Sadly, the company that made its name on mail orders couldn’t quite figure out what to do in a world of email orders.
Sears was, in many ways, the Amazon of its time. It made the mail-order catalog a staple of American households, and in so doing brought the latest and greatest products of American capitalism to people in every corner of the country at significantly lower cost. The catalog also offered African-Americans in the rural south not just access to goods, but provided them a way to shop with dignity and equality in a world of Jim Crow. Our contemporary shopping experience with Amazon and other online retailers is a descendant of the Sears catalog.
Even when the car and suburbanization created a shopping mall culture that made their catalog secondary, Sears was able to adapt, and their stores were omnipresent anchors across the country. But like the catalog, the shopping mall experience has fallen by the wayside as consumers seem to be less willing to devote several hours to driving to the mall to go to multiple stores to get what they want. The exceptions are often high-end malls and department stores, with whom Sears could not compete.
At one end, consumers frequently prefer large specialty stores, like a Best Buy, for some of what Sears offered. And customers who want the variety of a Sears are finding it much cheaper at Target, Walmart, or even a warehouse club like Costco. As Target and Walmart, not to mention larger grocery chains, work to meet the speed and convenience of Amazon by offering pick-up or even delivery to your car or home, the old-fashioned department store has seen its market disappear. Sadly, the company that made its name on mail orders couldn’t quite figure out what to do in a world of email orders.
The big problem that Sears never solved was carving out a distinct identity in the very different retail landscape of the 21st century. It wasn’t an appliance store. (In fact, it allowed the quality of its Kenmore products to decline.) It wasn’t a clothing store. It wasn’t a discount store. It wasn’t a home goods or home improvement store. It had no distinct presence online. It tried various strategies for broadening its market, from Allstate to Kmart, but those just muddied its identity even more. In fact, broadening its market was probably the completely wrong strategy. The generalized economic growth of the last few decades has expanded the extent of the market, and as we’ve known since Adam Smith, that expansion will come with a finer division of labor. Sears never found a more precise niche in that new ecosystem. By still attempting to sell something of everything to everyone, Sears ended up selling very little to anyone.
So what’s the good news here? I think there’s two things. First, the churn of creative destruction is alive and well in the US economy. The examples of once-dominant firms who have met their maker in recent years keeps getting longer. If we go back a bit, A&P was the Amazon (or perhaps Walmart) of its time, and it no longer exists. The more recent demise of firms like Borders Books and Toys R Us, and the competition that reduced the dominance of Walmart, makes clear that any firm that’s doing well now, even Amazon, cannot rest comfortably. Today’s consistent profits are tomorrow’s liquidation sales.
Second, it shows that despite the bailouts and subsidies and the general restraints on the invisible hand of the market, consumers are still sovereign and that it’s still possible to go bankrupt if you can’t please them. The resources that Sears owned were destroying, not creating value, and its failure enables those resources to be purchased by those who think they can do better. As Deirdre McCloskey refers to it, “market-tested betterment” is still alive and well in some sectors of the US economy. As much as discussions of economic growth focus on the ability to start new businesses, it’s probably true that our willingness to let businesses fail is a better indicator of a healthy economy.
In this way, while the demise of Sears might be a sad day for Sears and those associated with it, it’s a day worth celebrating for the US economy and for the long-run well-being of all of us as consumers.
READER COMMENTS
Pierre Lemieux
Oct 22 2018 at 9:17pm
Good post, Steve!
Patrick T Peterson
Oct 24 2018 at 10:38am
Excellent thoughts. Very helpful for understanding what the implications really are for this big news.
Thaomas
Oct 24 2018 at 1:37pm
I wonder to what extent Sears was victim to the slower growth in spending by people with “middle” incomes where other firms were better at catering to lower income and higher income people.
T Boyle
Oct 25 2018 at 3:09pm
“Sears never found a more precise niche in that new ecosystem. By still attempting to sell something of everything to everyone, Sears ended up selling very little to anyone.”
And Amazon?
Dave Smith
Oct 26 2018 at 9:32am
Amazon’s initial niche was not products. Rather it solved the online retail problem, it made advances in logistics, and it offered things like customer reviews.
Hazel Meade
Oct 26 2018 at 3:25pm
The NYTimes has an irritating article up about this:
https://www.nytimes.com/2018/10/23/business/economy/amazon-workers-sears-bankruptcy-filing.html
Aside from the everything-was-better-in-the-past attitude of the piece, it makes the fairly glaring error that the Sears practice of offering company stock as a form of compensation to employees wasn’t ultimately coming out of their take home pay. You would think in the context of Amazon cutting stock options while raising wages it would be hard to make this mistake. I think most economists would agree that benefits offered by companies in the form of stock options and health insurance all come from the same pot. These things aren’t “free” bonuses that the company offers on top of a fixed pay rate, wages are going to adjust so that the total compensation remains in line with what the worker is worth. So when Amazon offers higher wages while cutting stock options, they aren’t taking anything away from employees. They are, however, offering employees flexibility as to what to do with the money. Nothing is stopping employees from investing in Amazon stock on their own, or in the stock of any other company, and moreover, it is less risky for the employee to diversify their investments. The Times piece makes the classic financial mistake of believing that employees are going to be better off having a lot of their eggs in one basket – the basket of their employer. But what do you think happened to the employees investments in the company now that Sears has gone bankrupt? By any reasonable interpretation, Amazon employees are better off because they are getting paid in cash, instead of in company stock. Cash is fungible, so employees have the option of investing it in whatever they want. they can “share the profits” of any company they want, via dividends, not just the one they work for.
Now, you could argue that the stock purchase program incentivizes retirement savings, but so does a 401(k). There’s no need to incentivize employees to invest in the company they work for, and all things considered , it’s probably not that great an idea for the reasons stated above.
It’s just so very frustrating to see the NYTimes still engaging in these basic economic misconceptions. The best thing for employees is to have complete freedom how to invest their retirement savings, not to be compelled to invest it in their employer, as I’m sure Sears employees are finding out.
Todd K
Oct 26 2018 at 4:20pm
This won’t change because the NY Times hires English, history and journalism majors with no economics background.
Mark Brophy
Oct 26 2018 at 6:48pm
Sears went bankrupt because they repurchased too much stock rather than save the money that they needed to make their strategy work. Buybacks increase the stock price and the value of executive stock options but are detrimental to the health of the company years later.
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