In a move that surprised absolutely nobody, Sears filed for bankruptcy in October of 2018. If you look up "retail giant" on Google, 11 of the first 12 results refer to Sears. Despite this fact, for most Americans under the age of 25, the collapse of Sears is probably about as psychologically impactful as having your mom tell you that she just heard that her high school gym teacher's brother-in-law's dog died. But for people who were born earlier than the 1990s, it's a bit more significant; it's a really visible, tangible reminder that the world in which we now live is far different from the one we remember growing up. There have been many words dedicated to Sears' downfall and a recurring theme in so many of the articles relates to Sears' inability to adapt to e-commerce at a crucial time. Another recurring theme in so many of these articles is that the venerable institution of what everyone now annoyingly calls "brick and mortar" retail is just dying in general, and if Sears hadn't filed bankruptcy now, it really would have just been a short matter of time before their whole business model was rendered obsolete anyway. Brick and mortar retail, in this analysis, is just living on borrowed time and we'll all just buy everything online before long.
I'd like to go against the grain here and suggest an alternative hypothesis to the almost religious belief that brick and mortar retail is dying: shitty brick and mortar retail is dying. Sears definitely dropped the ball when it came to establishing an online presence, which is ironic because if any company seemed uniquely positioned to become an e-commerce superstar in the late 1990s and early 2000s, it would have been Sears. For decades, Sears made its name with its vast mail-order catalogue, which included everything from pants to entire houses. The catalogue would have been a natural fit for the online world and for reasons that escape simple explanation, it just didn't happen at the time it should have. But this alone isn't enough to explain what happened to Sears.
The fact of the matter is that Sears has been run very poorly for many years. Sears' fate was sealed in 2005 when it merged with another former retail giant, KMart. Every year since then, sales for the combined company have decreased and it has not been profitable since I believe 2007. The store count of the combined company went from a high of over 4,000 in 2011 to fewer than 700 at the time of the bankruptcy filing in 2018. Almost all of Sears' woes were related to or directly caused by its CEO at the time, Eddie Lampert. Lampert used his hedge fund, ESL Investments, to purchase a controlling interest in Sears. He was able to then appoint himself chairman and later CEO. ESL has given Sears loans for a number of years, which puts Lampert in the unique position of owing himself a lot of money. Later, Lampert would create and become chairman of another company called Seritage Growth Properties, which would buy about $2 billion worth of land that Sears/KMart stores were situated on, and then lease the property back to the stores. In other words, Lampert is in this way both the landlord and the tenant.
As a hedge fund guy, Lampert's interest in Sears is primarily getting as much money out of it as quickly and with as little effort as humanly possible. He is responsible for selling off various Sears properties such as its Craftsman brand of tools. He rarely, if ever, actually visited Sears and KMart locations, preferring instead to run the company from his house in Florida. Lampert gives off an air of not actually caring about what happens to Sears. It seems counterintuitive to suggest that a CEO could be indifferent to the ultimate fate of his own company, but then again, most CEOs are not the main creditors for the companies they run with the loans they provided being secured by real estate and retail space that is likely worth more than the loans themselves.
But all of this is convoluted and still kind of abstract. Even with the ill-fated KMart merger and the insane structure of the Sears-ESL-Seritage triangle -- which sounds like something Enron could have come up with -- surely it wouldn't have been THAT hard to at least keep the company profitable. People are quick to blame Sears for not jumping on the internet bandwagon early enough, but let's be honest: in the 1990s, there was a pretty widespread belief that the internet was a fad. Comparatively few people used it and most people just didn't understand it. And indeed, companies like Wal-Mart and Target were also somewhat behind the curve when it came to the online experience, but they're still around and they're doing a hell of a lot better than Sears. The bursting of the dot-com speculative bubble circa 2000 probably scared off quite a few companies in terms of really developing their internet presences because not only was the internet something they didn't understand, it was something that was apparently hemorrhaging money. What in retrospect seems idiotic was, in the short term, fairly prudent if not overly cautious. It would be like saying "yeah, those people who voted for Jimmy Carter in 1976 should have known the Iranians would take all those people hostage."
