For the last month I’ve been following a perfect, if unfortunate, example of how important it is for a company’s executive staff to be in touch with the needs of the consumer and their industry. The long awaited turnaround of Sears by hedge fund impresario Edward Lampert may never happen, and I think it has a lot to do with the fact that Sears has completely lost touch with the consumer.
Lampert wrote a real success story with AutoZone. He cut costs, slowed spending and brought in private-labeled goods to increase margins. Cash flow increased, margins went up and the company began buying back stock.
It seems from everything I’ve been reading that Lampert tried the same thing with Sears. Instead of hiring a veteran retail executive to right the ship, he tried the same cost-cutting measures that he implemented at AutoZone. But the guy who shops at AutoZone doesn’t care if the floors are clean, the service is prompt, or how good the loyal program is. For a mechanic, it’s all about the price and the product.
The customer at Sears does care about the condition of the store, if the products are competitive to other name brands and the service is exceptional. By neglecting these factors, Sears has driven away customers and hasn’t addressed the real problem: the cost structure is too high and the company has lost touch with the American consumer. The stores and products don’t look any better than they did five years ago.
Retailing isn’t strictly a financial business. Rather than cost cutting, Sears should have been investing in their stores. Last year Wal-Mart spent billions on its stores; Sears, barely $200 million. That’s no way to compete for the heart of the American consumer.