Lessons For Plan Providers From The Impending Death Of By Ary Rosenbaum, Esq.

efore there was Amazon.com, there ing the same fate as Montgomery Ward investment elections on a daily basis. You was Sears. Whether it was through because it miscalculated where custom- can’t afford to be like Sears and lose the vi- Btheir catalog or their department ers would be. Instead of malls, customers sion of locating your potential customers. stores, it was the place to be when you were now buying merchandise online. Like needed everything. It was the place to get most brick and mortar stores, Sears was Diversifying too much appliances, clothes, hardware, and snow unable to change with the times and was Sears became enormously successful, blowers. Until 1989, it was the largest rather slow to develop a website that could especially after World War II. It was the revenue retailer in the United States, now compete with the Amazons of the world. go-to place for everything and the catalog its 31st. After just avoiding liquidation, As retirement plan providers, we need to was way too successful. Sears eventually Sears will be down to created their own na- 400 stores (from 3,500 tional brands such as stores) and it will sure- , , ly die. As a fan of busi- and Die-Hard that ness history, the mis- were unique to Sears. steps made by Sears This diversification of along the way brought selling house brands them to the verge of is just a natural way eventual extinction. of growing their busi- These missteps are ness because it’s more great lessons for us as profitable to sell house plan providers because brands than someone we can avoid these else’s brand. Sears was catastrophic errors also diversifying out- by looking at where side of their role of a Sears went wrong. department store/cata- log. In the 1930s, they Not seeing the future created an insurance Clearly, Sears is dy- company. You might ing while Amazon.com have heard of them, it’s is thriving. Sears went called . They online too late while also created a company Amazon went from that built malls. They an online bookstore added Dean Witter to the most prolific re- and tailer on the Internet. and Dean Witter cre- In a nutshell, Sears is ated a credit card that going the same fate wasn’t successful at as its former top competitor Montgomery anticipate change and e ahead of the curve, first called Discover. Successful plan pro- Ward. Montgomery Ward’s decline started we must adapt to a changing environ- viders have diversified their practices, but after World War II when its leadership be- ment especially when potential customers they usually start lines of business that is lieved that a recession would occur while change the location of where they could be connected to their role as a retirement plan Sears decided to expand into the suburban found. A perfect example in the retirement provider. That’s why you have third-party shopping malls as the economy boomed. plan business was in the late 1990s when administrators (TPAs) adding advisory Montgomery Ward ended up dying for trustee directed 401(k) plans were being services because they just see it as a natu- the next 55 years because it failed to find replaced by participant-directed plans be- ral outgrowth of what they do. Diversify- where the customers would be. It was no cause of a booming stock market and be- ing by adding lines of business that don’t longer at smaller stores, it was at larger cause of technological advances that would have a nexus with the main line of business stores in suburban malls. Sears is meet- allow participants to easily change their can often be a distraction, even if they are profitable, which it was away plan participants for Sears. If you want and plan sponsor cli- to be a retirement plan ents. As a plan provider, provider, concentrate you always have to put a o the retirement plan nickel back into the busi- business and add lines ness to change with the of business that are times. Sears didn’t do connected with retire- that and the Sears near ment plans. If you want me that’s closing doesn’t to add lines of busi- look much different than nesses that have noth- the Sears my parents ing to do with the re- took me to take photos in tirement plan business, Brooklyn in the late ’70s. you might lose focus on your main line of Treating employees business as Sears did. poorly Whether it’s changing Selling off the suc- their pay scale or how cessful lines of busi- they are compensated, ness Sears hasn’t been treat- While Sears did di- ing one of its most im- versify and lost focus portant assets over the on their stores, the di- thing else looks like it’s part of a throw- years, its employees. As versified businesses did well. The problem back era when Sears was the go-to place I’ve always stated, employee turnover and is that as Sears struggled with its depart- for everything. Many people avoid Sears poor employee morale can hurt a business, ment stores, it finally decided that these because they think it’s an old brand and especially when dealing with the custom- separate lines of businesses were too much not something as exciting as its competi- ers. Not only does Sears treat its employ- of a distraction of their core retail business. tors such as Wal-Mart, Target, and Costco. ees shabbily in pay, but the stores are also So they spun-off or sold these successful so poorly staffed, you have no idea where businesses such as All-State, Dean Witter Not putting a nickel back into the busi- you can check out your purchase. As a plan (now part of Morgan Stanley), and Cold- ness provider, it’s hard to find talented and ex- well Banker. The problem was these spin- The end for Sears has been quick since perienced workers. I know, I’ve worked offs flourished while Sears languished. Eddie Lampert got involved with owning with a lot of great employees and more While the retail stores were struggling, a huge stake. Lampert might be a hedge terrible ones. As a plan provider, you need these diversified assets had really helped fund genius, but he’s a retail idiot. Retail to pay your employees as well as you can Sears’ bottom line. Without these profit- stores require reinvestment and capital to and offer them ample benefits. More - im able assets, Sears’ looked like a struggling update the look of stores. For example, the portantly, you need to treat your employ- company rather than the conglomerate first Target in my area opened in 1997. The ees with respect and show that you actually used to be. It started to look like a strug- store has been expanded and updated three care about them. Empathy goes a long way. gling department store, which it was. After times since its opening. Two miles down, selling off Craftsman, Lands’ End, and so the local Sears (which is closing) hasn’t much real estate, there isn’t much left for been updated since it opened in 1993. Lam- he Sears to sell off and save itself from liq- pert failed to reinvest in Sears, and instead T uidation. So while diversifying your busi- milked it and stripped it of its assets over Rosenbaum nesses by adding lines that aren’t linked to time. Sears has the lowest rate of capital in- your core, selling them off when they’re vestment to sales of any major U.S. retailer. Law Firm P.C. profitable may hurt your overall business. The biggest use of this diverted cash was to buy back shares. Sears stores look old Copyright, 2019 The Rosenbaum Law Firm P.C. Bad marketing and tired and drabby stores run customers All rights reserved. Sears is an older brand, but the problem away. Sears only spends an estimated $2-3 Attorney Advertising. Prior results do not for the last 40+ years is that it marketing per square foot each year on maintenance guarantee similar outcome. shows that. A perfect example of Sears’ and upkeep. The estimates for Walmart poor marketing is the circular that they and Target are the $6-8/square foot, de- The Rosenbaum Law Firm P.C. would usually have included in the Sun- partment stores even have higher costs. As day newspaper. While Target and Wal- retirement plan providers, we need to con- 734 Franklin Avenue, Suite 302 Mart tend to have colorful circulars that stantly reinvest in our businesses in order Garden City, New York 11530 are very eye-catching, Sears’ has circulars to maintain and grow sales. Imagine a TPA (516) 594-1557 that are no different from their circular in with a website that went the Eddie Lampert the ’70s and the ’80s. the only difference route and didn’t reinvest much into their http://www.therosenbaumlawfirm.com is the fashion and the electronics, every- website in the last 15 years, they’d scare Follow us on Twitter @rosenbaumlaw