A Tale of Two Strangely Similar Retailers

by Dan Daley • in
  • December 2018
  • Last Word
• Created: December 3, 2018

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Two iconic American brands have been in the headlines lately, both for the same reason. Guitar (and lots else – we’ll get to that shortly) maker Gibson entered Chapter 11 bankruptcy in May of this year, and emerged from it in rather short order, reorganized after a complete flip of its corporate leadership and a heavy capital infusion from investment firm Kohlberg Kravis Roberts & Co. (KKR).

Another classic American brand is still going through its own 21st-century metamorphosis. Retailer Sears filed for bankruptcy protection in mid-October. It too has already replaced its officers on the bridge, as it struggles to find its way through the very changed ocean of the retail industry.

Both Gibson and Sears have much in common, not least that Sears, Roebuck & Co. sold, among the Buck stoves, women’s undergarments, and entire prefabricated houses in their legendary catalogs, a classic electric guitar and amplifier marque – the Silvertone store brand was in the retailer’s inventory from 1915 through 1972. Gibson, too, diversified, though not quite so broadly and much more recently, as CEO Henry Juzkiewicz set out to expand that brand’s reach into fields beyond MI.

Over the last decade, Gibson acquired brands like consumer electronics makers Onkyo and Pioneer, pro-audio companies including Cerwin-Vega, Stanton and KRK, and high-tech resources including Philips and Cakewalk.

Both Gibson and Sears loaded up on debt at a time when their core markets – guitars and general-merchandise retail – were undergoing tremendous pressure from a number of dynamic forces. Gibson saw demand for guitars wane as pop music took on more of the accouterments of EDM and hip-hop. In just the past decade, electric guitar sales dropped by a third, from 1.5 million to a new average of just over 1 million, according to a now-notorious 2017 Washington Post article that heralded the “slow, secret death of the… electric guitar.” But if Juzkiewicz’s acquisitions were meant to hedge that reality, they came up woefully short. Consumer audio was now dominated not by electronics brands but by companies like Apple and Amazon, and while a number of pro-audio software platforms have their adherents, none ever stood a chance as a market maker against Avid’s Pro Tools. A focus on technology as a saving grace led to head-scratchers like self-tuning guitars, which musicians took as an insult rather than an enhancement.

Sears followed a longer, but similar narrative. The 125-year-old retailer (older than Gibson by just nine years) faced a retail future that seemed to belong to online sales. Amazon and other online retailers were running rings around Sears, which remained wedded to a brick-and-mortar strategy, which it doubled down on over a decade ago when it acquired K-Mart. That came undone earlier this year when the company announced it would shutter 142 stores by the end of the year. Complete liquidation of Sears’ remaining assets is expected to follow that. Sears’ intrinsic value had been reduced to its real estate holdings. (In fact, it had been selling off its parking lots as a tactic to stave off liquidation.) Sears also suffered from a flawed executive vision. Sears was already undergoing a retail identity crisis (remember the 1990s “Softer side of Sears” slogan the store tried to woo women with?) when CEO Eddie Lampert bought it in 2004, adding Kmart a year later.

But then came the Great Recession and a surge of online sales, as Amazon developed strategies like Prime memberships. And Uber and Lyft meant you didn’t need to park a car anymore.

Two “visionaries” – Juzkiewicz and Lampert – had big ideas that stemmed from what may once have been valid interpretations of their respective companies’ futures. Both ran their operations closely, on gut instincts as much as much as data analytics, and probably more so. They both have oversized personalities, and they became the icons of their brands: Lampert at one time was speculated about as “the next Warren Buffet” while volatile “Henry” – his name often followed by a sigh in the MI universe – became as synonymous with Gibson as the company’s core Les Pauls once were, though not to its ultimate benefit.

MI retail – all retail, really – needs strong personalities. It’s all about sales in the end. But both Sears and Gibson are cautionary tales for our time. Brands need to better understand their own markets and the times they live in. Start-ups usually benefit from “cowboy” CEOs who know that the fire under new ideas is usually made from piles of burning cash. But mature brands aren’t as flexible as newborns. As soon as a brand hits the century mark, it might be time to settle down a bit.

 

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