Saving Sears: How the Future of Sears is Dependent on Adapting to the Digital Transformation Era

Can Sears save itself by transitioning from selling discrete, reliable products to selling and servicing smart, connected appliances?

 

Brick and Mortar Beginnings

Founded in 1886, Sears’ early success was built upon the traditional retail model, selling commodity like products to Middle America.[1] Today, the company also promotes a mission of “seamlessly connecting the digital and physical shopping experiences to serve our members.”[2] Sears’ profitability, however, has declined in recent years due to competition from online and low cost retailers; the firm has posted $8 billion in net losses since 2010.[3] Nevertheless, the firm remains the third largest seller of appliances in the United States[4] with a presence in over 13 million homes.[5] Can Sears save itself by transitioning from selling discrete, reliable products[6] to selling and servicing smart, connected appliances?[7]

Launch of Connected Solutions

Sears has historically been an early adapter of technology, becoming one of the first retailers to use bar codes[8] and utilizing big data to price products to consumer preferences.[9] In 2014, the company announced the launch of Connected Solutions, a new division within the company, promoting the integration of appliances and technology. Connected Solutions began the transition of Sears’ business model from selling discrete, reliable products to developing smart, connected appliances, which dynamically adapt to a consumer’s lifestyle.[10] The Connected Solutions business line includes home automation products such as thermostats, smart locks, lighting, sensors, smart watches, fitness products and home monitoring cameras.[11]

To enact this new business strategy, Sears has begun to revamp its operating model from brick and mortar stores to interactive retail outlets and from reactive repairmen to proactive repair services. Because these smart products are more expensive and complicated than their traditional counterparts, Sears realized the company had to move the products to a separate section of the store in which customers could interact with the appliances to identify their perceived value relative to price.[12] The sales staff in the Connected Solutions department has been trained to field questions on product compatibility and installation.[13] The firm has also begun to utilize the data collected via its service repairmen and Sears-branded smart appliances to accurately troubleshoot appliance failure either on the phone or on the first home visit.[14] The firm, for example, has set a goal of reaching a 95% resolution rate on the first diagnosis attempt versus an industry average of 75%.[15] Sears also recently announced that it would seek to sell select business lines such as Kenmore outside of its own stores to reach a broader consumer market.[16]

Taking the Next Step

While Sears is directionally taking the correct steps toward connected appliances and remote-service diagnosis, the company has been restrained in rolling out these measures. For instance, while brands such as Samsung and Whirlpool also offer appliances with smart functions, Sears has only begun to provide remote-service diagnosis and monitoring for its own Kenmore line, despite selling both competitor brands at its retail stores.[17] With smart home platform competitors such as Nest increasing their compatibility with multiple brands, Sears risks losing market share as customers will seek those platforms that provide the flexibility to choose between Kenmore, Samsung or Whirlpool appliances. Somewhat paradoxically, if Sears widens its adoption across brands, then it can capture customers and performance data across its appliance competitors, increasing its control over the smart appliance and services market. This performance data will also increase the competitive advantages of its services business. With the data to pro-actively service all appliances, not only will Sears become the “go to” repair servicer, but it could become the “go to” appliance manufacturer, as it can use the data to increase the efficiency and quality of its own products. Like Nest, Sears should also seek to pass energy saving measures to its customers as they now value new efficiencies gleaned through the data generated by the appliances.[18] The company can set timers for dishwashers, for example, to start cycles during off-peak energy hours.[19]

In the end, Sears’ Connected Solutions strategy is still in its early stages. While Nest may be a first mover, Sears has established name recognition and home presence. The company will, however, need to expand its partnerships to ensure that it becomes the “go to” retailer and servicer of connected appliances.

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[1] Sears Archives, “Sears History – 1886,” http://www.searsarchives.com/history/history1886.htm, accessed November 18, 2016.

[2] Sears Holdings, “Overview,” https://searsholdings.com/about, accessed November 18, 2016.

[3] Fortune, “Sears CEO Makes Big Bet on its Debt,” http://fortune.com/2016/03/28/sears-lampert-debt/, November 18, 2016.

[4] TWICE, “Sears Slips to Third Place on Top 50 Major Appliance Retailers Ranking,” http://www.twice.com/news/top-100twice-research/sears-slips-third-place-top-50-major-appliance-retailers-ranking/61796, accessed November 18, 2016.

