It's been a couple of days since Sears's parent company declared bankruptcy. Most analyses seem to blame the collapse on chairman Eddie Lampert's attempt to turn Sears into an online Amazon competitor and his subsequent failure to upgrade the Sears and K-Mart "brick and mortar" stores.
That's mistaking the symptom for the cause, though.
In war, generals have a tendency to fight using tactics that worked in the last war. The same is true in business. Large, established companies usually wait until a business strategy has been market-tested before implementing it themselves, at which point it's too late.
A famous example of "fighting the last war" in business when Apple made the Macintosh architecture available to non-Apple hardware manufacturers, hoping to replicate the success of Windows. The experiment reduced Apple's revenue without increasing market share which is why Jobs terminated it immediately after rejoining Apple.
Lampert's attempted imitation of Amazon seems particularly clueless when considering that the big box bookstores had already attempted to fight Amazon on Amazon's territory and miserably failed, with one going out of business and the other forced to pursue a different strategy.
As traditional retailers have struggled against the Amazon juggernaut, a potentially successful strategy is gradually emerging that builds upon the one thing that Amazon lacks (or lacked... more about that in a second): a physical presence in the local community.
Tactical examples of attempted community-building in big box retail include Walmart's ubiquitous greeters, Costco's cheap but tasty food court, Barnes & Noble's ever-expanding coffee shops, and (especially) the Apple Store. I strongly suspect that Amazon bought Whole Foods as defensive move to ride this growing trend.
Community-based retailing is a potential game-changer because (as you may have noticed) people are becoming disenchanted with social media and evincing an increasing desire for a sense of belonging that's less ephemeral and more visceral. Because of this, the next retail war will probably be fought on the ground rather than online.
So back to Sears. With a brand that commands over a hundred years of nostalgic familiarity and a pre-existing physical presence in thousands of communities, Sears was ideally positioned to capture the hearts, minds, and feet of the nation's consumers. Same thing but to a lesser degree with K-mart.
Lampert, however, clearly missed Sears's community-building potential. If he'd not been so blind to the obvious, he would have invested in the stores to make them places where people felt comfortable shopping and might even want to hang out.
Thus the question "why did Sears crash" is really "why was Lampert so blind?" The answer lies in the severe limitations of Lampert's outmoded business philosophy.
As my colleague Erik Sherman pointed out a few years ago, Lampert is a Ayn Rand fan. And that's problematice because Rand-ism is all about the supremacy of the brilliant individual. For Rand, community equals communitarianism, the evil power of the many to circumscribe the positive contributions of the few.
As a Rand disciple, Lampert was predisposed to be suspicious of the entire idea of community, especially when it consists of the hoi-polloi who might consider "hanging out at Sears" to be something worth doing. It was far easier for Lampert to gravitate to an online world that reduces everyone to infinitely measurable bits and bytes.
There are three lessons that entrepreneurs can learn from Lampert's failure to adapt:
- Imitation is the sincerest form of failure. Unless you can massively outspend a competitor (like Kinko's taking on local copy shops), pursuing a competitor's successful strategy is destined to fail.
- Position yourself to ride the backlash. The "online revolution" is now creating the inevitable backlash. For many companies, being a visible presence in the local community will far more valuable than having a great website.
- Trash your old Ayn Rand books. You can't afford to make 21st century business decisions based upon obsolete polemics against the political concepts of the mid-20th century. Evolve your thinking to match today's reality.