Why Sears Doesn't Have To Go Out Of Business
Jul. 17, 2013 7:18 PM • shld
Every time I hear the critics of Sears (NASDAQ:SHLD ) discuss its inevitable demise due in part to Eddie Lampert's decision to break the company into 30 separate operating divisions, I am always reminded of one of my favorite Ayn Rand quotes in her book Fountainhead delivered by Howard Roark after being chastised by his College Dean for attempting to build the unconventional: "My dear fellow who will let you?" Roark responds, "That's not the point. The point is who will stop me." There doesn't appear to be anyone stopping Mr. Lampert right now, and that may not be a bad thing.
But clearly the Sears Holdings recovery is on layaway and most of Wall Street is discounting its ability to turn itself around. Consider the following metrics. Since the Kmart and Sears merger, revenues have declined from $53 billion to $36 billion, in the last year the company stock has lost 18% of its value. And its market cap is down to 4.69 billion. Its net profit margin is down 2.64% for the year which is second worst among its peer group (only J.C. Penney is worse).
Still more concerning is that according to Glassdoor, employee morale for Sears appears to be particularly low with only 31% of its employees recommending the company, and Lampert's 19% approval rating isn't helping matters. In contrast, both Target and Macy's each have 62% and 47% of its employees recommending their companies – neither make the best place to work but are faring much better than Sears.
Let's face it: Those are only some of the issues, and the rest doesn't look much better. But the numbers only scratch the surface and shouldn't necessarily be used to judge the long term viability of the company. Take the "Shop Your Way" advocacy platform, which Sheila Field, Chief Marketing Officer for Sears Apparel describes as: "…in one word: authentic. If it's not authentic, it's not worth doing. We have grown an advocacy program from individual relationships with people that genuinely care about the brand. That's very powerful. When we sit down with a brand advocate, we want to hear the truth. Their stories inspire us to become better and to exceed their expectations."
The Sears "Shop Your Way" advocacy platform is a great start, but a lot more must be done in order to turn the company around. Both Sears and Kmart still have a lot of advantages – Sears is still the third largest merchandise retail company and they own many trademarked brands like Craftsman, Land's End and DieHard with loyal customers.
But from my work with companies at Evolve. there are specific actions Sears Holdings is taking and should be taking that are worth reviewing. I have set forth some of these key strategies in my book Socialized! . but let's look at each of them in the context of Sears and the current retail environment.
1. Use credit card, website, social, in store, and mobile data to understand patterns for cross selling opportunities. CEO Lampert has hired Moneyball's Paul DePodesta, and Freaknomics co-author Steven Levitt as consultants to the organization, which is a great start. But they need the heavy hitters to profile current and prospective customers by observing patterns of behavior across Sears Holdings and across their digital properties to better understand how and when to sell products.
For example, if a digital pattern emerges around customers that like the Sears Facebook page, click on Craftsman tool links in emails sent by Sears, visits an Orchard Supply Hardware website, and has used a Sears credit card to buy tools in the past – then when that customer is in the store next time (or even close by) Sears should send them a mobile coupon offering a discount if the customer makes a tool purchase in the next 30 minutes. This isn't digital fantasy – this can be done today.
But from what I can tell, with 30 independent operating groups. it's going to be a huge challenge getting each of them to share data with the other to exploit these opportunities.
2. Use an IBM culture shift strategy to turn employee morale around: While Lampert deserves praise for his courage to bet the company on his restructuring plan, Lampert must remove the fear and communication road blocks among the employee base. As IBM has shown. this can be done by engaging employees in the planning stages, getting their buy in (which increases the effectiveness of executing on the plan), and making the whole process transparent by communicating successes, failures and learnings. Sears executives can't complete a turnaround without the support of its employees. Employees need to feel as important as the customers – if not more.
3. Leverage influencers and advocates to enchant a new generation of retail customers: Sears Holdings can't change their image with a new generation of socialized, mobilized and digitized consumers without the support of retail influencers and tastemakers. They come in all shapes and sizes and many of them have more power to change the hearts and minds of Sears target customers than can the entire marketing budget of Sears Holdings.
Field explained to me how The Shop Your Way program works with influencers: "Our 'influencers' included mommy bloggers, fashion bloggers, media, DIY'ers, and beauty bloggers. We've done in store events, editors events, blogger events, online sweeps and digital activations -- all tailored to the way our audience prefers to engage in those channels." And I've heard the program's growth rate is substantial.
Yet, they'll need to take it a few steps further to integrate influencer opinion directly into their buyer's shopping experience whether it be online or offline. For example, if I am looking to buy a shirt online, I want to know if an influencer I follow recommends it (or not) and if I am in the store, I want mobile recommendations from influencers about shirts they recommend.
4. Use social data to understand the trends – then get ahead of the trends: Sears Holdings will need to leverage influencer maps not only to understand who is impacting their products, brands and customers the most – but also to understand what the tastemakers are discussing as the next hottest thing. Sears should also form a retail partnership with the IBM Watson team as they can quickly help Sears leverage social data to predict profitable trends and use Sears Holding's own data to help uncover valuable purchase insights that were previously hidden. IBM has created a digital crystal ball. Sears should be the first to use it.
Then, Sears should work with its influencers and a new company called Expressible to instantly publish rich media, digital content landing pages based on that trend data with links to Sears products. When Sears influencers share (and endorse) those pages with their followers, Sears can expect a huge uptick in qualified customer traffic. Expressible makes it remarkably easy for brands to become publishers by leveraging content
that already exists on the web.
