Business and Industry Analysis
Sears Roebuck & Co., founded by R. W. Sears in 1886, is a multi-line retailer that offers a variety of merchandise and related services. It operates primarily in the United States, Puerto Rico, and Canada. Sears, Roebuck, & Co. is ranked fifth in the retail market, behind: Wal-mart Stores Inc., Target Corp., Kohl’s Corp, and JC Penney Company Inc. In 2003, the company was divided into three domestic segments: Retail and Related Services, Credit and Financial Products, and Corporate and Other. In addition the company has one international segment, Sears Canada. The Retail and Related Services segment focuses principally on merchandise sales and supporting activities, such as: service contracts, product installation, and product repair.
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The Credit and Financial Products segment manages the domestic portfolio of MasterCard and Sears Card receivables. This segment was sold in November of 2003. The Corporate and Other Segment includes the operations of Sears Home Improvement Services. Sears Canada includes its own retail, credit and corporate operations. Sears’ competitors have similarly segmented company structures (http://finance.yahoo.com, 2004). Sears operates both specialty and full-line stores. Its customer operations include major sales from online and catalog marketing. Sears’ 871 full-line stores offer a wide range of products for the home.
These include appliances, clothing, jewelry, automotive supplies, power tools, and garden equipment. Sears.com is Sears’ implementation of internet marketing and offers a limited assortment of home and accessories merchandise. In addition to its full-line stores, Sears operates 1,100 specialty stores, 792 primarily independently owned stores, 245 Sears Hardware Stores, 8 furniture stores, 18 The Great Indoors stores, 45 Sears Outlet Stores, and a commercial sales division (http://finance.yahoo.com, 2004). Five Factor Model
Rivalry Among Existing Firms
Sears Roebuck and Co. is in an industry that is growing fast in our nation today. The retail industry is an industry that people will turn to time and time again, and with Sears becoming more diverse with their products and services it has helped them grow in this ever growing industry. Their concentration is based on service to the customer. Sears is the largest product service provider, with 14,4 million service calls made annually (http://www.marketresearch.com, 2004). Along with being a high service provider Sears also keeps it products versatile by offering differentiation with their product line. Sears Roebuck and Co. is a leading U.S. retailer in apparel, automotive, home products, and service. As well as offering a wide range of products, they are also able to compete on the fact that they are a low-pricing retailer. Although, there are existing competitors in this same industry, they are doing a great job differentiating their company, which is helping them to continue growing in this industry.
Threats of New Entrants
As mentioned in the previous section Sears is doing a great job to continue its growth in this industry. As we look at economies of scale we see that in this industry they are large. The threat of new entry in the retail industry of this magnitude is very low. New entrants would have a hard time breaking into the industry, because of the time and money needed. A competitor would have to invest a large portion of money and time and then still it would take a lot of growing and expanding to ever be a strong competitor to Sears. Here we see that Sears has the first mover advantage, which has enabled them to be stronger by already having things like good relationships within their distribution channels, which might be hard for new entrants. Although, there aren’t many legal barriers to stop new entrants it would still be very hard for one to jump into the industry and be competitive with a large corporation like Sears.
Threat of Substitute Products
Within the Sears retailing store there are products that could be in threat of substitution. The retail industry always has the threat of substitute products. For example, there are many producers for all kinds of apparel and home products. The one thing that Sears does to keep their customers willingness to switch down is providing the lowest possible price and giving the greatest service available. Sears again uses their customer service to deter customers from switching over to a competitors product. Even though, there is an existing threat there, Sears tries to do everything possible to avoid it.
5. Bargaining Power of Buyers
In this company this could go both ways, for instance like the apparel and small home products would be more price sensitive, but things like in the automotive section could become more costly because of higher switching cost. Although, things could be a little different in terms of bargaining power from product to product, Sears still has an inside hand with relative bargaining power. They have been working with their suppliers so long that they have developed strong relationship that help them lower their prices by increasing their buying volume, which in turn lets them buy for less. Bargaining Power of Suppliers
On the suppliers side things would be about the same, because of the many different products they sell it could be a little different from supplier to supplier. Then again Sears has been working with its suppliers so long that it has gained barging power over them to allow them to insure low prices when it comes to their supplies. Conclusion
Sears’ Industry is differentiated. This is evident due to many factors. First, it offers a wide range of products, is a low-price retailer, and provides a huge magnitude of services. These differentiate Sears from other low cost retailers. Second, Sears is a company of gigantic proportions and the barriers to entry into its business are immense. Third, Sears uses great customer service to deter customers from switching to competitors’ products, this focus on customer service acts to mitigate the effects of substitute products. Fourth, the company has forged strong ties with its suppliers, giving Sears a competitive advantage. Finally, Sears has developed a robust and loyal customer base, thus giving it power as their supplier of consumer goods. Read about Doughnut Industry
6. Competitive Advantage Analysis
Based upon its key success factors we can conclude that Sears’ competitive advantage is centered on its ability to differentiate itself from its
competitors. To achieve this end, the company has incorporated the following success factors into its competitive strategy:
• Investment in Brand Image. Sears, Roebuck, & Co. has a rich, long history that dates back more than a century to when R. W. Sears sold his first batch of watches. Since its founding in 1886, Sears has endeavored to foster a brand image of strength, reliability, and good customer service (http://www.searsarchives.com, 2004). This image persists today not only in connection with the stores retail chain, but also in many of the company’s subsidiaries.
