Provide four complete sentences as well as examples
Analyze Sears, using the competitive forces and value chain models.
What was the problem facing Sears? What peo- ple, organization, and technology factors con- tributed to this problem?
What solution did Sears select? What was the role of technology in this solution?
How effective was the solution Sears selected? Explain your answer
Sears, Roebuck used to be the largest retailer in the United States, with sales representing 1 to 2 percent of the U.S. gross national product for almost 40 years after World War II. Since then, Sears has steadily lost ground to discounters such as Walmart and Target and to competitively priced specialty retailers such as Home Depot and Lowe's. Even the merger with Kmart in 2005 to create Sears Holding Company failed to stop the downward spiral in sales and market share.
Over the years, Sears had invested heavily in information technology. At one time, it spent more on information technology and networking than all other noncomputer firms in the United States except the Boeing Corporation. The company was noted for its extensive customer databases of 60 million past and present Sears credit card holders, which it used to target groups such as tool buyers, appliance buyers, and gardening enthusiasts with special promotions. For example, Sears would mail customers who purchased a washer and dryer an offer for a maintenance contract and follow up with annual contract renewal forms. These efforts did not translate into competitive advantage because Sears's cost structure was one of the highest in its industry.
In 1993, under the leadership of Arthur Martinez, Sears embarked on a $4 billion five-year store renovation program to make stores more efficient, attractive, and convenient by bringing all transac- tions closer to the sales floor and centralizing every store's general offices, cashiers, customer services, and credit functions. New point-of-sale (POS) ter- minals allowed sales staff to issue new credit cards, accept charge card payments, issue gift certificates, and report account information to card holders. The POS devices provided information such as the status of orders and availability of products, allowing associates to order out-of-stock goods directly from the sales floor. Some stores installed ATM machines to give customers cash advances against their Sears credit cards. Sears also moved its suppliers to an electronic ordering system. By linking its computer- ized ordering system directly to that of each supplier, Sears hoped to eliminate paper throughout the order process and expedite the flow of goods into its stores.
Sears was among the first major retailers to change the way it sold based on shifting consumer habits. For example, in 2001, Sears began testing a service that lets shoppers buy online and pick up their goodsin stores-well ahead of competitors Walmart in 2007 and Target Corp. in 2013. Sears has also been out front with the introduction in 2011 of a service that lets shoppers reserve goods online and pay cash for them in store; in 2012, it launched online layaway.
Despite these improvements, Sears has lagged in reducing operating costs, keeping pace with current merchandising trends, and remodeling its 2429 stores, many of which are run down and in undesirable locations. It is still struggling to find a viable busi- ness strategy that will pull it out of its rut. The Sears company continued to use technology strategies to revive flagging sales: online shopping, mobile apps, and an Amazon.com-like marketplace with other vendors for 18 million products, along with heavy in- store promotions. So far, these efforts have not paid off, and sales have declined since the 2005 merger with Kmart. The company posted a loss of nearly $1.4 billion for 2013. Total losses between early 2011 and November 2014 amounted to almost $7 billion.
Sears continued to pin its hopes on technology, aiming for even more intensive use of technology and mining of customer data. The expectation was that deeper knowledge of customer preferences and buying patterns would make promotions, merchan- dising, and selling much more effective. Customers would flock to Sears stores because they would be carrying exactly what customers want.
A customer loyalty program called Shop Your Way Rewards promised customers generous free deals for repeat purchases if they agreed to share their personal shopping data with the company. Sears would not disclose how many customers signed up for Shop Your Way Rewards, but loyalty-marketing firm Colloquy estimated around 50 million people are members.
The data Sears is collecting are changing how its sales floors are arranged and how promotions are designed to attract shoppers. For example, work wear has been moved closer to where tools are sold. After data analysis showed that many jewelry customers were men who bought tools, the company created a special Valentine's Day offer for Shop Your Way Rewards members that offered $100 credit for $400 spent on jewelry.
Sears wanted to personalize marketing campaigns, coupons, and offers down to the individual cus- tomer, but its legacy systems were incapable of sup- porting that level of activity. To use complex analyticmodels on large data sets, Sears revamped its data management technology. It used to take Sears six weeks to analyze marketing campaigns for loyalty club members, using a traditional large mainframe computer and Teradata data warehouse software. With new technology called Hadoop for managing very large datasets (see Chapter 6), the processing can be completed weekly. Certain online and mobile commerce analyses can be performed daily, and targeting is much more precise, in some cases down to the individual customer.
Sears's old models were able to use 10 percent of available data, but the new models can work with 100 percent. In the past, Sears could retain data from only 90 days to two years, but with the new big data man- agement technology, it can keep everything, increasing its chances of finding more meaningful patterns in the data. Hadoop processing is about one-third the cost of conventional relational databases. With Hadoop's massively parallel processing power, processing 2 billion records takes Sears little more than one min- ute longer than processing 100 million records.