5. Turn in-store Mobile shopping into purchases: In a recent Accenture Interactive report. 72 percent of consumers aged 20 to 40 use mobile devices while in-store to compare prices, but the majority leave before making a purchase. This is a huge miss given the report also states that 32% of those consumers buy from a different retailer.
Baiju Shah, managing director of strategy and innovation for Accenture Interactive explains: "But consumers don't want to shop online exclusively and our work with retailers shows that physical stores don't have to compete on price alone but rather focus on the whole experience. Retailers need to create a seamless, multi-channel experience that blends the digital and physical, and delivers convenience, price and relevance."
Sears should consider working with Bloomreach which provides cross-channel optimization, across multiple devices, even if shoppers never authenticate themselves. If the user logs in from home or another device, BloomReach not only identifies those people based on behavior, but creates a dynamic experience for the shopper by presenting the most relevant products and search suggestions.
6. Sears Executives need accountability for discussions about their division: Reading through Sears Glassdoor comments, it's clear employees believe there is a huge gap between Sears Holdings executives and their customers. Lampert should require each of its holding companies to set up a social media command center to monitor conversations about Sears and its competitors' customers. Sears should work with MutualMind (which has a deep retail understanding) to set these command centers up.
7. Ditch Pebble and use a real social platform: According to Businessweek. Lampert ordered the IT department to build a proprietary social network, called Pebble to engage with employees and find out what was happening across the company. The problem is Lampert engaged employees under a pseudonym and when it was discovered, employees pulled back from using the platform.
The other issue is that Sears built Pebble themselves despite it not being a core competency. I'm pretty sure 99.9% of the companies that have built their own proprietary platform have eventually thrown it away. That's because they simply can't compete and can't afford to maintain the platform with software companies that eat, live and breathe it for a living. Sears needs to ditch Pebble and use a solution like Yammer to engage with its employees and to spot opportunities to improve the organization.
8. There's a lot more room for retail innovation: Today, Sears is competing with a tsunami of disruptive technologies that are turning the retail industry on its head. It's tough for any industry to stay on top of all the changes – and in retail is especially difficult. Yet Sears must find a way to innovate its physical retail space so that it becomes a higher value to its customers. Apple has done a great job in consumer electronics; Sears Holdings needs to find a way to do something similar with each of its branded retail stores. Forbes Columnist Steve Faktor offers some great suggestions. Sears ought to take note.
9. Complete the Brand makeover: What's missing with Sears brands are desire – they need more equity with consumers to move the company back into profitable growth. Ironically, Sears has all of the assets and products to be trendy again, yet it lacks the emotional connection with today's consumers. Target has it – so do a lot of the boutique retailers.
From my point of view, Sears needs a psychological makeover – similar to when Steve Jobs returned to Apple and asked everyone to "think different." But since Sears doesn't employ someone as influential as Steve Jobs, Sears should engage a legion of retail influencers to tell its story for them. And don't stop at the story telling, ask them to provide feedback on the in-store experience, the online experience and how to best connect emotionally with customers of each of the Sears Holdings' brands.
10. Leverage employee connections and promote them as subject matter experts (SMEs): Almost all companies underutilize the expertise contained within its employee base. Almost all companies employ subject matter experts that if exposed to their customer base increase trust and sales. So why do most companies hide these employees from the outside world? Some do it out of fear – fear that competitors will try and recruit them – fear that the employee will say something embarrassing – fear that the employee's expertise will be used by competitors to strengthen its own products and services.
Yet my research has shown that these fears are unfounded. In fact, just the opposite is true. Companies that allow SMEs to communicate on social channels with current and prospective customers increase their trust in the organization. Our research has also shown that by leveraging solutions like PeopleLynx organizations can leverage its entire employee base to connect with new customers, partners and suppliers.
I'm certain that Sears can benefit from removing any barriers for responsible SMEs to communicate with Sears customers – I am also confident that its 274,000 employees have critical connections that can help Sears in its turnaround.
The Critics Are Piling On
Sears certainly has its share of critics these days -notice most of them don't have the business acumen to make any actionable suggestions. My favorite is from Paul Krugman who has virtually zero business experience. "We may live in a market sea, but that sea is dotted with many islands that we call firms, some of them quite large, within which decisions are made not via markets but via hierarchy — even, you might say, via central planning. Clearly, there are some things you don't want to leave up to the market — the market itself is telling us that, by creating those islands of planning and hierarchy."
Krugman's understanding of business strategy is a simplistic one where one only has to press the center of it to make it evaporate into thin air. Competing profit centers and Decentralization are a time proven approach to drive innovative behavior in large organizations. That is exactly what is needed at Sears, but as I've pointed out, that decentralization leads to data silos in which the company must diligently integrate the data horizontally across Sears Holdings in order to maximize revenue opportunities.
It's also clear both Sears and Kmart need to rebuild the relationship with their employees and customers. They need to be relevant each day and every day to reestablish the fervent trust they once had with their employee and customer base. I've recommended some approaches above in which I have experience. Externally, Field has demonstrated that the Shop Your Way program is a success that Sears can build from. Internally, IBM is a model for how to turn around low employee morale situations.
In the end, Sears Holdings management teams must provide the right inspiration, strategy and retail environment if it is to succeed. They can't rely on the status quo, they can't rely on old marketing models, they can't rely on the media -- and they certainly cannot rely on advice from people like Paul Krugman.
Category: Personal Finance