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Sears a "case study" in how not to run a retailer

The fall of Sears
The fall of Sears 08:46

While Sears' immediate fate remains uncertain, as former owner Eddie Lampert tries to pull off a last-ditch bid to buy the bankrupt retailer, its epitaph is already being written.

"Sears will now act as a case study in how not to run a retail operation," said Neil Saunders, managing director of GlobalData Retail. "It also serves as an example that even the once most powerful and cutting-edge of brands can easily fail in a retail environment where change and evolution are the order of the day."  

Certainly it's not the legacy that company founders Richard Warren Sears and Alvah Curtis Roebuck might have predicted when they opened the store in 1893. So what laid Sears -- a survivor of depressions, recessions and other economic calamities for more than a century -- low?

"Incredibly poor strategic decisions, chronic underinvestment and continuous financial machinations designed to keep the company afloat," Saunders said.

More time?

The 126-year-old retailer on Tuesday was set to ask a bankruptcy court's permission to move forward with a planned liquidation, but Chairman Eddie Lampert has been granted more time to advance his $4.4 billion takeover bid, according to media reports.

Lampert's hedge fund, ESL Investments, now has until 4 p.m. Wednesday to pony up a $120 million deposit on his offer, CNBC reported. With its future hanging in the balance, Sears shoppers are asking exactly went wrong. For its part, Sears tweeted that it's "not out of the race just yet. Don't count us completely out."

Failing to adapt

Understanding how Sears got to this point goes back to 2004, when Kmart announced it would buy Sears for $11 billion. Sears was already troubled, but hedge fund king Eddie Lampert engineered the merger, arguing that the two retailers could somehow make each business stronger. 

By 2009, Lampert said he believed an overhaul of Sears' culture was necessary to keep up with Amazon and other online rivals, he recently told The New York Times in an interview. But his digital transformation was marred by store leaders and managers who failed to embrace the efforts, he said. 

At the same time, reports surfaced about Lampert's management style, which was reportedly based on the ideas of novelist Ayn Rand. Division heads competed for resources and money, leading to infighting, according to Bloomberg News. 

In 2013, Lampert took over as CEO, a role he told The New York Times he only expected to remain in for a few months. He said he attempted to be the company's "catalyst," not its "operating person."

How Sears went from innovation to bankruptcy 01:44

But Sears clearly needed a strong operations chief at the helm. The retailer lost a massive $1.4 billion in 2013, while its same-store sales in the U.S. declined by $600 million. At the same time, the store decreased its inventory levels in order to cut back on expenses, but that meant fewer merchandise choices for its customers. 

Those decisions fed into a vicious cycle of declining revenue and mounting losses, with consumers getting fed up with empty shelves and poor service. By 2016, a survey of women shoppers found they preferred to shop at Goodwill to Sears. 

With dwindling sales and mounting losses, debts ballooned, paving the way for a credit crunch and Sears' bankruptcy in October. 

Neglecting the brand

After filing for bankruptcy, Sears said it would close more than 140 stores and focus on winning back customers. The store's chief brand officer acknowledged to CBS News that the chain faced significant hurdles in convincing customers to shop there over the holidays. 

"We have to leapfrog off many years when we weren't investing in the brand, to let people know that Sears and Kmart are relevant again," Sears brand chief Peter Boutros said.

But the effort may have been too late. Sears had a 2 percent share of visits during the holiday season, the lowest among major retailers studied by Cuebiq, a location-data company. And four out of five Sears shoppers never returned to a Sears after their first visit, which means the company struggled to lure repeat shoppers, Cuebiq said. 

"This is a tale of avarice, greed, incompetence and stupidity," Mark Cohen, former Sears Canada CEO, told CNBC on Tuesday, who added he blamed Lampert for the company's demise. Creditors "see right through the fact that there's no future for this company."

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