The once-iconic retail brand must make swift changes to survive
Here’s a sneak peek at the Jan. 16 issue of Marketing.
Q1 2010
Total revenue $1.477 billion; down 3.2% compared to the same period previous year
Net earnings $92.2 million
Same-store sales up 3.3%
Q1 2011
Total revenue $992.5 million, down 7.1% compared to same period previous year
Net earnings -$49.5 million
Same-store sales -9.2%
Q2 2011
Total revenue $1.148 billion; down 5.3% compared to same period previous year
Net earnings $2.7 million
Same-store sales -5.8%
Q3 2011
Total revenue $1.113 billion, down 7.1% compared to same period previous year
Net earnings -$46.6 million
Same-store sales -7.8%
Like an unserviced, leaky washing machine, Sears Canada has seen better days. The long-standing department store chain posted a staggering $46.6-million net loss in the third quarter of 2011, with same-store sales falling 7.8%. Not surprisingly (other than it was just prior to Christmas), at the end of November, the company announced it will cut 70 jobs at head office.
“Our results have been disappointing,” admits Vincent Power, VP of corporate affairs and communications at Sears Canada. He says the company is struggling in part because of shaky consumer confidence, but he concedes Sears itself must also take some blame. “There are definitely things we could be doing better,” he says.
For years, Sears Canada has been a back-of-the-pack retailer, struggling to compete against bigger chains like the Gap and more specialized fashion chains like H&M and Zara. The department store chain, which has been criticized in the past for not putting money into merchandising or keeping the stores up to par, will soon face increased competition from U.S. retailers heading north.
Amid the turbulence, this summer the company hired a new CEO, Calvin McDonald (formerly of Loblaw), who quickly made it clear he’ll make sweeping changes. According to Power, McDonald and his executive team “have been busy developing a strategy to continue to have the kind of relationship we’ve been having with our existing loyal customers, develop new customers and reconnect with some of our customers who might not be shopping with us as much as they used to.”
Power calls the upcoming changes “significant,” but says the company isn’t ready to share its new strategy in detail. However, in December, McDonald told The Globe and Mail, “The big theme for us is just getting the basics: major appliances and mattresses. Big-ticket purchases.”
A redesigned flyer, which debuted in November, also touts Sears’ big-ticket items such as appliances. The flyer is “much cleaner,” says Power. “It focuses on important merchandise issues and provides the customer with a very readable and still very compelling offer without being overly crowded,” he says.
Power stresses the flyer redesign is just the tip of the iceberg, but it symbolizes the chain’s goal of presenting its merchandise in a clearer, less cluttered way overall.
Alan Middleton, assistant professor of marketing at York University’s Schulich School of Business in Toronto, thinks one of Sears’ basic challenges is that the traditional department store model is an out-of-date business concept. That said, he points to the Bay as an example that has managed to transform itself successfully. Middleton thinks Sears “shouldn’t copy what the Bay is doing, but they should learn from what it’s doing.”
Middleton has high praise for the Bay’s president and CEO, Bonnie Brooks, who took the reins in 2008. “What she’s managed to do, by selection, by staff training and by some very smart marketing and communications, is to get people to start thinking of the store in a totally new way,” he explains, pointing to the chain’s sleek new store interiors and “prestige” fashion lines. “You almost forget the Bay is a department store. It’s just a nice place to be.” Sears, on the other hand, “is still looking like the tired old model.”
Ken Wong, professor of marketing at Queen’s School of Business in Kingston, Ont., adds that Sears has serious pricing issues. The store often prices items absurdly high to start, then puts them on sale, then adds another discount so that “in some cases, I wouldn’t be surprised if after all those discounts, Sears might be selling products at or below cost.” He believes this pricing model may be a significant factor in the chain’s current financial struggles.
Unfortunately for Sears Canada, there’s another major challenge ahead: the imminent influx of popular American retail chains coming to Canada, hungry for market share that Sears is clinging on to. Target plans to open more than 100 stores in Canada starting in 2013, for instance, while Kohl’s is seriously scoping the market.
“The intensity of the competition is going to step up,” says Middleton. This means time is of the essence: “Sears is not going to have much time to do what they need to do because there are a whole bunch of other people playing their game.”
“I don’t know that Sears can be what it once was,” adds Wong. “I just don’t know if you can have that broad a demographic and that broad a set of product lines and still maintain a clear image in the marketplace. So there will have to be some decision made as to what Sears actually wants to be.”
Middleton agrees that Sears is doomed if it doesn’t change its business model, “but if they adapt, they can keep going forward. They’ve got a brand name that’s recoverable. They can still come back. But it needs to be brought into the 21st century.”
What do you think it will take for Sears to start and maintain a resurgence? Post your thoughts in our comment section.
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