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What Really Killed Sears? Hint: It Wasn’t Just Amazon

Oct 19, 2018 1:53:17 PM / by Fauad Shariff

Earlier this week, Sears filed for bankruptcy protection. The once-formidable retailer also announced plans to close 142 stores as part of a reorganization plan that they hope will save the company from complete liquidation.

Pundits point to a combination of factors for Sears’s decline, including stiff competition, the failure to invest in e-commerce, a shrinking customer base, and the questionable financial engineering of CEO Eddie Lampert.

But we think there’s more to it. A combination of an outdated mindset and a broken supply chain ultimately brought Sears down. Here’s our take on why Sears failed:

 

The e-commerce mindset and a broken supply chain

It’s ironic that Sears was a pioneer in multi-channel selling and logistics when it was founded in the 19th century. For the first time, consumers nationwide, including in remote rural locations could peruse the Sears Catalog to buy anything they needed for their household: from seeds to underwear to buggy whips.

Throughout the 20th Century, they became a bricks-and-mortar powerhouse, competing with the new generation of department stores. And as the Internet arose, they certainly attempted to pivot into “bricks-and-clicks” like many similar retailers like Macy's, Kohls, and Home Depot.

So why did Sears fail to make the e-commerce transition when so many of its competitors succeeded? It’s tempting to simply say that they didn’t invest enough in technology infrastructure. But shifting to e-commerce is as much a frame of mind as a business strategy.

It’s true that Sears didn’t invest enough in technology. But this didn’t just cost them revenue that they might otherwise have generated online. It also increased their dependence on in-store retail. This created “risk chain” with respect to logistics that leaves it vulnerable to all sorts of external factors. When your business is overwhelmingly dependent on physical stores, the logistics for retail are more demanding: too much of your logistics activity (and logistics costs) is spent on keeping shelves stocked, and not enough on marketing to, and satisfying, your customers.

Read More: Retailers Who Are Winning at Logistics

When you’re too heavily reliant on a capital-intensive model like physical retail, and then face a change in business conditions -- say, declining sales, delinquent payments, lawsuits, etc. -- you have fewer options to adjust your logistics supply chain. The chain becomes rigid and breaks as opposed to being flexible and able to withstand the shock of disruption.

And that’s exactly what happened to Sears.

As noted in The Wall Street Journal this week, Sears’s suppliers and logistics partners have hit them with stricter payment terms and threats of liens, with around 200 vendors ceasing shipping to Sears in the last two weeks alone. Because of concerns about Sears’s future, suppliers and logistics providers are seeking payment up-front before continuing any relationship, further increasing the demand for capital just to get a product in front of customers.

By failing to embrace the e-commerce mentality, they forfeited the opportunity to meet these challenges. Instead of relying on a business model that is fluid and resilient, as soon as they met a critical mass of stressors, the business simply crumbled. In brief, instead of fighting back with e-commerce, Sears was left holding a buggy whip.

 

The lesson for logistics professionals

So, what can freight forwarders and NVOCC’s learn from the failure of Sears?

First, the logistics industry is, and always will be, an indispensable part of the economy -- and especially as it transitions from physical sales to digital sales. Goods still need to get from one place to another efficiently, and it is unlikely that we will see a replacement for ocean freight any time soon. Once Sears lost control of how to predict demand for, pay for, and ship their goods, the end was inevitable.

So we need to ensure that innovations in logistics are keeping the pace with the demands of retailers and manufacturers -- all ultimately driven by consumers. Even had Sears invested properly in e-commerce, if the logistics infrastructure had not been there to meet its needs, it would have failed anyway. True innovators like Amazon understand this, which is why they are taking control of more and more of their own logistics. Ocean freight professionals need to meet them on their own playing field. Because the future of ocean freight lies in pioneers like Amazon -- not with extinct dinosaurs like Sears.


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Topics: Amazon, Sears, Ecommerce, Logistics, Logistics News, Supply chain

Written by Fauad Shariff

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