Essay About Sears Retail Business And Sears Name Brands

Sears Robuck Auto Case
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SEARS, ROEBUCK, AND CO.: THE AUTO CENTER SCANDAL
Sears, Roebuck, and Co. began in the late 1800s as a mail-order company that sold
farm supplies and other consumer items. Its first retail store opened in the mid-1920s.
Responding to changes in American society, such as the move from farms to factories
and the presence of the automobile in many homes, hundreds of retail stores
CHAPTER 7 MANAGING FOR ETHICAL CONDUCT 285
opened over the years. The company expanded rapidly, and eventually it diversified
to include other businesses: insurance (Allstate Insurance), real estate (Coldwell
Banker), securities (Dean Witter Reynolds), and credit cards (Discover). Each of
these other businesses became its own division, in addition to the merchandising
group that included retail stores, appliances, and auto service centers. By the early
1990s, the company was reporting revenues and earnings in the billions of dollars.51
Despite its long history of high earnings and its penetration into the U.S. market,
the Sears retail business began to experience serious financial difficulties in the
1980s. Discount retailers such as Wal-Mart were pulling ahead in market share, leaving
Sears lagging. Sears responded by adding non-Sears name brands and an everyday
low price policy. But despite these efforts, in 1990 Sears reported a 40 percent
decline in earnings, and its merchandising group dropped a whopping 60 percent!
Cost-cutting measures were planned, including the elimination of jobs and a focus on
profits at every level.52
In 1991, Sears unveiled a productivity incentive plan to increase profits in its
auto centers nationwide. Auto mechanics had traditionally been paid an hourly wage
and were expected to meet production quotas. In 1991, the compensation plan was
changed to include a commission component. Mechanics were paid a base salary
plus a fixed dollar amount for meeting hourly production quotas. Auto service advisors
(the counter people who take orders, consult with mechanics, and advise customers)
had traditionally been paid a salary. To increase sales, however, commissions
and product-specific sales quotas were introduced for them as well. For example, a
service advisor might be given the goal of selling a certain number of front-end alignments
or brake repairs during each shift.53
In June 1992, the California Department of Consumer Affairs accused Sears,
Roebuck, and Co. of violating the states Auto Repair Act and sought to revoke the
licenses of all Sears auto centers in California. The allegation resulted from an
increasing number of consumer complaints and an undercover investigation of brake
repairs. Other states quickly followed suit. Essentially, the charges alleged that Sears
Auto Centers had been systematically misleading customers and charging them for
unnecessary repairs. The California investigation attributed the problems to Sears
Auto Centers compensation system.54
In response to the charges, Sears CEO and Chairman Edward A. Brennan called
a news conference to deny that any fraud had occurred, and he defended Sears focus
on preventive maintenance for older cars. He admitted to isolated errors, accepted
personal responsibility for creating an environment where mistakes had occurred,
and outlined the actions the company planned to take to resolve the issue. These
included
& Eliminating the incentive compensation program for service advisors
& Substituting commissions based on customer satisfaction
& Eliminating sales quotas for specific parts and repairs
& Substituting sales volume quotas
286 SECTION III MANAGING ETHICS IN THE ORGANIZATION
According to Brennan, We have to have some way to measure performance.55
Sears also introduced shopping audits of its auto centers, during which
employees would pose as customers, and Brennan published a letter of explanation
to the companys customers in the Wall Street Journal and USA Today on June 25,
1992.
Note that the compensation system for mechanics, based on number of tasks performed
and parts replaced, was maintained. In the summer of 1992, Chuck Fabbri, a
Sears mechanic from California, sent a letter about Sears wage policy for mechanics
to U.S. Senator Richard Bryan. Fabbri said:
It is my understanding that Sears is attempting to convince your committee
that all inspections in their auto centers are now performed by
employees who are paid hourly and not on commission. This