Sears Auto Centers (A) (Abridged)

Analysis:
Richard W. Sears, a railway agent by profession start off with the new business by selling
watches initially. The company had its status offering low prices and guarantees to its principal
customers that were the farmers. Having demand in the rural areas they opened their first retail
stores in 19!, which was basically catered to the farmers who could buy merchandise by
travelling to the town. Starting off with "llstate named chain of tire business they further
e#panded into auto insurance and life insurance services. $oving on in years thye also managed
to ac%uire the real estate bro&er and stoc& bro&er and finally starting off with their 'iscover
credit card.
(eing the &ing in the retail) business Sears was going very good but eventually in the mid of
*+,s, they started losing their status and dignity by -ust being a one stop shopping point. While
other competitors had their stores sprouted up nationwide. .n addition /0mart and Wal0$art had
been given Sears a head on stri&e by invaded in most of the small towns.
1ressure grew intense, stoc& fall down to !+2, investors were losing patience) demanding for
action and rumors of possible ta&eover bids were wandering around the Wall Street. 'espite its
penetration and high earnings in the 3S mar&et, Sears began to e#periences serious financial
troubles in 4+,s. Sears responded to Wal0$art and /0$art by addition of 5on0Sears brands and a
new policy and strategy of 6everyday low price7. Still, despite these efforts they had to see a
!+2 decline in their earnings. .n addition to this Sears planned for cost control measures and
laying off some -obs and further planned to focus in profits at each level.
$oving on in 1991, the company unveiled productivity incentive plans in order to improve its
profits of auto centers nationwide. "uto mechanics were initially paid on hourly basis and
according to production %uotas. (ut now an additional compensation plan was announced that
included a commission element. .n that mechanics were now paid basic salary in addition to
dollar value fi#ed for meeting production %uotas. "uto services adivisors who mostly are on the
counters were basically paid a fi#ed salary initially. 5ow, in order to increase sales, commissions
and product sales specific %uotas were introduced for them as well.
.n 199, 8alifornia department of consumer affairs accused Sears, that it had been violating the
state,s auto repair act and pursued to revo&e license of all of their auto centers in the state. These
allegations were basically as a result of increasing numbers of complaints by consumers in the
past years and by the undercover chec& investigation of bra&e repairs. The problem says that
Sears had been misleading their customers and charged them for unnecessary repairs at times.
9inally all these troubles pointed out Sear,s compensation system as a cause of this issue.
"s a response, (rennan, the 8:; of Sears, denied that any such fraudulent activity had occurred
by any officials of Sears and he attributed all of this as a focus on preventive measures of cars
that were especially old. Though he accepted the fact that within such compensation system
problems and mista&es can occur, he planned to resolve the issue. These steps included<
:limination of service advisors, compensation system.
8ommissions based on customer satisfaction.
Sales volume %uota to be ended.
9urther after meetings with ("R, they started internal audit and internal investigation of its auto
centers. Thus, the compensation for mechanics was still under process.
So, employees were given a sort of obligation to sell a certain amount of parts, or else they might
ris& their -obs. So, Sears had got power to manage training their employees how to fraud and
given misleading information to customers. So admitting and wor&ing on mista&es was a
separate thing, but Sears had lost a huge amount of customers by now and it will really not be
easy for them to get bac& their position of course. So, 'iscipline and Honesty could be the main
factors Sears should have pondered upon. They were basically lac&ing with these traits and if
they had maintained discipline and honesty they would not have lost their respect and customers
in the mar&et.
(efore their compensation system, they had already a lot of trust from their customers. (ut to
date, the story presents a different view.
Qualitative data
;ffering low prices and money bac& guarantee to their principal customers.
=osing business by one stop shopping emporium.
>rowing business specially in financial sector of their business.
Started off with new 6everyday low price7 policy and also with brand name products.
:thical issues involved<
o >iving false and misleading statements.
o 9raud.
o 9ailure of clearly state parts and labor.
o 9ailure to return parts.
o 3sing false means to increase sales and in turn compensation.
Quantitative data
5et income from merchandising fell from ?@+A million to ?!+ million.
Stoc&s fall down by !+2.
Selling and administrative e#penses went down by A+2.
5et income from merchandising group at ?A* million.
4*@ auto centers employed A!+++ people.
A@++ service advisors.
1rofits from car repairs grew from 112 to 4B2 of total profits.
$ar&et for bra&es part grew from A2 to !2 per year.
9raud related complaints increased by 1!2 each year.
$erchandising %uarterly income shows a very negative trend in its first %uarter which further got
down to its minimal point and in the fourth %uarter started showing profits. So, for a company
that has been on top for a number of years, a perfect mar&eting and pricing strategy should be
adopted.
Sears Auto Center Repairs Analysis
$ar&et share in "uto repair industry 1+.42
.ndustry average complaints 1.12
Sears customer complaints +.12
.nvestigation by ("R 492 overcharged
Case issues
So, the financial viability and leverage of the firm was at sta&e, its debt were increasing , profits
were not improving with a good ration and on the other hand the operating e#penses were also
showing an increasing trend. .ncentives and compensation system of employees was %uestioned
and Sears had to face the music with this, so they really needed to wor& up on their
compensation plans and see if it really was causing troubles and overcharging. So, a thorough
internal analysis had to be conducted to figure out the ma-or causes. .f we had a glance in the
overall scenario, we can observe that lying down of firms changing pricing strategy over and
over are never viable solutions.
9or retail stores they can continue with the :'=1 strategy and shall cater to high end retail
brands to improve profitability. "gain, narrowing down their base of specialty products and
retrenchment will be an optimal way to move on.
Conclusion
So what we conclude is that there should be amalgamation between<
"uto insurance
"uto parts merchandising
"uto repair and
Sears retail stores
(ut, &eeping in mind an additional factor that there should be separate legal entities for each of
their business lines so that, in case if one business fails, other may not.
.n addition we propose to ma&e a new incentive system for auto retail part of their business
which says<
(ase pay C 5umber of -obs done D 8omplaints received
Facility Layout