by Sean Keyes
Posted 23rd March 2017
You’ve heard of the American retailer Sears before, right?
Sears is one of those American things Brits only experience through TV, like Cadillacs or handguns. Sears is huge. It’s been one of the biggest retailers in America since 1889.
And in its annual filings on Tuesday, Sears admitted it might be close to collapsing.
It’s too bad for Sears. The world changed too quickly for it. And now it’s getting eaten alive by a thousand tiny competitors.
The first big thing
Sears invented the idea of catalogue shopping. It was set up in 1889 by a railway station manager who realised he could use the trains to get exotic goods out to the rich farmers on the American plains.
And after the Second World War when most Americans got themselves a car, Sears adapted its business. It built the first national network of department stores. And it was America’s biggest retailer until it was passed out by Walmart in 1989, a hundred years after it was founded.
A new technology – the railroad – gave Sears its start. Then the automobile, another new technology, made it into a giant. But Sears missed out on the next big thing. It wasn’t ready for the internet.
The internet is what’s killing Sears. And sooner or later its going to kill about every other company whose business model was built in the 20th century.
Two sides of the same coin
The internet is killing Sears in the same way that it’s hurting the CPG companies. Last week I wrote a lot about consumer packaged goods (CPG) companies. These companies make all the stuff you find in the supermarket, from frozen pizza to mayonnaise to deodorant.
CPG companies and retailers like Sears are two sides of the same coin. They are dependent on each other. The CPG companies are successful because their stuff fills the shops; the shops are successful because they offer a huge range of CPG stuff.
That worked a treat when the most efficient way to get stuff to customers was in a square building on the edge of town, with a large car park. But the internet changed things in two ways.
The first one is obvious: people don’t have to drive to the shops any more. They can buy online. This has a direct effect and an indirect effect – when they buy online they hurt the local retailer, and they hurt the local shopping centre which gets less footfall. People only drive to the shops when it’s absolutely necessary.
The second way the internet has changed things is more subtle. It used to be that TV was more or less the only way to reach customers. That led to an explosion of brands around the 1960s. All the brand advertising was like free money for the Sears – in order to buy the brand you liked you had to buy it in a store.
But now there are more ways to reach people, more brands, and smaller brands. People don’t want the same products as before – the products you find at Sears. People want small little niche brands whose ads they see on Instagram and so on.
The overarching story is bigger than Sears, and it’s bigger than CPG and even bigger than the retail industry. It’s about how the internet is starting to disrupt every industry. Technology companies don’t just make software any more. They sell toiletries, and deliver groceries, and rent out hotel rooms.
Sears is out of luck. But it’s great for the thousands of tiny companies that are feasting on its carcass (okay, Amazon’s not tiny).
I’ve been following and investing in this trend for a while. To learn about The Penny Share Letter companies which are making a killing from the new retail, click here.
by Darren Sinden
Posted April 24, 2017
by Max Munroe
Posted October 3, 2013