Sears Canada Case

Sears Canada is a retailer based in Toronto, ON, with its parent company Sears Roebuck situated in Chicago, IL. The two companies operate independent of each other; however more or less carry the same product lines.

Sears Canada primarily has two major merchandising categories, with Home & Hardlines accounting for 60% of the sales while apparel & accessories represent 40% of the sales. Sears has been in the retail industry in Canada for over 60 years, and has built a significant brand name for itself, although many consider it an outdated brand name now in terms of apparel. As such, in light of drastic changes recently in the apparel industry given the influx of American and international apparel companies and the constant improvement of existing rivals, the competitive landscape of the retail apparel industry has become a fight in which Sears Canada cannot win.

Sears must make a move out of the apparel industry and focus its resources on its successful home and hardware line. Sears has 3 great brands in this industry it can build around, Kenmore, Craftsman and Diehard. The opportunity for Sears to become a niche player in this segment is there for the taking, and represents a far brighter future for the company as opposed to keeping the status quo and allocating half its resources to a floundering apparel offering.

Sears Canada is at a pinnacle point in its existence, as profits and sales have slide since 2006, and its market share in the apparel sector is decreasing significantly. While Sears has tried in vain recently to win back customers and show investors there is some strategic drive left, the future does not look bright if it remains status quo and makes no change in organizational direction. The retail industry is a highly competitive industry, and as Sears new CEO Calvin Macdonald put it, "Retail is tough, but we are focused on what we can control". Unfortunately for Sears however, in terms of the apparel market, there is nothing in its control. Its Canadian rivals are becoming stronger and more efficient every year, and the ever constant threat and arrivals of American and international retail powerhouses into the Canadian market never ceases to exist. We cannot discount the effect the consistently slowing economy has had on apparel retail spending, as slowing income gains, rising unemployment, record high household debt and worldwide recessions have put a large dent in this sector, and many feel retail sales will continue to decline in the foreseeable future . The time is now for Sears to leave the retail apparel market altogether and focus on the home and hardlines business.

Sears has obviously gained significant strengths by being in the business for over 60 years. Sears boasts the largest general merchandising catalogue business in Canada, and has one of Canada's leading on line shopping destinations with Sears.ca. 40% of its sales are in the apparel business, and its does contain two private bands, Jessica and Tradition. Sears offers free delivery to more than 1,800 merchandise pick-up locations across Canada, which is very convenient for its customers. Sears has built an excellent reputation in the Home and Hardlines business, which includes major appliances, home furnishings and mattresses, home decor, lawn and garden, among others. Sears is the owner of three very successful home and hardware brands, the first being its Kenmore products, which includes kitchen, laundry, home and outdoor appliances. The Kenmore name has been around since 1913 and has an excellent foundation to build upon. The other brand which would be perfect to build upon is its Craftsman brand, which has been around since 1927 and specializes in tools, lawn and garden equipment. Sears also owns the Diehard brands of batteries. Sears is very active in the community, as it holds a National Kids cancer ride event which sponsors 17 children's hospitals, in addition to its sponsoring of the Boys and Girls Clubs of Canada and Scouts Canada and Girl guides, along with other clubs. Sears customers are very pleased with its philanthropic causes.

However, Sears' weaknesses in apparel might have a much more detrimental effect on its future, far outweighing its strengths. Sears market share in apparel is on the decline in every major category, as can be seen in exhibit 1. If we say the needs of Sears customers in the apparel market, which is a new emerging demographic of more youth oriented consumers, is focused on trendy styles, then Sears has a significant weakness in that it is not among the top choices amongst the competition by any means. In the high end market, competitors such as Holt Renfrew, Harry Rosen, The Bay (which has taken back lost market share under the guidance of CEO Bonnie Brooks) and the impending arrival of Nordstrom's really have the clientele loyalty and market share, leaving no room in this market for Sears. In the discount market, Wal-Mart has the obvious market share lead by far, and we cannot underestimate the impact Target will have when it arrives. Reports suggest Sears and Wal-Mart have the most to lose when target arrives , as can be seen in exhibit 2. 20% of survey respondents feel Sears will lose "a lot" of sales when Target opens, 50% feel that Sears will lose some sales, and over 70% feel Sears's sales will be negatively impacted by Target. As we know, Sears has seen sliding sales since 2006 and Target Canada will definitely add to that. Again, Sears really has no room in this market either. When one factors in other competitors that the younger population are more inclined to shop at, such as Zara, Forever 21, H&M, Banana Republic, Club Monaco and Tristan America, Sears must recognize the shifting trend towards "cooler styles" and that it has very minimal market share amongst these consumers. Sears simply does not have the hip appeal needed amongst this generation of shoppers and the baby boomer generation, which was once its bread and butter, are fading and are no longer as relevant moving forward. The retail apparel industry is extremely crowded and competition laded, and Sears seems to be at lost in its market position. Canada AM analyst Robert Soroka had this to say: "Sears has maintained its antiquated position for a very long time. It is a mid-range market retailer for a market that is really diluted." The bleeding must be stopped and it should leave the low margin apparel market.

There is far more upside for Sears in the Home and Hardlines sector. In 2012, amid very weak second quarter results for apparel, Sears gained in major appliances and mattresses. Sears has two very successful brands it owns in Kenmore and Craftsman that it can focus on, while expanding on others, and really become that one stop shop for home related purchasing. This is an industry where just 10 years ago Sears