Management Study Cases

3-13 Analyze Sears using the competitive forces and value chain models. What are Sears’s strengths? What are its weaknesses?

Efforts to invest more heavily in information technology have not translated into a competitive advantage for Sears over the years because its cost structure has been one of the highest in its industry. Even though early on it installed new point-of-sale terminals that allowed sales staff to issue new credit cards, accept charge card payments, issue gift certificates, and report account information to card holders, it hasn’t helped.

Sears moved its suppliers to an electronic ordering system which it hoped would eliminate paper throughout the order process and expedite the flow of goods into its stores. It also was among the first major retailers to change the way it sold based on shifting consumer habits. It started letting shoppers buy online and pick up their goods in stores well ahead of competitors Walmart and Target. It’s been out front with a new service that let shoppers reserve goods online and pay cash for them in stores. It even launched an online layaway program for its customers.

It has tried to improve its value chain by improving its sourcing and procurement systems with suppliers and its customer relationship management systems. Sears’ main problem is that it has one of the highest cost structures in its industry. Experts believe that all of Sears’ experiments are a diversion for the company’s overarching problems: a deteriorating store network and a brand image that doesn’t resonate with today’s consumers. (Learning Objective 3-3: How do Porter’s competitive forces model, the value chain model, synergies, core competencies, and network economics help companies use information systems for competitive advantage? AACSB: Analytical thinking, Reflective thinking, Application of knowledge.)

3-14 What was the problem facing Sears? What management, organization, and technology factors contributed to this problem?

Management: When Sears opened a test store in 2009 called Mygofer it did not stock items for sale. Instead, shoppers would place their orders at computers in the front of the store and then pick up their goods at a delivery bay out back. However, some days, more people returned goods than bought them. Shoppers didn’t like the fact that they couldn’t see and touch things. Annual sales struggled to top $1 million at the new store when Sears predicted $8 million in annual sales.

Organization: Sears still struggles to find a viable business strategy that will pull it out of its rut. Expectations were that deeper knowledge of customer preferences and buying patterns would make promotions, merchandising, and selling much more effective.

Technology: It continues to use technology strategies to revive flagging sales: online shopping, mobile apps, and an Amazon.com-like marketplace with other vendors, along with heavy in-store promotions. It continues to pin its hopes on technology, aiming for even more intensive use of technology and mining of customer data. Sears legacy systems were incapable of supporting personalized marketing campaigns coupons, and offers down to the individual customer.

So far these efforts have not paid off and sales have continued to decline since the 2005 merger with Kmart. (Learning Objective 3-3: How do Porter’s competitive forces model, the value chain model, synergies, core competencies, and network economics help companies use information systems for competitive advantage? AACSB: Analytical thinking, Reflective thinking, Application of knowledge.)

3-15 What solution did Sears select? What was the role of technology in this solution?

The customer data Sears is collecting are changing how its sales floors are arranged and how promotions are designed to attract shoppers. To use complex analytic models on large data sets, Sears revamped its data management technology using Hadoop. Old models were able to use 10 percent of available data, but the new models can work with 100 percent. Hadoop processing is about one-third the cost of conventional relational databases. It takes a little more than one minute longer to process two billion records than it did to process 100 million records.

Sears improved its online ordering system so that orders could be shipped more quickly and economically by using Sears’ physical stores as well as distribution centers. Initiatives like digital signs and radio tags on inventory could bring in $500 million a year in savings and increased sales. (Learning Objective 3-3: How do Porter’s competitive forces model, the value chain model, synergies, core competencies, and network economics help companies use information systems for competitive advantage? AACSB: Analytical thinking, Reflective thinking, Application of knowledge.)

3-16 How effective was the solution Sears selected? Explain your answer.

Sears’ poor financial position prompted it to start embracing e-commerce much earlier than other retailers to reduce its physical storefront presence. However, it remains a fading brand saddled with too many nonperforming physical stores in undesirable locations.

Sears Holdings spends nearly $1.90 a square foot on Sears stores and roughly 60 cents a square foot on Kmart stores, according to Matt McGinley, an analyst with Evercore ISI Institutional Equities. That compares with $9.70 a square foot spent by Walmart and $5.75 by Macy’s. While Sears spent more than $1 million setting up the Mygofer store in Joliet, the company was starving a profitable crosstown Kmart.

Sears has made some headway with e-commerce. Customers appreciate the in-store pickup for online orders. Shop Your Way, considered a leader in creating personalized offers, is driving more business. Tech should be a bright spot for Sears. But what good is that if no one wants to buy what Sears has to offer? For example, Fortune reported a January 2016 survey by Prosper Analytics & Insights that found women preferred Goodwill stores over Sears when shopping for clothing. Net losses in the past five years have totaled $8 billion. The company’s annual comparable sales have not grown since Sears and Kmart merged in 2005.

Even with better data analytics, knowledge of customers, loyalty programs, and e-commerce innovations, questions still linger about whether Sears is using technology effectively to solve its enormous business problems. (Learning Objective 3-3: How do Porter’s competitive forces model, the value chain model, synergies, core competencies, and network economics help companies use information systems for competitive advantage? AACSB: Analytical thinking, Reflective thinking, Application of knowledge.)