The most basic problem with Sears is that people stopped buying stuff from them. I know this sounds like a gross oversimplification and that's because it is. However, it is also the fundamental truth of what went wrong with Sears and what will go wrong with everything I call shitty brick and mortar retail. When was the last time you shopped at Sears? How about other now-defunct companies like Circuit City, Radio Shack, or Toys R Us? It had probably been quite a while before their respective closings (not counting their going-out-of-business sales, of course). I can tell you exactly the last time I shopped at Sears: January of 2012. The only reason I went there is because my father got me a $25 gift card from there for Christmas in 2011. It was not pleasant and it had basically all the hallmarks of a shitty brick and mortar retail shopping experience.
A lot of stores have loyalty card programs. In the most basic form, these are the cards you might get from a local sandwich shop where if you show your card every time you get lunch, they'll put a stamp on it, and you get a free sandwich after ten stamps. Some loyalty cards give you a small discount on items bought at the store. Others accumulate points that can then be exchanged for rewards. Sometimes these cards are free and sometimes they cost money on top of whatever you're already buying. Shitty retail companies tell their employees to push the hell out of these cards. A lot of people think the reasoning for this is "if we give them the loyalty card and they know they can get points/discounts/whatever, they'll come here more often and spend more money!" And that's part of it. But there are a couple of deeper reasons they push them so hard.
With the exception of the sandwich shop format I mentioned, almost all of these loyalty cards require you to give the store your name, phone number, address, email address, etc., ostensibly for verification purposes. I can almost understand it in reference to the paid membership cards; the membership itself is something sellable, so naturally you don't want one person to buy the card and then let everyone in their neighborhood use it. But when is the last time anyone checked your ID to make sure that you were actually you because you wanted to use a loyalty card? Never. They want your personal information so they can either sell it to advertisers directly or put you on their mailing list that is based on paid advertising; so if you have a loyalty card from a grocery store, it's the difference between getting emails from Nestlé or getting emails from the grocery store telling you about great Nestlé products for sale.
The other major component of a loyalty card program is how it affects publicly-traded companies. Investors like KPIs -- key performance indicators. It's great that you think you sell the best widget ever conceived in the history of civilization. That's not measurable. What is measurable, however, is how many widgets you've sold and how much profit you make per widget. In the past, it was hard to measure with any real precision just how many customers a store had. Sure, you could measure individual transactions, the dollar value of those transactions, etc., but it doesn't logically follow that 100 transactions per day is equivalent to 100 customers per day. Loyalty card programs, however, go a long way toward quantifying that. It gives companies another KPI to show to their investors. They can say with precision how many loyalty card members they have and investors will probably be more interested in companies with bigger loyalty card programs. This is the big reason why you can't fucking go anywhere nowadays without having a loyalty card pitched to you, many times over your objections that you have no interest in it and don't want to hear anymore about it.
Sears was no exception to this. An interaction with the sales associate that would have taken, I don't know, 90 seconds at Wal-Mart took about 6 minutes at Sears partly because she had to give me the loyalty card pitch. Twice. The issue with loyalty cards -- especially the free ones -- is that you can have as many of them as you want. You can get a loyalty card from every single grocery store in town, which defeats the purpose of saying "I have this person as a reliable customer." You can go out of town and get a loyalty card from a grocery store that doesn't even have any locations in your state. It is an ultimately meaningless metric because having a loyalty card doesn't guarantee that you'll ever spend another dollar in that store. How many dead people have loyalty cards in their names still? I mean, everyone dies eventually, so millions of people signed up for loyalty cards right now won't exactly be part of the prime advertising demographic in 50 years, but how will the stores or investors ever know that?
Unreasonable pricing is another issue with shitty retail. Much is made about how such and such thing is cheaper to buy online as opposed to in this or that store, so a primarily internet-based company without all the overhead associated with brick and mortar retail will always get the sale. There's been a joke for years about how Best Buy is essentially Amazon's showroom, since you can go look at the item in the former and then buy it for cheaper in the latter. And that's probably true for things like televisions, computers, and other big ticket items. But if we're talking about something that costs less than, say, $100 and the online price (including shipping) is less than $15 cheaper, I think a lot of people would be willing to just buy the item in the store for the satisfaction of having it right now as opposed to four business days later. But that willingness to spend a little more in exchange for convenience and instant gratification only goes so far, especially when the rest of the experience sucks and there are other local brick and mortar options that are cheaper.
