Sears for years led the way in omnichannel retailing by offering convenient curbside pickup of online orders, opening Sears.com to marketplace sellers, investing early in mobile commerce and offering free shipping. Its bankruptcy shows that it takes more than bright ideas to succeed in the highly competitive digital commerce era.

Don Davis - Internet Retailer

Don Davis, editor at large, Internet Retailer

E-commerce killed Sears, even though its leader was an early and ardent advocate of e-commerce.

It’s an apparent contradiction that I will attempt to explain below. But the lesson in brief is that just recognizing online shopping would change retail is not enough: You also have to deliver value to web- and mobile-savvy consumers better than your competitors do. Sears didn’t do that.

Many have commented on the Sears debacle since the retailer filed for bankruptcy Monday. Most have blamed Eddie Lampert, the hedge fund billionaire who acquired Kmart in 2003 and two years later merged it with Sears to form Sears Holdings Corp.

My view is that Lampert viewed this primarily as a real estate play. His bet was that the real estate represented by the 3,500 Kmart and Sears stores was worth more than what he paid for the two retail chains. That may have been the case at the time, but it wasn’t for long.

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My abiding memory of Sears is of that sad clearance table that clearly got little attention.

Several trends undermined that strategy. Discounters like Walmart and Target took lower-income customers away from Sears while high-end malls appealed to more affluent consumers. Successful category-killers like Home Depot and Best Buy undercut Sears’ in home improvement and consumer electronics. And, of course, online shopping and the rise of Amazon.com Inc. changed the economics of retailing in a way that disadvantaged all companies operating lots of bricks-and-mortar stores.

And then came the 2008-9 recession that sent the value of real estate plummeting, dealing a body blow to a strategy based on the value of the land below Sears and Kmart stores.

The rapid decline

What followed was severe cost-cutting and selling off of assets. In a 2017 article, Bloomberg News noted that the value of Sears’ property, plant and equipment had plummeted from $9 billion in 2007 to $2.6 billion in 2016. Lampert cut back on advertising and on buying merchandise, and many Sears stores wound up with shelves that were empty or stocked with out-of-date merchandise.

Online sales also began falling off starting in 2014, and have declined steadily even as U.S. retail e-commerce has grown steadily at around 15% a year. Based on its peak online sales in 2013, Sears took the No. 5 spot in the 2014 Internet Retailer Top 500. It’s now down to No. 24 in the 2018 Internet Retailer Top 500.

That decline could suggest that Lampert undervalued e-commerce, but that was far from the case. On the contrary, he from the start pushed Sears into online retailing, to the point that some Sears store managers reportedly griped that the boss favored e-commerce over its stores. A column in the New York Times this week even suggested that one of Lampert’s mistakes was being too early into e-commerce, pushing online shopping before many of Sears’ customers were ready to shop that way.

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I doubt that’s the case. But there’s no doubt that Sears was an early leader in e-commerce, and that Lampert led the charge. I remember sitting next to a Sears executive at a conference lunch several years ago and her telling me how Lampert paid close attention to the details of online initiatives and enthusiastically backed them.

And you can see that by doing a search on Sears on DigitalCommerce360.com, the website that includes current and past stories from the editors of Internet Retailer.

Omnichannel leadership

You’ll see that Sears was among the first to make in-store pickup of online orders convenient by having employees bring orders out to shoppers’ cars. It recognized the power of the marketplace model and invited other merchants to sell on Sears.com. It gave Sears employees mobile devices so they could help shoppers better and encouraged mobile shopping. And it emulated Amazon Prime by offering its own free-shipping program way back in 2010.

Despite all these online and omnichannel innovations, and many more, Sears plummeted even as e-commerce took off. And it’s not because all stores are doomed. As Sears went downhill, such big retail chains as Walmart, Home Depot and Best Buy successfully made progress in combining their stores with their web and mobile assets to retain many existing customers and win new ones.

Online innovation by itself is not enough. A retailer must deliver a complete value proposition to consumers, or perish.

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Keys to success

Wharton professor Barbara Kahn, in her new book “The Shopping Revolution,” argues that there are four key dimensions to satisfying shoppers today: superior product, outstanding customer experience, low prices and convenience. To succeed, in her view, a retailer has to be at least on par with competitors on all four and a standout in at least two of those areas.

Sears reached the pinnacle of U.S. retailing in the late 1800s and early 1900s with unparalleled convenience. The Sears catalog brought products to rural Americans that they could not buy locally, or at lower prices. And then, when the automobile reached the mass market, Sears was among the first to build stores with parking lots so consumers could easily drive up to shop.

The retailer also developed products that consumers came to trust. Brands like Kenmore, Craftsman and DieHard still resonate with many.

But discounters like Walmart, and eventually Amazon.com, offered lower prices than Sears. And, particularly as Lampert cut costs over the last decade, service in stores suffered.

Meanwhile, Sears lost its advantages in product and convenience. A lack of investment in new products at a time when e-commerce made all kinds of merchandise readily available, led fewer consumers to think of Sears, especially when combined with the retailer’s cutbacks in advertising. And the ease of shopping offered by many online retailers, and particularly by Amazon with its growing Prime loyalty program, eroded Sears’ position as a leader in convenience.

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Plus, its stores were just plain depressing.

The last time I was in a Sears store was several years ago when I went to return a shirt I had bought on the website of Lands’ End, which Sears owned at the time. (Sears sold off Lands’ End in 2014, one of many moves to raise cash.) I handed the shirt to a cashier who scanned my receipt and tossed the shirt onto a clearance table behind her. The table was piled high with returned items, none of them folded or organized in any way. My abiding memory of Sears is of that sad clearance table that clearly got little attention from employees, or Sears’ management.

While it was convenient to be able to return a Lands’ End purchase at a Sears store, the fact that Sears showed so little regard for its own merchandise sent a distasteful message. I’m sure Zappos.com, the Amazon subsidiary that offers free shipping on returns as well as delivery, gets many pairs of shoes sent back each day. No doubt Zappos resells those products a lot more successfully than Sears did from its clearance table, and without leaving its customers with the impression that the e-retailer views its merchandise as junk.

The limits of genius

Lampert is a man of insight. Long before he recognized the promise of online shopping, he made his first big hedge fund windfall from investing in a maker of automated teller machines. He saw earlier than most that ATMs would transform retail banking, much as e-commerce would later transform retail.

But retail is about more than insight. It’s about execution, every day for every shopper. It’s not easy, and it’s certainly gotten harder for retailers with lots of stores in the age of Amazon.

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But the failure of Sears doesn’t, in my view, mean retail stores can’t survive. If anything, it sends a message about retail management. My takeaway is that the next financial genius that decides to invest in retailing would do better to recruit retail veterans who understand digital commerce to run his operation rather than try to do it himself.