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Sears Case Study
- 1. Week 7: Strategic Management Case Study BSA 555 – Strategic Management Travon Hall May 29, 2016
- 2. HISTORY OF SEARS • Headquartered in Hoffman Estates, Illinois. • Sears was founded by Richard Warren Sears and Alvah Curtis Roebuck in 1886 in Chicago, Illinois • Sears were primary sellers of appliances, hardware, and clothing. • In 1925, Sears started as mail order Catalog Company, and shortly after that they started opening retail locations. • bought by the American discount store chain Kmart in 2005
- 3. BUSINESS STRATEGY A company’s business strategy will consist of methods and tactics to accomplish goals. Sears quickly became successful in the retail industry largely due to its ability to strategically plan which in included strategies such as: • Developing private brands • Being the first explore untapped markets • Offering quality products
- 4. BUSINESS STRATEGY (CONTINUED) Sears strategy to continue expansion was to acquire smaller businesses and developing subsidiary companies. Campanies Sears established and acquired are: • Allstate, Hercules, Cheryl Tiegs, J.C. Higgins, Craftsman, Kenmore, Coldspot, Pilgrim, David Bradley, Roebucks, Diehard, Silvertone, Economy, Toughskins, and Harmony House.
- 5. POOR STRATEGIC PLANNING Business strategies are essential to conducting effective business however failure to strategize results in loss revenue and profit. Poor strategies which contributed to Sears failure was: • Inability to meet customer needs • Lack of store appearance improvements
- 6. FINANCIAL STATEMENTS “A company's financial statements provide vital information about its financial health. These statements are compiled based on day-to-day bookkeeping that tracks funds flowing in and out of the business” (Gartenstein, 2016). In 2016, Sears had a revenue of $25 million with expenses tallying to be $19 million resulting in a profit of $6 million. Sears profit decreased by a million dollars from the previous year.
- 7. FINANCIAL RATIOS Financial ratios for calendar year 2015: • Current ratio: 111% • Profit Margin: 23% • Debt to Equity: -1.52% • Asset Turnover: 2.05% • Cash ratio: 4% • Return on equity: 58%
- 8. SWOT ANALYSIS With SWOT managers can brainstorm ways to maximize strengths, limit weaknesses, take advantage of opportunities and avoid or reduce threats. “Strengths are the internal attributes and resources that support a successful outcome” (Search CIO, 29016). Sears strengths are as followed: • Broad product offering • Online shopping • Financial opportunities for customers (Credit cards and leasing) • Customer reward program • Craftsman unlimited warranty
- 9. SWOT ANALYSIS (CONTINUED) “Weaknesses are the internal attributes resources that work against a successful outcome” (Search CIO, 2016). Below are weaknesses that have impacted Sears. •Failure to adapt to customer needs – Sears were unable to adjust their business plan when customer needs began to change which resulted in decreased revenue. •Lack of identity •Employee turnover rate – This issue does not allow for experience employees. Most employee typically leave the company due to lack of pay or the uncomfortable environment. •Insufficient employee training (management and hourly employees) •Low inventory turnover – Sales are decreasing resulting in an overflow of inventory which ultimately has to be sold at discounted prices.
- 10. SWOT ANALYSIS (CONTINUED) “Opportunities are the external factors the project can capitalize on or use to its advantage” (Search CIO, 2016). Opportunities Sears can capitalize on are: • Defining a distinct target market • Advertisement • Partnerships • Discounts/Coupons • Growth of private brands (Kenmore, Craftsman) • Increase online sales • Mobile application/ social media involvement
- 11. SWOT ANALYSIS (CONTINUED) “Threats are external factors that could jeopardize the project” (Search CIO, 2016). Sears encounter threats such as: • Competition • Customer loyalty
- 12. PORTER FIVE FORCES • Sears majors competitors are Walmart, Target, Macys, JCPennys • Threats of entry are increasing due to low cost of entry, easy start up, and large market opportunity Important Opportunities and Threats Opportunities • Product expansion and development • Renovating stores • Increasing Online sales and developing mobile app shopping Threats • Competition • Laws and Regulations
- 13. PROPOSED STRATEGIC PLAN Current Mission Statement "We are committed to improving the lives of our customers by providing quality services, products and solutions that earn their trust and build lifetime relationships." Sears were successful because of their ability to implement strategies that aligned with its mission statement.
