It has long been postulated that the American shopping mall is in decline, and Sears is well on its way to being associated with the phrase that makes big retailers shudder: “Elvis has left the building.” Only Elvis is probably still stuck in the building because he can’t find the exit among the disarrayed merchandise.
Sears declared, in a filing with the Securities and Exchange Commission, that: “Our historical operating results indicate substantial doubt exists related to the company’s ability to continue as a going concern.” It’s $2.2 billion loss for the 2017 only adds to the long-term debt totaling nearly $4.2 billion, that seems to have not been offset by the sale of Sears’ Craftsman tools line to Stanley Black & Decker for roughly $900 million to raise cash.
In December 2016, the company said it would continue to accelerate store closings to help stop the bleeding, and Business Insider actually visited a store in Richmond, Virginia in June of last year to see if the remaining ones are holding up, only to find them in disarray. According to analysts, it’s only a matter of time before the retailer goes bankrupt.
A dying business model
Sears is not alone in its struggle to keep up with the times, and CFO Jason Holland’s intervention, meant to counteract fears of bankruptcy, suggests that the company’s low income is part of a general trend, affecting most of the major retailers out there: “As 2016 proved to be another challenging year for most “bricks-and-mortar” retailers, our disclosures reflected these developments.” Earlier this year, Robert Samuelson published an article entitled “The Decline of Macy’s and Sears May Signal Something Great” that stated: “Their (Sears and Macy’s) distress is part of a larger consolidation of retailers under siege from e-commerce.” The reason for that, says Samuelson, lies in the prevalence of “parallel technologies“, where two different systems are used to do one job: smartphones and traditional landlines; paper and digital newspapers; cable TV and streaming internet video; standard taxis and Uber.
E-commerce totaled 8% of retail sales in 2016, but stores are still necessary. “They have to invest in the new technology, even as the value of the old technology erodes,” Samuelson notes. Companies find themselves in a bind between old and new technology, having to financially support both, only to find that the loss of productivity of the old (brick-and-mortar) offsets some or all of the gains from digital technologies.
“When will department stores (like Sears and Macy’s) wake up and recognize that they need to reinvent the entire department store model?” – Tom Dougherty, Stealing Share
Forbes’s Tom Dougherty, president and CEO of Stealing Share, rightfully asked: “When will department stores (like Sears and Macy’s) wake up and recognize that they need to reinvent the entire department store model?”
Although traditional high street retailers, they are keen on making their mark online, they are being held back by baggage in their technical environment and lack of guidance needed to make their efforts a success. Their aspirations may match Amazon’s, but unfortunately, they have “technical debt and legacy systems inhibiting them from growth. Their ambitions are on the right path, but they are struggling to fully grasp the online sector.”
“The challenge”, says author Mark Collin”, “is not that of performing pure online retailing, but it is the intersection of rapid proliferation of new channels, satisfying a more demanding and evolved customer base while operating in a constrained environment. Specifically, that environment is one they created decades ago, using bulky hardware and bloated legacy software that is just too expensive to throw out and replace.”
The faults of a legacy mindset
The reasons for Sears’ swan song are multiple and complex, as Forbes’ Adam Hartung lists what he thinks were Ed Lambert, Sears CEO’s 5 capital mistakes. Of all, the “manage-by-the-numbers rather than trends” takes the cake, suggesting that Sears was constantly reacting rather than being proactive, and thus constantly retreating, cutting stores and cutting product lines, instead of embracing new technologies, like unified commerce systems. After all, online shopping emerged as a trend 20 years ago, but it took a statistically sound amount of time and consumers for the direct impact of this retail revolution to become obvious to those looking at numbers alone.
Sears’ analysis paralysis allowed its more nimble competition to leave it in the dust, both in the online and in the physical space. The company has actually not reported an annual profit since 2011 – that’s how bad things are.
On top of the obvious issue of having a legacy mindset, the company also suffers the consequences of functioning off a legacy system. The official definition for legacy system is that of software, programming language, application programs or other technology that is, simply put, outdated, although it could include technology that is still up-to-date, but no longer receiving vendor support. Generally speaking, legacy systems are looked on as a detriment to an organization when circumstances like cost or compatibility require continued usage of such systems. Even if an organization has moved on to more advanced technology, the effect of legacy systems can linger when old data remains in legacy format.
