Sears Case Study Essay

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Sears Case Study


The great advantage of publicly held companies is that they bring together capital and managerial expertise, to the benefit of both groups. An investor need not know anything about making or marketing chairs in order to invest in a chair factory. A gifted producer or seller of chairs need not have capital in order to start a business. When it runs well, both profit, and the capitalist system achieves its goals. Our system of capitalism has been less successful when the company does not run well. As some of America's most visible, powerful, and successful companies began to slide, they demonstrated an all-but fatal weakness in the ability of our system to react in time to prevent disaster. Managers and
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Sears Roebuck was a classic example. For nearly a century, Sears deserved the title "America's favorite place to shop." It was the country's leading retailer, its catalogue a genuine part of American history. In the 1950s, the company founded Allstate Insurance. The company diversified into financial services in the early 1980s, acquiring the Dean Witter brokerage and realtor Coldwell Banker. The aim of the purchases was to create a giant supermarket of both goods and services, so that consumers could buy a house, finance it, insure it, and stock it with furniture -- all under the same roof. Wall Street referred to the diversification as a "stocks and socks" strategy.

The financial services performed superbly -- improving the company's earnings from 1984 to 1990 by 55 percent. But in the most literal terms, nobody was minding the store. The vast chain of over 850 outlets, the flagship division of the Sears Roebuck empire, were failing fast. In the seven years up to 1990 the retail group's earnings declined at an annual rate of 7.7 percent. The decline was reflected in the stock which, between January 1984 and November 1990, offered investors a total average return of as little as 0.1 percent.2 The company didn't even meet its own targets. Through the eighties,

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