- 14. PROPOSED STRATEGIC PLAN (CONTINUED) Purpose Statement The purpose of this strategic plan is to reestablish Sears as one of the leading retail/ department stores globally as it was in the 1900s. This strategic plan will outline various opportunities that will result in increased revenue, profit, and investor returns. One of the main focuses is to establish the identity of Sears so that customer satisfaction is improved.
- 15. PROPOSED STRATEGIC PLAN (CONTINUED) Business Strategy • Sears will develop a pricing strategy so that they remain competitive in the department store/ retail industry. • Maintaining low prices so that they appeal to more customers. • Being that prices will be low the company will rely on high volumes of sales in order to maximize its profits. • In order to be success maintaining low prices sears will have to bargain and form stronger relationships with its suppliers and manufacturers.
- 16. PROPOSED STRATEGIC PLAN (CONTINUED) Industry Strategy Based on Sears business strategy they will be in direct competition with Walmart due to offering low prices. Financial Strategy Currently Sears is experiencing financial issues however they have a good reputation with paying back obligations therefore they will was to accrue more debt in order to establish its business strategy.
- 17. PROPOSED STRATEGIC PLAN (CONTINUED) HRM Strategy • Employee appreciation • The hire process will involve online applications and in store interviews. • The new hires will have a starting compensation of $9.00/ hr. and can be eligible for a pay increase after their first six months pending an employee evaluation. • For leadership roles within the company, Sears will mostly promote from with the company however they will consider outside professionals and consultants.
- 18. PROPOSED STRATEGIC PLAN (CONTINUED) Marketing Strategy • Revamped Slogan • Commercials • Social media • Community involvement (Sponsorships) Operations Strategy • Retail and online
- 19. PROPOSED STRATEGIC PLAN (CONTINUED) Laws and Regulation • Advertising laws • Customer protection • Misleading pricing laws
- 20. REFERENCES A Brief Chronology of Sears History. (n.d.). Retrieved May 28, 2016, from http://www.searsarchives.com/history/chronologies/chronology_brief.htm Acquisition Strategy - AccountingTools. (n.d.). Retrieved May 28, 2016, from http://www.accountingtools.com/acquisition-reasons Craftsman: The Standard of Quality. (n.d.). Retrieved May 28, 2016, from http://www.searsarchives.com/brands/craftsman.htm Current Ratio | Formula | Analysis | Example. (n.d.). Retrieved May 28, 2016, from http://www.myaccountingcourse.com/financial-ratios/current-ratio Debt/Equity Ratio Definition | Investopedia. (2003). Retrieved May 28, 2016, from http://www.investopedia.com/terms/d/debtequityratio.asp?layout=infini
- 21. Department & Discount Retail Industry. (n.d.). Retrieved May 28, 2016, from http://csimarket.com/Industry/industry_Financial_Strength_Ratios.php?ind=1303 Gartenstein, D. (n.d.). What Is the Importance of a Company's Financial Statements? Retrieved May 28, 2016, from http://yourbusiness.azcentral.com/importance-companys-financial-statements-11007.html Kenmore: America's Favorite Home Appliance Brand. (n.d.). Retrieved May 28, 2016, from http://www.searsarchives.com/brands/kenmore.htm Laidre, A. (n.d.). Strategic Planning: What is a SWOT Analysis? Retrieved May 28, 2016, from http://www.iplanner.net/business-financial/online/how-to-articles.aspx?article_id=swot-analysis Lewis, R. (2014, September 24). Sears: Nothing Left But its Past - The Robin Report. Retrieved May 28, 2016, from http://www.therobinreport.com/sears-nothing-left-but-its-past/ Lister, J. (n.d.). Government Regulations That Affect Marketing in Retail. Retrieved May 28, 2016, from http://smallbusiness.chron.com/government-regulations-affect-marketing-retail-35217.html Lutz, A. (2014, August 21). 4 Reasons Sears Is Headed Straight For Death. Retrieved May 28, 2016, from http://www.businessinsider.com/sears-business-strategy-is-doomed-2014-8