“Progress made in creating cross-channel experiences will run afoul of the disparate information systems used to cobble together cross-channel shopping, threatening even the meteoric growth of the online channel.” – Brian Kilcourse, Retail Systems Research LLC
A study commissioned by IBM and SAP AG, called “Finding the Integrated Multi-Channel Retailer: Benchmark Study 2008,” found that: “Progress made in creating cross-channel experiences will run afoul of the disparate information systems used to cobble together cross-channel shopping, threatening even the meteoric growth of the online channel.“
Equally valid today, the study found that retailers have made progress in aligning online and in-store customer processes, but most have yet to make progress in aligning those processes across all channels, including brick-and-mortar, ecommerce website, call centers, and mobile devices, that share product and customer information, and have a single point of control. The study concludes that large and small retailers should invest in fast and scalable omnichannel technology that would enable identifying trends, proactive thinking, and eventually save them money.
Brian Kilcourse, the report’s author and managing partner at Retail Systems Research LLC, the company in charge of the study, observed that progress in the modern-day retail industry “relates to three capabilities. One is the ability to have one view of the customer across all the channels. The second is the ability to have consistent product and price information across the channels, and — this is the real biggie — the ability to be able to view store-level inventory across all channels.”
Another survey of 200 retailers conducted by Redcentric, found that internal legacy systems were holding the company’s growth back in almost 40% of the cases, and that 36% couldn’t even scale up to match customers demand during peak times like Christmas and Black Friday. Meanwhile, the Aldo Group’s integration of new technology into their legacy system secured the company’s largest-ever Black Friday and Cyber Monday in its e-commerce sales history.
The future is open sourced
Customer behavior trends mark a considerable shift from legacy mindsets. Behaviors like shoppers’ unwillingness to pay full price make omnichannel commerce central to their efforts to sell more at a reduced cost. Flexibility and scalability are becoming more and more important as global retail e-commerce sales are expected to reach $4 trillion by 2020, which will make modernized IT systems central to all forms of commerce if only for the sake of protecting the retailers and their consumers’ information from cyberattacks.
Whether we like it or not, omnichannel capabilities and unified commerce systems have become central to the modern-day retail landscape. A 2014 Google study found that 51% of consumers research products online before visiting any brick-and-mortar location and making a purchase, while 32% of them return to the online store to finalize the purchase.
“The reality is that the peer-review structure of Wikipedia means that errors are often rectified quickly, and controversial articles can be locked so that only registered members can make changes, minimizing the likelihood of editorial vandalism.” – Mike Bates, HotWax Systems
Mike Bates, HotWax Systems CEO, takes it one step further by declaring that open source enterprise software is superior to proprietary enterprise software. In “Bridging the divide between open-source and enterprise users”, he offers the battle between Encarta and Wikipedia as an example, citing Paul Gray’s conclusion on the topic: “The reality is that the peer-review structure of Wikipedia means that errors are often rectified quickly, and controversial articles can be locked so that only registered members can make changes, minimizing the likelihood of editorial vandalism.”
Bates further states that open source is already leading the way in many critical areas of the enterprise. Pairing open source technology with a commercial business to refine marketing and delivery to the enterprise user is a hybrid model that is proving highly successful, especially for those businesses who have chosen their partners carefully. Examples include:
- Apache Cassandra, paired with Datastax, offering an open source database that they describe as “…the first viable alternative to Oracle for companies who are transforming the way they interact with customers.”
- Apache Hadoop, another open source big data offering coupled with Hortonworks
- Apache Solr, open source enterprise search driving sites including Netflix, Zappos, Apple and NASA, paired with Lucidworks.
And of course:
- Apache OFBiz® (Open for Business), coupled with HotWax Commerce, marks the coming of age of open source enterprise software-based cloud commerce and ERPs, where scalability, affordability and friendly licensing converge into a unified commerce solution that takes only 90 days to implement.
Whether Sears’ Swan song is a symptom of carelessness on the part of giant tech companies too busy bickering with each other to bring their clients’ legacy systems into the 21st century, or Ed Lambert’s sole fault for refusing to modernize his own legacy mindset, one thing is clear: Open Source, Omnichannel Retail and Unified Commerce are the way of the future, and for HotWax Commerce clients, the future is already here.
Apache OFBiz® is a trademark of Apache Software Foundation.