Are You Paranoid Enough to Survive: How Did Sears Miss the Walmart Juggernaut

How could Sears leaders have found the Walmart needle in the haystack

Photo by Alex Iby on Unsplash
Wikimedia Commons

Sears was entrepreneurial

Formed in 1893, Sears initially combined volume buying, railroads, and rural free delivery into a low cost mail-order alternative to farmers buying goods at more expensive rural general stores. When urbanization driven by automobiles threatened the mail order business, Sears opened its first department store in Chicago in 1925. The focus remained selling inexpensive staples like socks, underwear, sheets and towels, rather than fashion items. This positioning was perfect when the Depression hit. By World War II Sears had more than 600 stores.

Photo by Sarah Brown on Unsplash

Growth as far as they could see

After the war, the GI bill and government subsidized home ownership caused suburbs to explode. By the 1960s, Sears was an established shopping mall anchor. Sears research showed growth as far as its leadership could see to the horizon. Imagine attending Sears 1969 annual planning meeting, shortly after executives confidently announced plans for the Sears Tower in downtown Chicago as the icon to the greatest retailer on the planet.

Photo by Markus Spiske on Unsplash

Craftsman tough

I remember when Sears was one of the strongest retailers on the planet. My dad was an outstanding woodworker and wouldn’t buy a tool anywhere but Sears, because their Craftsman tools were so rugged that if one ever broke he could return it for a free replacement. In January 2017, Sears sold its Craftsman brand to Stanley Black & Decker in a Hail Mary attempt to stave off bankruptcy which didn’t succeed.

Decades ago what could Sears’ leadership have done differently?

Put yourself back in 1969

Join me in this thought experiment. Imagine the Sears October 1969 strategic planning retreat in Chicago, where executives review their plans to roll out mall based stores in affluent suburban markets.

Sears Tower, 1969 — willistower.com

Competitive dominance

As a retail powerhouse, Sears has information dominance over its rivals, including point-of-sale and customer research data, as well as relationships with almost all mall landlords in the country and a global supply chain of vendors. Bursting with confidence, Sears’ leadership reviews plans for their iconic headquarters, the Sears Tower in Chicago, which when complete in 1973 will accommodate their aspiring expansion goals for the world’s largest and most successful retailer with 350,000 employees.

Southern Main Street, 1969 — exploreuk.uky.edu

Where’s Bentonville?

During a brainstorming session at the retreat, a young manager with a southern twang suggests Sears can successfully expand into poor, rural southern markets. Sears leadership has an operationally excellent culture built around making data driven decisions. The Sears store location group is asked to get the demographics for Bentonville, Arkansas, and to assess whether or not a Sears store can be successful there. After cranking the demographics through the Sears model they reach a clear conclusion dutifully reported to senior management:

You can’t make money in Bentonville.

Young Sam Walton — historicmissourians.shsmo.org

Who’s Sam Walton?

Unknown to Sears’ leadership, at the very time the October 1969 planning retreat was occurring a middle age entrepreneur was incorporating a retail chain he had founded only seven years earlier which had grown to 24 stores across Arkansas and reached $13 million in sales.

Had Sears’ leadership even noticed it, a small retailer with $13 million in sales was too small and insignificant to fit into Sears need for growth. The entrepreneur built on his experience running a chain of five-and-dime stores in rural Arkansas to iterate a new business model that could dominate an emerging market. He wasn’t building mall-based stores, his new store model was large enough to be the mall in rural markets like Bentonville.

By the time the Sears Tower was complete, WalMart had gone public, and its stock was traded on the New York Stock Exchange. When Sam Walton stepped down as CEO in 1988, Walmart had 1,200 stores with sales of $16 billion and 200,000 associates. [1]

How could Sears whiff?

Sears missed an important inflection point in retailing in the United States, and its fortunes declined as the company lost market share. The Sears Tower stood half-vacant during the decade of the 1980s. Sears began moving its offices out of the Sears Tower in 1992.

Source: https://logodix.com

Sear’s had some of the best trained, most highly motivated retail leadership in the world. How could this have happened?

Sears had immense point-of-sale data, followed the trends of their best affluent, suburban customers, and regularly met with the strongest vendors. They had information dominance over competitors, or so they thought. What Sears didn’t have was an early warning radar to detect the signal of a disruptive innovation in the marketplace outside the data they had. Market disruptions like this are existential threats to market leaders like Sears, and targets of opportunity for entrepreneurs like Sam Walton.

Photo by niklas_hamann on Unsplash

Which needle? Which haystack?

In defense of Sears’ leadership, had they solicited ideas from people in and around the company like the young manager at the planning retreat, they would have been inundated with dozens and perhaps hundreds of ideas. Most would have never amounted to much. It would have been impossible in advance to predict which would be big winners.

The young manager didn’t have his idea fully fleshed out. He had only informed intuition based on knowing the community he grew up in. If Sears had provided him early funding to test his idea for a fundamentally different store serving a poor rural market, perhaps the young manager could have iterated to a highly successful new store format serving this new market that would have created enormous new value for Sears. Perhaps new insights from this experiment could have been incorporated into the existing Sears model. And if nothing else, perhaps Sears would have engaged Walmart much earlier in direct competition on Walmart’s own turf and been alerted to the rise of this juggernaut much earlier.

Jeff Bezos in 1997. Brian Roemmele/YouTube

Only the paranoid survive

Just as WalMart was hitting full stride in 1994, its own existential threat was looming. A 30 year old Princeton graduate who left his high paying job at a New York City hedge fund was making a road trip to Seattle. Along the way, Jeff Bezos wrote the business plan for Amazon.com. In 2013, for the first time Walmart’s US store sales dropped from the year before, signaling that the forty year run of big box discount retailer dominance was over. By Christmas 2020, Bezos was the world’s richest man with a net worth of $184 billion.

Walmart.com

Unlike Sears, Walmart didn’t ignore its threat and began experimenting with the new internet retail model, combining new online capabilities with its greatest competitive advantage against Amazon, which was thousands of physical store locations. Fiscal 2019 online sales gains of 40%, and another 37% in the first half, accounted for about half of Walmart’s entire U.S. growth in same-store sales.

Amazon will fail too

Jeff Bezos knows how hard it is to surf when the next big market wave rolls in, like the wave that Sears first caught, then the next wave that Walmart caught, and the wave that Amazon has caught. To keep his team alert and paranoid, Bezos insightfully observes:

Amazon is not too big to fail. In fact, I predict one day Amazon will fail. Amazon will go bankrupt. If you look at large companies, their lifespans tend to be 30-plus years, not a hundred-plus years.

[1] Walmart 1989 annual report

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Whether you are creating your own organization or working for someone else, these are lessons to create your future as you choose.

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John Warner

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Serial entrepreneur sharing 40 years of insights to control your destiny in our turbulent times

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