[5] Sears Holdings, “Sears Brings Connected Living to Life with New Connected Solutions (SM) Shops Powered by Shop Your Way,” https://searsholdings.com/press-releases/pr/168, accessed November 18, 2016.

[6] Iansiti, Marco and Lakhani, Karim R., “Digital Ubiquity: How Connections, Sensors, and Data Are Revolutionizing Business,” Harvard Business Review (November 2014), 3.

[7] Porter, Michael E. and Heppelmann, James E., “How Smart, Connected Products are Transforming Competition,” Harvard Business Review (November 2014), 5.

[8] CNN, “5 Stunning Stats about Sears,” http://money.cnn.com/video/news/2016/04/22/sears-stunning-stats.cnnmoney/index.html,” accessed November 18, 2016.

[9] The Wall Street Journal, “How Sears Uses Big Data to Get a Handle on Pricing,” http://blogs.wsj.com/cio/2012/06/14/how-sears-uses-big-data-to-get-a-handle-on-pricing/, accessed November 18, 2016.

[10] Sears Holdings, “Sears Brings Connected Living to Life with New Connected Solutions (SM) Shops Powered by Shop Your Way,” https://searsholdings.com/press-releases/pr/168, accessed November 18, 2016.

[11] Ibid.

 

[12] Mobile Commerce Daily, “How Sears is Repositioning Itself as a Smart Home Tech Hub,” http://www.mobilecommercedaily.com/how-sears-is-repositioning-itself-as-a-smart-home-tech-hub, accessed November 18, 2016.

[13] Ibid.

[14] Fortune, “Sears’ big-data strategy? Just a service call away,” http://fortune.com/2015/06/30/sears-big-data-strategy/, accessed November 18, 2016.

[15] Ibid.

[16] CNBC, “Sears Ports Bigger Loss, Explores Options for Two Businesses,” http://www.cnbc.com/2016/05/26/sears-posts-bigger-loss-explores-options-for-two-businesses.html, accessed November 18, 2016.

[17] Consumer Reports, “Sears Makes a Big Bet on the Connected Home,” http://www.consumerreports.org/cro/news/2015/08/sears-makes-a-big-bet-on-the-connected-home/index.htm, accessed November 18, 2016.

[18] Iansiti, Marco and Lakhani, Karim R., “Digital Ubiquity: How Connections, Sensors, and Data Are Revolutionizing Business,” Harvard Business Review (November 2014), 3.

[19] Ibid, 7.

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2 thoughts on “Saving Sears: How the Future of Sears is Dependent on Adapting to the Digital Transformation Era

  1. I found Sears’ dedication to improving customer service / appliance failure troubleshooting very interesting. You mentioned that their goal is to reach a 95% resolution rate on the first diagnosis attempt, versus an industry average of 75%. I wonder what steps they’re taking to help reach this ambitious goal. You mentioned that they’re using data collection to help with troubleshooting. Are they using data to identify the most common problems, which they will then invest in training their repairmen to better address? Additionally, are they investing more in general training up front, are they hiring more experienced repairmen, or are they being more selective when determining their product line in order to best position them to reach their goals?

  2. I think you’re on the right track about Sears needing to become the “go to” repair servicer across all the brands that it sells as limiting their focus to their owned brands only limits their own access to data. In addition to the changes strategy shifts that you mentioned, Sears is experimenting with smaller-format stores that focus on just their best SKUs [1]. For that strategy to work, they’ll need to ensure that they’ve created an online/mobile experience that resonates with customers. Unfortunately, to-date it seems they’ve struggled to do that. Sears’ revenue dropped by 9% in Q2 2016 and the company’s decision not to release specific digital sales results suggests that those figures aren’t much more promising [2].

    [1] Laura Heller, “Sears Rethinks Strategy,” Fierce Retail, May 12, 2016, http://www.fierceretail.com/operations/sears-rethinks-strategy, accessed November 20, 2016.
    [2] “Sears Tanked Because the Company Failed to Shift to Digital,” Business Insider, August 26, 2016, http://www.businessinsider.com/sears-tanked-because-the-company-failed-to-shift-to-digital-2016-8, accessed November 20, 2016.

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