Sears Auto Center

Sears Auto Center Case Study

Retail giant Sears, Roebuck and Co started to falter due to highly increased competition. Specialty retailers such as Toys’R’Us along with discount competitors Wal-Mart and Kmart began to pull sales away from Sears. By the late 1980’s Sears CEO, Edward Brennan, was in dire need of a solution to raise the ever dwindling sales and profit figures put forth by Sears.

Part of the solution to boost Sears, Roebuck and Co’s sales figures was an implementation of a productivity incentives program in the Sears Auto Centers business segment. The auto segment of Sears accounted for nine percent of overall sales but only a mere five percent of profits. Under this new incentive plan mechanics would be compensated based on the amount of output they could achieve. Brennan hoped that incentives would provide Sears the revenue spark it needed to compete with Kmart and Wal-Mart who by 1988 were matching the retail revenue numbers of Sears. In 1988 Kmart had retail revenue(millions) of $27,496, Wal-Mart $20,649 and Sears $24,252. The high cost structure of Sears proved to be one of the main causes of the downturn. Selling and administrative expenses accounted for thirty percent of Sears sales while Kmart and Wal-Mart were at twenty-four and seventeen percent respectively. Brennan believed that implemented an incentive program in the worst profit generating segment would provide a boost to the bottom line of Sears.

The productivity incentive program implemented by Sears Auto Center led to questionable ethical practices. The California Department of Consumer Affairs accused Sears Auto Centers of overcharging consumers through the practice of fraudulent claims that repairs or replacements over and beyond the consumer requests were being performed. Sears denied the accusation that their employees were acting unethical in providing unnecessary work on consumers automobiles. Sear’s defense was that it is standard industry practice to provide...