There is no single product or type of product I can think of that Sears ever had the best price on. I spent the entirety of my gift card -- and then some -- on a pillow at Sears because I could not find anything else in the store that I wanted or that I felt like it would be worth it to put even more money toward. I could have gotten a comparable pillow cheaper at another store in town like Wal-Mart, Target, Ross, or any other number of places, but I bought it at Sears simply because I really had no other idea what to do with the gift card. They had by that point phased out in-store purchases of DVDs and Blu-Rays. Their video game selection was meager and more expensive than anywhere else in town. The clothing selections were not any better than what you could get at somewhere like Kohl's, but you better believe I wasn't about to spend $50 for a plain white button-up shirt from a brand that nobody has ever heard of. The cookware options were all over-priced and utterly bland. I hadn't come with any intention of making a big purchase, so I wasn't in the market for appliances, tools, or lawnmowers.
Shitty retail exists as an attempt to refute the idea that supply and demand can play a role in determining pricing. You can go to many of these stores and find an abundance of products that are priced into the stratosphere that nobody seems interested in. People will pay more for certain "premium" brands and there are many consumers who enjoy the cachet of exclusivity associated with this, but for Christ's sakes, that doesn't apply to things you can get for a lot cheaper five minutes down the road. What people are really looking for is the intersection of price and quality: the highest price they are willing to pay in exchange for the lowest quality they are willing to accept. On a scale of frozen tilapia heads to fresh swordfish steaks, I top out around farm-raised salmon filets. I would not, however, buy farm-raised salmon filets for $12.99 per pound when I could get them for $8.99 per pound somewhere else relatively close to the house. The mentality of Sears seemed to be "shopping here is a privilege, and people will be willing to spend more on the same products here so they can say they bought it at Sears." You've heard of people who want a champagne lifestyle on a beer budget; these retailers want to sell you a beer lifestyle on a champagne budget.
But not to worry! The good news is that shitty retail is there for you in your moment of need with a credit card offer. Both shitty and reputable retailers offer credit cards, of course, but shitty retailers almost entirely offer store-exclusive credit cards (sometimes just called charge cards) whereas reputable retailers frequently offer co-branded cards through Visa or MasterCard that can be used anywhere and just happen to offer special perks for purchases made at their stores. The average interest rate for a credit card is about 13%; shitty retailers' credit cards typically have interest rates in excess of 25%. Considering that the card is extremely limited in its application, this almost seems backwards. You're offering an objectively inferior financing service, why in the world should you charge more?
The answer is that generally speaking, the retailers aren't the ones charging more, it's their partners underwriting the cards who are. You don't go through the same process to get a charge card as you do a bank-issued credit card and people with more questionable credit histories are more likely to be approved for store charge cards than they are actual credit cards. Now I'd like to say that I don't in theory have any problem with store charge cards as long as the people getting them understand what they're signing up for. If your refrigerator suddenly dies, there's a pretty good chance it's older than dirt and it will be more cost effective to replace it than repair it. Living without a refrigerator is, for most people today, simply not an option. Replacing a broken refrigerator is a time-sensitive thing; it's not something that can really wait while you save up for a couple of months and most people tend not to have the excess cash on hand to just go buy one on a whim. So the relatively easy availability of a charge card in this context is a positive thing.
Where it's not positive is when credit cards are pitched aggressively and indiscriminately to everyone who passes the mirror test: if you put a mirror under their nose, will it fog up? If the answer is yes, they pass. Stores love charge cards underwritten by third parties because they assume absolutely no risk in the lending process and don't have to bother with collections in the case of past-due accounts. The more successfully a retailer pushes its credit card, the less incentive they have to be competitive, since after all, the customer isn't spending their own money to buy things. Who cares about price when you can just kick the payments down the road indefinitely?
Unfortunately, one of the main "features" of many of these store charge cards is deferred interest, which is a nasty marketing trick conceived of by third party lenders as a gamble. So everyone knows that a 28% APR on a credit card is high (some might say exorbitantly so), but you'll frequently see these great introductory offers saying that if you pay off the balance in full within six months of the initial purchase, you won't pay any interest at all! So you plop down $1,000 on your charge card and you have six months to pay it off at 0% interest. So you plan to do this, and the first couple of payments are on track, but then life happens, and it just won't be feasible to pay off the entire amount within the six month period. After the sixth month, even if you only still owe $20, you will pay the interest on the full $1,000.