Sears spent several hundred million dollars improving its stores in 2011, including technological enhancements. Woodfield Mall Sears, one of several hundred that was recently remodeled, reflects the new approach. Outdoor clothing from Lands' End dominates the area near the main mall entrance, and pastel-colored women's tops from Covington line the main hall. (Sears owns both of these brands.) Workers use iPads and iPod Touches to access online reviews for customers and check whether items are in stock. Ron Boire, who oversees Sears merchandising and store formats, believes that with a little more time and customer information, he can make the store experience much better.
Working with McKinsey & Co. consultants, Sears opened a test store in 2009 called Mygofer in Joliet, Illinois. Mygofer was touted as a revolution- ary combination that would meld the convenience of the Internet with the instant gratification of a bricks-and-mortar store. The company gutted an 80,000-square-foot Kmart, but the store did not stock items for sale. The idea was to have shoppers place their orders at computers in the front of the store, then pick up their goods at a delivery bay out back. Sears Holdings CEO Edward Lampert hoped to roll out hundreds of Mygofer stores if the experi- ment succeeded. However, some days, more people returned goods than bought them. Shoppers didn't like the fact that they couldn't see and touch things. Sears management had projected that over four years, Mygofer would eventually generate $8 million in annual sales. Annual sales struggled to top $1 million. Lampert stated that going to a store with no
products may have been weird for shoppers, but the idea was ahead of its time. Lampert continues in the Sears tradition of trying to solve problems by ramp- ing up new technologies, at the same time curtailing some of the mundane investments needed to keep the giant retailer generating sales.
Experts believe that experiments like Mygofer are a diversion from Sears's overarching problems: a deteriorating store network and a brand image that doesn't resonate with today's consumers. Other retailers, such as Macy's and Nordstrom, are also struggling to keep relevant in a world where shopping is steadily moving to the web. However, Macy's and Nordstrom are still profitable. Sears Holdings spends nearly $1.90 a square foot on Sears stores and roughly 60 cents a square foot on Kmart stores, according to Matt McGinley, an analyst with Evercore ISI Institutional Equities. That compares with $9.70 a square foot spent by Wal-Mart and $5.75 by Macy's. Although Sears spent more than $1 mil- lion setting up the Mygofer store in Joliet, the com- pany was starving a profitable crosstown Kmart.
Lampert still wants to focus on technology proj- ects that he hopes will turn Sears around, acknowl- edging that that today's shoppers are less likely to browse and buy in stores. One new service lets Sears customers browse for shoes and apparel online and then reserve items to try on in physical stores. Sears is also creating digital displays for products that are more likely to engage customers with reviews, instructional videos, and Consumer Reports ratings.
A service called In-Vehicle Pickup lets custom- ers order goods online and have them delivered to them while they wait in their cars. Sear's In-Vehicle Return/Exchange in Five enables customers to re- turn or exchange purchases in the parking lot within a guaranteed time period of five minutes. Sears improved its online ordering system so that orders could be shipped more quickly and economically by using Sears's physical stores as well as distribution centers to fulfill them.
Sears is refashioning its consumer electronic departments as Connected Solutions shops that sell devices such as a Craftsman garage door that can be opened or closed remotely with a smartphone and baby monitors that can connect to the Internet. The Connected Solutions shops are being tested at three Chicago stores before being rolled out more widely.
Sears is also piloting radio-frequency tags in 15 stores in the hope of increasing sales and margins by giving a more accurate picture of the merchandise stores have in stock. Management said this fall that initiatives like digital signs and radio tags on inventory could bring in $500 million a year in sav- ings and increased sales.
According to Don Ingham, a portfolio manager at Tenth Avenue Holdings, Sears Holdings is poised to benefit from its moves to cut its physical space and increase its e-commerce operations. Sear's poor financial position prompted it to start embracing e- commerce much earlier than other retailers to reduce its physical storefront presence. Sears' efforts should pay off in a few years.
Other experts disagree. Despite bold attempts to innovate with technology, execution is where Sears has stumbled, according to Credit Suisse analyst Gary Balter. Balter believes the company didn't invest enough in systems to make sure all its ideas worked properly, and it has not attracted younger, tech-savvy customers who want to shop that way. By all accounts, Sears remains a fading brand saddled with too many nonperforming physical stores in undesirable locations.
Even with better data analytics, knowledge of cus- tomers, loyalty programs, and e-commerce innova- tions, the question still lingers about whether Sears is using technology effectively to solve its enormous business problems. Is it truly able to offer customerspersonalized promotions and are they working? What is the business impact? Where are the numbers to show that Sears's big bet on technology is making the company more profitable? Will Sear's technologi- cal forays be able to halt its downward spiral?