideas will contribute to profit growth, which is the main criterion used to measure performance.

Conclusion

Sears Holdings Corporation is facing a difficult period according to Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended February 2, 2012. However, there are many ways to improve the situation. These are introduction of strong management and leadership, development of new original system of presented goods, creation of interesting promotional campaign with short, bright ads, well-organised website, encouragement of flexible discount system and friendly service. All these altogether will contribute to profit growth, which is the main criterion used to measure performance.

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