Sears, of course, was no different. Hell, Sears actually created the Discover card. Sears also had an agreement with CitiBank to issue a co-branded MasterCard as well as its own store charge card with a very high interest rate in addition to an exceedingly complex list of rules, exclusions, and minimum purchase amounts to qualify for deferred interest offers. Guess what got pitched to me three times when I bought a pillow! Guess what I had no interest in signing up for!
I want to point out again that I don't blame the employee for trying to shove a loyalty card and two different credit cards down my throat despite my repeated insistence that I had no desire for any of them since I was not a regular Sears customer and had no intention or likelihood of becoming one. While most people would consider that obnoxious or at least tone-deaf, having worked for a shitty retailer for eight years myself, I know that she likely had some unrealistic goal she had to meet to avoid a performance coaching, which is the euphemism basically every industry now uses in lieu of something like "disciplinary action." The sheer volume of these types of performance metrics can be overwhelming to most retail employees; at the company I worked for, we had about 10 of these above and beyond the basic goal of selling enough product to keep the doors open and pay the bills, not counting operational targets.
Up-selling is the term for offering additional products and services to customers on top of whatever it is that they're already buying. In my case, I was buying a pillow, so a natural suggestion for me would be a pillow case. I didn't really need another pillow case, so another option would have been to maybe try to sell me a second pillow. Well, I didn't really need the first pillow to begin with, so that's out. For many items, the easiest add-on is an extended warranty, but that doesn't really apply to pillows. Sometimes, though, people will just throw out seemingly random suggestions ("getting a pillow? How about some AA batteries?") that are themselves specific items the company wants its associates to sell a ton of, no matter what.
Up-selling is all well and good (and a vital part of being a salesperson as well as keeping a business healthy) but shitty retail companies make their employees focus on up-selling to the detriment of their core products. This inversion of priorities turns the relationship between the business and the customer into an adversarial one. Customers are valued to the extent that they contribute to internal KPIs rather than for the fact that they are helping the business survive by patronizing it. When you see miserable retail employees, it's likely because they are concerned about losing their jobs if they fail to meet a million different sales goals. Miserable employees are a standard feature of shitty retail businesses.
Another big red flag that you might be visiting a shitty retail business is if the store itself is in poor condition. Old, outdated shelving and fixtures. Gross, broken, wet, or stained ceiling tiles. Carpet that needs vacuuming or shampooing. Tile flooring that needs mopping. Antiquated point of sale equipment. Dust everywhere. Walls with holes and chipped/peeling paint. Bad lighting. Disorganized product. An overwhelming feeling of dinginess. Shitty retail companies don't invest money in the appearance of their stores because presentation isn't a priority to them. They also tend to run very tight payroll regimens, meaning that basic cleanliness tasks that should happen every day wind up not getting done because the store doesn't have the budget to schedule people to do them. This of course contributes to the low staff morale as well because nobody enjoys working in that kind of an environment.
There are many other ways to run a retail company into the ground at the store level, but this is already overly long. This writeup actually started out as something completely different than what it wound up being, but I'll get around to writing that in the near future. Most of the big retail companies that have gone out of business in the last few years -- and many of the ones that are currently in trouble -- were guilty of most, if not all, of these shitty retail sins. Many retail companies have successfully created shopping environments that people don't want to go because they're unpleasant experiences. The common factor is that they stopped focusing on their main product/service/whatever and started emphasizing all these other things. I used to avoid Wal-Mart like the plague, but now I go because I know it's extremely unlikely I'm ever going to encounter any of the issues I described above. Employees are courteous and never pushy; transactions are done relatively quickly (except at peak hours, although I tend to only either go there early in the morning or late at night); prices for most items I have a need for are reasonable; and whatever else you want to say about Wal-Mart, those fuckers clean the store every night.
The brick and mortar retail companies that will survive are the ones that will find the delicate balance between a changing business landscape and keeping an emphasis on the basics that made them successful in the first place. They will survive by being places that people actually want to go to. People want to go into warm, welcoming places. Failing that, they want to go into places with good deals and a lot of convenience. It's an open question as to whether or not Sears will be capable of emerging from bankruptcy somewhat intact, although my guess is probably not; they might be able to survive for a little while, but having learned nothing from their recent experiences, the company will just fail again. The pervasive belief that a company's value is determined by and at the mercy of Wall Street is the cause of most of these problems and Eddie Lampert is the poster child for this mentality. So yes, shitty brick and mortar retail will die -- but good brick and mortar retail will be around until we develop teleportation from the internet.