Sears Canada recently announced that it is going out of business, and plans to liquidate all of its stores in Canada. This comes as a shock, since Sears has operated in Canada since 1953, and operated about 130 outlets employing around 12,000 people at the time of the announcement, according to a recent CBC article. However, the truth is that the seemingly solid retail chain had been ailing for the better part of a decade, locked in a downward spiral that is now nearing its final conclusion. “I knew it was going to happen, it was not a shock to Sears employees,” said Zobeida Maharaj, a Sears worker of 28 years, who was quoted in the same article.
So, what happened? A follow-up article from the CBC reveals many sources of blame that are being slung around by those concerned, from competition by more innovative stores, to allegations that Sears Holdings CEO Edward Lampert selfishly pocketed profits that could have been reinvested into the business. The straw that broke the camel’s back was likely the company’s “Sears 2.0” marketing and rebranding strategy, which was launched last year with the hope that it would reinvent and revitalize the brand; but all it did was consume more money that the increasingly cash-strapped company could ill afford to lose.
However, the circumstances surrounding Sears’ withdrawal from our country (the U.S. branch will continue) go well beyond the company’s internal decisions. Sears may actually represent a business model that is struggling to survive in the current economic climate.
The rise of e-commerce, such as online retailer Amazon, has been cited as a threat to the department store model, and the CBC article cites a failure to develop a proper online shopping apparatus as one of the factors in Sears Canada’s failure. However, according to a New York Times article from 2015, online competition is more of a threat to big box stores like Walmart and Costco, which are in a league of their own, with only 10 per cent of retail sales being conducted online. According to the article, the real reason why department stores like Sears, Macy’s, and JC Penny’s are suffering is something much more sinister — income inequality.
Sears, and brands like it, have traditionally gone after the middle-class market, but as the middle-class struggles against inflation, stagnant wages, and vanishing benefits, this social group has less purchasing power than it did in the past. Other businesses have been undercutting them from both above, by high-end retailers with more specialized wares, and from below, by big box brands like Walmart and Costco that offer a wide range of cheap products. “There are varying gradients of dead or dying or flat, but anything in the middle is problematic,” said Steven Lowy, co-chief executive of Westfield Corporation, which owns several shopping malls around the world, who was quoted in the Times article.
A 2016 article from Business Insider also cites mall closures as a major factor in why department stores are going under. Department stores traditionally comprise the so-called “anchor stores” of most shopping malls, and malls could be said to be their natural habitat. With increasing mall closures over the years, fewer locations are available for department stores to use, which cuts into their earnings. This creates a negative feedback loop wherein closure of anchor stores cause malls to suffer, unless and until they can be replaced. If they cannot, or if their bad fortune continues regardless, then the mall will close, and department store brands will have fewer viable locations to choose from.
These broader trends mean trouble for the department store business model, but the failure of Sears Canada cannot be laid entirely at the feet of circumstances that they had no control over. According to the CBC, Sears Canada had gone through three CEOs in the last four years, each time bringing new ideas, and a new direction. Sears certainly needed to change course, either towards a more diverse and low-tier selection, or by attempting to appeal to upmarket shoppers; but Sears dithered, and sat on the fence for too long. The constant changes in leadership robbed the company of a clear direction that it could stick to. It would also have helped if Sears had been able to begin the transition years earlier, before their funds began to dwindle, and before they had sold off so many of their locations. The Sears 2.0 initiative may have been the right idea, but by the time it was rolled out, it was too little, too late.