Is President Trump Following the Best Model of Capitalism?

The Death Spiral of Sears, and Amazon’s Marketing Ascent

By Lowell Ponte

My parents loved Sears, the company whose mail-order catalogs – offering everything from kit Victorian homes to electrified health belts — were wish books for seven generations of Americans.

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Now that its bankruptcy seems near, we should consider what brought this once-innovative marketing giant down – and what we can learn from its heir apparent, Amazon, about how business has been changing.

 

Sears in its heyday was a deadly competitor to mom-and-pop stores, who could not match Sears’ prices, quality, or guarantees.

Town stores also suffered after World War II when greedy, short-sighted local politicians decided it would be easy to tax their customers with parking meters. Customers went instead to the new local shopping mall, where ample parking was free and a large Sears store anchored one end of the complex. Small retailers in many American downtowns withered and died.

Now most malls are overtaxed and are becoming ghost towns where an indoor cannon could be fired in mid-afternoon without hitting a customer. Malls are frantically replacing stores with movie theaters and restaurants.

Shoppers have moved away from brick-and-mortar stores to the Internet, where 56% of their new purchasing dollars are spent at Amazon. Some retailers, like Costco and Trader Joe’s, remain successful by responding to their customers. Sears seems to have little appeal to the young, and to have lost touch with what their parents and grandparents want.

Such “creative destruction,” as economist Joseph Schumpeter called it, is a painful necessity to keep renewing a vibrant economy. Sears has been unable to compete with Amazon’s highly-refined marketing, just as local mom-and-pops were once-upon-a-time unable to compete with Sears. Sears has been losing roughly $2 Billion a year in recent years, and its suppliers and lenders are now demanding tighter payments and more security. Some suppliers have halted shipments, and insurers have stopped insuring, making Sears’ prospects even more uncertain.

State politicians, eager to keep their sales tax revenues high, have insisted that Amazon pay – even though the Washington State-based company gets little or no benefit as locally-based stores do. The coercive greed of government is unlimited, which is why some companies flee the U.S.

President Donald Trump faces the same decision nationally that he has internationally: whose companies and jobs are to be protected against competitors by government? Will an institution like Sears be saved by political intervention, or allowed to die? Mr. Trump has been critical of Jeff Bezos, who owns Amazon and the liberal Washington Post.

(The greatness of Sears at its prime, of course, was not as a retailer but as a bank. Merchandise was used mostly to get people to take out loans. Sears also created Discover Card – the innovative first No Fee, High Credit Limit, Cash-Back Card – in 1985.)

Sears lately, to stay solvent, has sold many of its financial operations. It has sold its Craftsman brand to Stanley Black & Decker and offered its Kenmore and other brands with less success. With every such step, Sears loses more of its special identity and becomes just another hawker of other people’s products. And much of its most valuable real estate has been sold, too.

Sears is now owned and run by hedge fund billionaire Eddie Lampert, who, critics say, knows a lot more about high finance than he does about how to satisfy retail customer needs and desires.

Amazon, meanwhile, now plans to hire 100,000 people in the next 18 months. It also plans to employ even more automation, and to deliver more goods via drones. Amazon is also, in effect, becoming the world’s largest online “mall” where other retailers can use sophisticated arbitrage to compete, as Christopher Mims explores in the Wall Street Journal.

Most surprisingly, Amazon now uses local warehouses and a fleet of swift delivery drivers, while planning stores for books, appliances, groceries and other brick-and-mortar structures. It aims to do better the kinds of things that Sears did best generations ago. Stocks rise and fall, but only the enduring things of value such as love and gold in the long run remain worth our time.

For an amazing interview with Lowell Ponte, contact Sandy Frazier at 1-516-735-5466.
For a media copy of Craig R. Smith and Lowell Ponte’s latest book, Money, Morality & The Machine: Smith’s Law in an Unethical, Over-Governed Age, contact David Bradshaw at 1-602-918-3296.


Sources:

Terry Jones, “The Death of Retailing As We Know It?” Investor’s Business Daily, March 22, 2017. URL: http://www.investors.com/politics/commentary/the-death-of-retailing-as-we-know-it/

Bourree Lam, “Is This the End of Sears?” The Atlantic, March 22, 2017. URL: https://www.theatlantic.com/business/archive/2017/03/sears/520470

Ed Straker, “Why Is Sears Dying?” American Thinker, March 23, 2017. URL: http://www.americanthinker.com/blog/2017/03/why_is_sears_dying.html

Tyler Durden, “Retail Nightmare Just Won’t End: Sears Crashes On ‘Going Concern’ Warning….” ZeroHedge, March 22, 2017. URL: http://www.zerohedge.com/print/591396

___________, “Sears Enters Death Spiral: Vendors Halt Shipments, Insurers Bail,” ZeroHedge, March 23, 2017. URL: http://www.zerohedge.com/print/591621

Laurel Wamsley, “Can Sears Survive? Maybe Not, Company Admits in Financial Filings,” NPR, March 22, 2017. URL: http://www.npr.org/sections/thetwo-way/2017/03/22/521143468/can-sears-survive-maybe-not-company-admits-in-financial-filings

Sapna Maheshwari, “Department Stores, Once Anchors at Malls, Become Millstones, “ New York Times, January 5, 2017. URL: https://www.nytimes.com/2017/01/05/business/department-stores-macys-sears.html?_r=0

Nick Wingfield, “Amazon’s Ambitions Unboxed: Stores for Furniture, Appliances and More,” New York Times, March 25, 2017. URL: https://www.nytimes.com/2017/03/25/technology/amazon-wants-to-crush-your-store-with-its-technology-might.html

Nelson D. Schwartz and Nick Wingfield, “Amazon to Add 100,000 Jobs as Bricks-and-Mortar Retail Crumbles,” New York Times, January 12, 2017. URL: https://www.nytimes.com/2017/01/12/business/economy/amazon-jobs-retail.html

Christopher Mims, “The High-Speed Trading Behind Your Amazon Purchase,” Wall Street Journal, March 26.2017. URL: https://www.wsj.com/articles/the-high-speed-trading-behind-your-amazon-purchase-1490532110

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