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A punch in the gut

From the HGO Merchandiser

 18 December 2017     Michael J. Knell 

It is only matter of weeks before Sears Canada passes into history. The last of its network – which at one time included over 100 department stores, 50 or so Sears Home stores, travel offices, a service network as well as over 1,000 catalogue pick-up locations across the country – will shutter for the last time. An ignoble end for a company which had a profound impact on this country’s economy and, in many ways, was the most influential retailer the industry has known.

In reviewing all the reportage the demise of Sears Canada has generated in recent weeks and months, one theme is reinforced time and time again: how preventable it was.

For much of the past three decades, Sears Canada has been one of the most powerful furniture, mattress and major appliance retailers in the country. Big ticket home accounted for 40% of annual revenue year in and year out. In its last full year as a reporting public company, sales in those three categories (along with other hardlines such as barbeques, snow blowers and lawn mowers) were in excess of $1 billion. At its peak, sales were probably double that.

Even though sales had been on a downward spiral for some time, it remained a powerhouse and a member of a club that had only three other members: Leon’s Furniture Limited, operator of Leon’s and The Brick, the largest furniture, mattress and major appliance retailer in the country; IKEA Canada; and BMTC Group, the Quebec-focused owner of Brault & Martineau, EconoMax and Ameublements Tanguay.

Calvin MacDonald, then president of Sears Canada, is seen here inspecting one of the upholstery displays in the Sears Home Store in Whitby, Ontario. It too will close soon. The real question at this point is: where will that $1 billion in business go and how long will it take to get there? Most industry executives Home Goods Online spoke with agree there will be a transition period, but it may not be as long as one would think. Most also agree that while the exit of Sears Canada is sad and unfortunate, it is literally also an once-in-a-lifetime opportunity for ambitious independent retailers who are willing to invest for growth.

Why it went wrong
There are many reasons why it all went so wrong, but most observers – both those who worked inside Sears Canada or were active suppliers to the company – assign most of the responsibility to an owner who was more interested in monetising its assets than investing in the future.

Many also believe the decision to sell the credit card – to J.P. Morgan Chase about a decade ago – was the true beginning of the end. They note during the glory days, there were more Sears Canada credit cards in circulation than there were households in the country. Furthermore, 70% of its sales were on the card – not just for big ticket items such as furniture and major appliances but for everyday items as well. For many Canadian households, it was the most important tool in the shopping box. What’s more, at its prime approximately half of all cards in circulation were active – that is, they had outstanding balances owing at the end of the month. The card was also the primary driver of its catalogue. (It should also be noted that it wasn’t until about ten years ago that Sears began accepting credit cards other than its own.)

Many observers also note that during the heyday, the catalogue business was so sophisticated, with a distribution network that reached into every corner of this country it was literally unmatched by anyone anywhere. Several of those the writer spoke to said Sears Canada was Amazon long before the Amazon we know today.

Sears and big ticket
In addition to the card and the catalogue, the other major driver behind Sears Canada’s success was big ticket. For the past three decades – in fact, until quite recently – it was the largest major appliance retailer in the Canada, with a market share around the 25% market. This was due in large part to the trust the Canadian consumer had in the Kenmore brand name.

(As an aside, it should be noted that BrandSpark International, the Toronto-based market research firm and organiser of the Most Trusted Brands awards program, gave the 2017 award for most trusted major appliance retailer to Sears Canada.)

More often than not, Sears Canada was the number one mattress retailer in the country as well. While the competition in this category was a little more intense – thanks to the efforts of The Brick and Sleep Country Canada – its market share rarely drifted below 15% although it was relegated to the number two spot in certain regions across the country.

Click here for the rest of Michael’s report in the Winter 2017 HGO Merchandiser.

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This HGO article was written by:
Michael J. Knell
Michael J. Knell

Michael is the publisher and editor of Home Goods Online. A seasoned business journalist, he has researched and written about the furniture, mattress and major appliance industries in both Canada and the United States for the past three decades.

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Home Goods and its accompanying newsletter - HGO This Week - covers the furniture, bedding, appliances, consumer electronics, accessories, lamps and lighting and floor coverings product sectors of the big ticket home goods market in Canada. HGO is also a forum for the dissemination of market research and hard-hitting articles on best practices for Canadian retailers.

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