• Superior Customer Service. Sears has repeatedly been the source of innovation and has focused on customer service as a core competency. It has continually sought to differentiate itself from its competitors through customer- oriented practices. Such practices range from designing its stores around merchandise placement to staffing the most experienced associates during the peak hours of evenings and weekends, thereby allowing it to turn superior customer service into a competitive advantage (http://www.searsarchives.com, 2004).
• Superior Product Quality. Sears has expanded and integrated vertically by establishing its own suppliers. In doing so it has afforded itself not only the opportunity to provide a higher quality of products, but also greater control over the merchandise that it sells. Brands owned by Sears include Diehard, Craftsman, Kenmore, and Land’s End. Sears also implements 1,100 specialty stores that are dedicated to serving the specific needs of their customers (http://finance.yahoo.com, 2004).
• More Flexible Delivery. Sears’ enhanced focus on internet sales represents a traditional shift away from its historically famous catalog series. Internet sales
7. have grown and offer customers the opportunity to pick their products up at a store location or have their purchases delivered to their doorstep. As a result of these key success factors, Sears, Roebuck, & Co has managed to persevere for more than a century. These translate into advantages that when paired with devout customer loyalty, have allowed Sears to grow, develop a firm customer base, and force out smaller competitors. While Sears’ tradition and long history have been boons when it comes to maintaining customer loyalty, the company’s rigidity and unwillingness to change have allowed low cost multi-line retailers, such as Wal-Mart and Target, to capture a significant share of the market. Slowly these low cost retailers are forcing Sears out of the Department & Discount Retail industry into the peripheral Specialty Retailing and Catalog/Online Retailing industries (http://www.marketresearch.com, 2004).
Sears Roebuck and Co. held the #1 position among retailers for 40 years (Prentice-Hall 2003). The company is organized into four major segments: retail and related services; credit and financial products; corporate and other and Sears Canada (Multex Investor, 2003). In June 2002, Sears acquired Lands' End, Inc, a company specializing in traditionally-styled casual clothing for the entire family, footwear, accessories, soft luggage and home products (Multex Investor, 2003). This acquisition seems to be a win-win deal. Lands' End became a wholly owned subsidiary of Sears and will gain an even larger direct sales customer database while Sears will gain a brand that is known for quality and service. Lands' End has traditionally sold its products through a flagship and specialty catalogs and it has gained a wide presence on the Web (Hoover's, 2002). Besides gaining a respected brand, Sears also gains the direct marketing expertise and experience a company that has a reputation of being one of the most efficiently run direct marketers in the world (Scheraga, 2002). All of Sears direct marketing efforts are now handled by Lands' End (Scheraga, 2002).
8. Internal and external environment scans can begin with a SWOT analysis. (SWOT - Internal Strengths and Weaknesses; External Opportunities and Threats).
• The marriage of Sears and Lands' End gives Sears a much-needed boost in expertise in the arena of direct marketing and sales and also of gaining a strong presence on the Internet (Halligan, 2002). This merger has strengthened Sears’ key success factors of superior product quality and more flexible delivery.
• This marriage also gives Lands' End face-to-face consumer exposure wherein consumers can try on the clothes in their Sears store before buying (Scheraga, 2002).
• Sears now has several known brand goods, e.g., Craftsman, Lands' End, Kenmore and all of their merchandise that carries their own brands, such as Lands' End Oxford Express brand of shirts (Halligan, 2002).
• Sears has an extensive customer database (Prentice-Hall, 2003). This is due to the company’s key success factor of
superior customer service. Internal Weaknesses:
• Sears has allowed their reputation and sales volume to plummet because they did not keep up with the changing market environment.
• Too much diversification within the company; the focus was moved away from retail services to providing all sorts of other services, such as investment and banking (Prentice-Hall, 2003).
• Many of the retail stores are in disrepair and not reflective of the needs of today's consumer (Prentice-Hall, 2003).
• Operating expenses are higher than competitors (Prentice-Hall, 2003). Opportunities:
• The acquisition of Lands' End represents an enormous opportunity to the Sears Corporation. It is a brand that has a repatriation of quality and service. Halligan (2002) advises Sears' executives to find the 'silver bullet brands’ in the brands offered by Lands' End and to capitalize on these to increase revenues.
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