The long, hard, unprecedented fall of Sears

In 1989, Sears Roebuck & Co. ruled America as its biggest retailer. It loomed over rivals from a perch high above Chicago, inside what was once the world's tallest building-one bearing the company's name.

The fall from that height may finally be nearing an end.

Over the course of almost three decades, the company now based in Hoffman Estates experienced what industry observers described as one of the most monumental collapses in business history. Despite its union with Kmart — the second-largest retailer from that era — and a stated belief that it can still turn things around, Sears is teetering on the edge of disaster.

The latest bad news was revealed in March, when Sears acknowledged “substantial doubt” about its future, sending the stock plummeting, its worst decline in more than two years. S&P Global Market Intelligence declared Sears the U.S. retailer most vulnerable to defaulting in the next year. A Fitch Ratings study of retail bankruptcies also listed it as a company with a high risk of failure.

The combined decline of Sears and Kmart, in terms of sales, is unprecedented, said Greg Portell, an analyst at A.T. Kearney. The seeds were planted by poor decision-making in the 1980s, during which time the company made a real estate play instead of focusing on selling. No senior executive over the next 28 years was able to put stops in place to prevent the slide.

“The management mistake that Sears made, in retrospect, was that they never got to a spot where they could stop the free fall,” said Portell.

It has been a slow, painful fall for these once-dominant brands. Sears, in particular, was synonymous with suburban American consumerism. It dominated retail and changed the way people shopped through its revolutionary catalogue business-the Amazon.com of its era. Kmart accomplished a lot as well, rising to a spot right behind Sears by peppering the nation with its Super Center big box shops and luring droves of shoppers with the promise of deep discounts, including of course the Blue Light Special.

In 1994, Sears and Kmart raked in a combined $111.4 billion, compared with powerhouse discounter Wal-Mart Stores Inc.'s haul of $111.9 billion. All three retailers ranked in the top 15 in revenue, among companies in all industries, in 1995. Since then, they've gone in different directions. Sears and Kmart have watched their customer bases shrink amid a never-ending string of store closures. Wal-Mart's sales grew almost fourfold over the next decade, as the behemoth tripled its locations and embarked on mass international expansion. Sears and Kmart each chose to trudge along, with little change in strategy.

In 2002, Kmart filed for bankruptcy protection after years of weak sales and stiff competition from Wal-Mart. The chain and its 2,100 or so stores were in dire shape, gasping under a pile of debt while unable to get enough shoppers through the doors. At one point, Kmart's biggest food distributor stopped shipments after the retailer was unable to make payments. Kmart would emerge from bankruptcy under the control of hedge fund billionaire Eddie S. Lampert and his firm, ESL Investments.

Then came the merger, then the biggest tie-up in the annals of retail. Since then, Sears and Kmart have been slowly dismantled by Lampert. Implementing a culture of warring tribes, one in which divisions would battle it out for resources, little cash was funneled back into reviving physical stores. Chunks of the business were sold to keep the lights on. In January, the company sold the famous tool brand Craftsman to Stanley Black & Decker Inc. for about $900 million.

“He did nothing to maintain the stores-nothing to spiff them up and make them a nice place to go shopping,” said Robin Lewis, a longtime industry analyst and chief executive of the Robin Report. “You've got young people today that don't even recognize Sears as a place where they would go. I think people will just forget about it.”

Once, Sears was the disruptor-not the disrupted. When the Sears catalogue first appeared on doorsteps in the 1890s, it fundamentally changed how Americans shopped. Back then, much of the population lived in rural areas, and they bought almost everything from little shops at rural junctions. These general stores had limited selection and charged exorbitant prices. They were the only game in town.

“The Sears catalogue had an even bigger impact in 1900 than Amazon has had today,” said Robert Gordon, a professor at Northwestern University and author of “The Rise and Fall of American Growth.” Like today's e-commerce powerhouse, the Sears catalogue provided shoppers more choice than ever, and at lower prices. Sears freed shoppers from the tyranny of the local general merchant and improved their living standards. “The cost of living went down the minute Sears became available,” said Gordon.

Searching for parallels of Sears's fall through business history, Gordon could find none.

“There is nothing like the decline of Sears and Kmart,” he said.

Howard Riefs, a spokesman for Sears, said the company has made strides in combining physical stores with digital initiatives, such as allowing consumers to purchase online items they can later pick up in person. As for the risk disclosed in the March filing, Riefs said that while historical performance prompted that statement, Sears's financial plans and forecast “do not reflect the continuation of that performance.”

Sears is focused on improving and has made “decisive actions” in recent months, he said. “Despite the risks outlined, we are confident in our financial position and remain focused on executing our transformation plan.” The focus of that plan is “how we can make shopping easier,” said Riefs. “We believe the key is to truly integrate the shopping channels. It's a combination of store and online and mobile. It's not just one thing anymore.”