After years of mounting debt and repeated failures to re-invigorate its brand, Hoffman Estates-based Sears filed for chapter 11 bankruptcy early Monday.
Its CEO is stepping down, and the company said it would close an additional 142 stores by the end of the year.
Sears was one of the most successful American retailers of the 20th century, and for decades, it managed to innovate — growing its business as it morphed from a shopping catalog to downtown department stores to the anchor of suburban malls.
But in more recent years, the Sears brand lost its sheen, and it did not keep pace to compete with big box stores and online retailers.
James Schrager of the University of Chicago’s Booth School of Business joins the Morning Shift to discuss what went wrong, what filing chapter 11 means and what the future could hold for Sears.
What went wrong?
James Schrager: A retailer like Sears has to make two groups of decisions, both of them critical, always right, and at the same time. The number one decision is made by headquarters: where are we gonna put the stores? And Sears was perfectly brilliant for decades starting with small stores, the catalog, and then big stores in big towns like the big Chicago store, and then finally their last move out to the regional malls. But the problem was the regional malls were the answer for a while, but not forever. In 1962…retailing came along with four fabulous companies: Walmart, Kmart, Target, and Kohls, and from that point forward Sears just stayed put, and they didn’t believe this was a big enough threat to ever catch them. So Sears made that big decision wrong by staying in the malls too long. The second group of decisions is made by merchants in the stores: which merchandise to buy, how to display it, how to price it, how to get people to find those great purchases. And Sears got very distracted, buying a real estate brokerage company a long time ago, buying a stock brokerage company, and doing a very successful credit card [Discover]. So the big shocking decision came in the 90s when they sold the credit card and kept the store…a lot of us watching that were saying they made exactly the wrong decision.
Can Sears pay its workers’ benefits?
Schrager: Yeah, the idea of debtor in possession financing, which they have secured, is to pay for all the things that need to get done. And that is suppliers and bills and, of course, personnel. However…Sears has been, for a while now, and I’m talking years, very very rough with some vendors—pushing very hard, not paying things, delaying payments. I know they have not been a great buyer of goods, and that was just one of the many techniques they did to try and stay alive.
Are Other Brick-and-Mortar Retailers in Trouble?
Schrager: The landscape for retail is fine and is good. We’ve got to remember that about 90 percent of all new retail items are sold in stores, by everyone. Amazon had to buy Whole Foods to get stores to really get a better handle on the food market, and we’ll see what they do with it from there. I think any retailer that’s not doing well now doesn’t have a good future. [JC]Penney obviously comes to mind, and they’ve stumbled around for a long time. A brilliant retailer named Allen Questrom did turn them around for a while, but it’s very very hard if you have bad location, and if you don’t have lots and lots of great merchants in the store it’s very hard to have a long-term turnaround.
GUEST: James Schrager, clinical professor of entrepreneurship and strategy at the University of Chicago Booth School of Business
LEARN MORE: Sears Files For Bankruptcy Protection, To Close Another 142 Stores (Chicago Tribune 10/15/18)
Billionaire’s Sears Fiasco Is Finally Nearing Its End (Bloomberg 10/12/18)
This interview has been edited for brevity and clarity. Click the “play” button to listen to the entire conversation, which was adapted for the web by Char Daston.