Can Sears Reinvent Itself

Can Sears Reinvent Itself?

Sears, Roebuck and Co. used to be the largest retailer in the United States, with sales representing 1 to 2 percent of the United States gross national product for almost 40 years after World War II. Its legendary Big Book catalogue was considered the primary (and sometimes the only) source for everything from wrenches to bathtubs to underwear. During the 1980s, Sears moved into other businesses, hoping to provide middle-class consumers with almost every type of banking, investment, and real estate service in addition to selling appliances, hardware, clothes, and other goods.

This diversification tore Sears away from its core business, retail sales. Sears has steadily lost ground in retailing, moving from the Number 1 position to Number 3 behind discounters Wal-Mart Stores, Inc. and Kmart Corporation. Sears had been slow to remodel stores, trim costs, and keep pace with current trends in selling and merchandising. Sears could not keep up with the discounters and with specialty retailers such as Toys R Us, Home Depot, Inc., and Circuit City Stores, Inc. that focus on a wide selection of low-price merchandise in a single category. Nor could Sears compete with trend-setting department stores.

Yet Sears has been heavily computerized. At one time it spent more on information technology and networking than other noncomputer firms in the United States except the Boeing Corporation. It was noted its extensive customer databases of 60 million past and present Sears credit card holders, which it used to target groups such as appliance buyers, tool buyers, gardening enthusiasts, and mothers-to-be with special promotions. For example, Sears would mail customers who purchased a washer and dryer a maintenance contract and follow up with annual contract renewal forms.

Why hasn't this translated into competitive advantage? One big problem is Sears' high cost of operations. Nearly 30 percent of each dollar in sales is required to cover...