- 22. Mourdoukoutas, P. (n.d.). Retrieved May 28, 2016, from http://www.forbes.com/sites/panosmourdoukoutas/2015/06/10/four-strategic-mistakes-that-haunt- sears/#3d69ebef13b1 Porter's 5 Forces Definition | Investopedia. (2003). Retrieved May 28, 2016, from http://www.investopedia.com/terms/p/porter.asp Profit Margin Definition | Investopedia. (2003). Retrieved May 28, 2016, from http://www.investopedia.com/terms/p/profitmargin.asp?layout=infini Return On Equity (ROE) Definition | Investopedia. (2003). Retrieved May 28, 2016, from http://www.investopedia.com/terms/r/returnonequity.asp?layout=infini Root, G. (n.d.). The Importance of Business Strategies. Retrieved May 28, 2016, from http://smallbusiness.chron.com/importance-business-strategies-4630.html SHLD Key Financial Ratios. (n.d.). Retrieved May 28, 2016, from http://www.nasdaq.com/symbol/shld/financials?query=ratios Sears Worst Practices: Big, Old Core Business Strategy and Brand Image. (n.d.). Retrieved May 28, 2016, from http://retailindustry.about.com/od/RetailWorstPractices/a/Sears-Changes-Big-Old-Brand-Image-Core-Business- Strategy-Real-Estate-Holdings-Leaders.htm
- 23. Supplier Power (one of Porter's Five Forces) • The Strategic CFO. (2013). Retrieved May 28, 2016, from http://strategiccfo.com/supplier-power-one-of-porters-five-forces/ The History And Future Of Sears | Investopedia. (2012). Retrieved May 28, 2016, from http://www.investopedia.com/financial-edge/0112/the-history-and-future-of-sears.aspx The Importance Of R&D To Innovation | Incremental Innovation. (n.d.). Retrieved May 28, 2016, from http://www.incrementalinnovation.com/innovation-management-development/rd-to-innovation What is SWOT analysis (strengths, weaknesses, opportunities and threats analysis)? - Definition from WhatIs.com. (n.d.). Retrieved May 28, 2016, from http://searchcio.techtarget.com/definition/SWOT-analysis-strengths-weaknesses- opportunities-and-threats-analysis
Editor's Notes
- Sears has been known for its introductions of appliances and tools for decades by launching several of its own brand such as Kenmore and Craftsman. By being able to recognize the need of appliances, Sears was able to capitalize in an untapped market. “Craftsman tools are the standard bearers of quality. As proof, an independent consumer survey in 2001 rated Craftsman No. 1 among all American brands in quality” (Sears Archive, 2016).
- The Allstate brand began in 1925 as part of a national contest to name Sears' new brand of automobile tires. The tires-guaranteed for 12,000 miles-quickly became big sellers in the catalog and at the new Sears, Roebuck and Co. retail stores. Sears displayed there innovation by developing a refrigerator that was bigger and offered it at the same price as competitors which made for a better value with its Kenmore and Coldspot brands.
- Once a competitive advantage soon became Sears biggest concern which was the ability to recognize what customers wanted and provide it. In many Sears stores there was abandoned space that once occupied by its photography services.
- Current ratio of 111%. Based on Sears current ratio, they have 11% more assets than there liability obligations. Based on data gather for Sears, there profit margin is 23% which means for every dollar their profit is 23 cent. Debt to equity ratio is -1.52%. Currently Sears’s net worth is negative. The industry average is .03 Based off the asset turnover ratio, Sears are accumulating a high volume of sales which is competitive with the other department stores in the industry.
- Broad Product offering – Tools, appliances, clothing, shoes, and gym equipment Online shopping – Sears were the first the department store offer online shopping to its customer. Financing opportunities for customers (Credit cards and Leasing) Customer Rewards Program – The program allows for customer to gain points per sales which can be converted to instore purchasing credit Craftsman brand has unlimited warranty – Customers can always exchange old worn out tools and equipment.
- Sears were successful because of their ability to implement strategies that aligned with its mission statement.
- Current employee should be acknowledge for top performer of the month/ year and receive incentives. Sears CEO will earn a starting salary of $750 thousand which will include other incentives. Based on the performance of Sears the CEO will be eligible to earn a salary of $1 million depending approval from the board of directors.
- With Facebook, Instagram, Snapchat, and Twitter; Sears will be able to promote its products without accruing additional cost also they will be able to get instant customer input. To increase awareness, Sears will conduct social media competition for customer which the winner(s) will receive monetary or non-monetary prizes.
- The best way to avoid advertisement fraud is to advertise the truth which Sears will create a team to develop advertisements that reflect the company’s products and promotions. “Each state has laws with the goal of preventing businesses from using misleading marketing campaigns as a means to drive sales numbers” (2016).