Beware the monument.
Please bear with me for a moment and read the following short poem that Shelley published in 1818, entitled Ozymandias:
I met a traveler from an antique land
Who said: Two vast and trunkless legs of stone
Stand in the desert. Near them, on the sand,
Half sunk, a shattered visage lies, whose frown,
And wrinkled lip, and sneer of cold command,
Tell that its sculptor well those passions read,
Which yet survive, stamped on these lifeless things,
The hand that mocked them, and the heart that fed.
And on the pedestal these words appear
quot;My name is Ozymandias, King of Kings:
Look on my works, ye Mighty, and despair!"
Nothing beside remains. Round the decay
Of that colossal wreck, boundless and bare
The lone and level sands stretch far away.
Ozymandias was a heavy hitter in days gone by. He built a huge statue of and to himself. If the meaning of the statue was not clear enough, he had inscribed on the pedestal that he was such a big shot that "ye [other] Mighty" were reduced to despairing at his magnificence.
But, look! The ruins of the statue were all that survived, and it has become nothing more than a "colossal wreck." Whatever the "works" were that should have caused despair to the mighty have now disappeared into the sands of time.
Gordon Metcalf became CEO of Sears in 1967. Odds are, he had never read Shelley's poem. "Being the largest retailer in the world," he said, "we thought we should have the largest headquarters in the world." So, just as cracks began to appear in the armor of Sears—despite a seemingly robust bottom line, some metrics, like return on equity and employee productivity, had begun to flag—Metcalf decreed that Sears would construct the world's tallest building. The 110-story Sears Tower, renamed Willis Tower in 2009, came to be known as "Gordon Metcalf's last erection."
On the surface, Metcalf's explanation for building the Tower seems to make sense. But when you really think about it, it doesn't. The two clauses have nothing to do with one another, and the declaration cannot survive one single word: Why? Why is it that the world's largest retailer should have the world's largest headquarters?
In 1993, when Intel was experiencing its spectacular growth, CEO Andy Grove, like the rest of the company's employees, had not an office but a cubicle. It was tiny. Fortune, in a clever variant of a classic retail metric, conducted a return to the shareholders survey that year. It measured return to the shareholders per square foot of the CEO's office. Grove led the pack by far, as Intel returned $1.64 per square foot of his cubicle.
It was not apparent that Intel needed a giant building to celebrate how wonderful it was. Why was it so obvious at Sears?
Building monuments deserves a file drawer along with trash talking when you are looking for companies in denial. I recall interviewing top executives in the Sears Tower in the summer of 1980. The pictures on their walls were quite beautiful. I wondered whether the average Sears customer could have afforded the frames. The furniture was plush. It didn't look like it came off the floor of a Sears store.
I remember looking out the windows. The view up Chicago's lakeshore was spectacular. And there was not a competitor in sight. The people down below looked like ants. Those ants were supposed to be Sears's customers. Of all industries, it is most important for a retailer to keep his or her ear to the ground. The Tower was a symbolic denial of that reality.
The year the Tower was dedicated, 1973, was the first year of the chairmanship of Arthur Wood. Writer Donald Katz described him as "patrician," "elegant," "the consummate old-world gentleman-businessman." His opulent office included works from his private art collection by Degas and Monet.
Wood was unlike Kmart's great merchant Harry Cunningham. An even bigger problem is that he was the antithesis of the incomparable Sam Walton.
Just prior to the first oil shock in 1973, retail sales in the United States began to decline in real terms. Sears's economist (this is prior to the oil shock) felt the country was looking at a severe recession the following year. A "senior officer" of the company, according to Katz, told the economist that if he publicized an official forecast to this effect, he would be fired. There appears to be a persistent belief in once-great companies that have lost their way that if you simply avoid speaking the blunt truth, all the problems will just go away. It is almost as if by telling the truth, you are endowing problems with a reality that they would not otherwise have. It is this brand of magical thinking that leads to shooting the messenger.
Sales in 1974 actually increased seven percent, which would not have been bad if the company had not forecast a rise of fifteen. Profits were off almost a quarter, a dramatically steep slide. Here indeed is the essence of the problem of denial. Reality is always just around the corner.
Sears wandered in the wilderness amid intermittent signs of life from 1973 until it was bought by Kmart owner Eddie Lampert in 2005. The company abandoned its Tower in 1992, a year in which it lost almost $4 billion, and relocated outside of Chicago to a town called Hoffman Estates. Kmart adopted Sears's name and the combined company is today called Sears Holdings.
Sears began to hire consultants in the 1970s, but they were no more helpful than the homegrown executives. Sears convinced itself that its market was "saturated." The way to grow, therefore, was to enter whole new lines of business. The company bought the real estate franchise Coldwell Banker and the financial broker Dean Witter. Why the company's CEOs thought they would do better managing businesses in industries they did not understand than they would in general merchandise retailing remains one of life's mysteries.
In fact, there was a fortune to be made in the very classes of trade in which Sears made its name. We know this—and everyone at Sears should have known it at the time—because Wal-Mart's spectacular success was no secret. Sam Walton had become the richest man in the world. He dressed in a grass skirt and did the hula on Wall Street itself in 1984 because Wal-Mart's stock had so outperformed what he had bet it would be. You had to be wallowing pretty deeply in denial to miss this.
Sears executives should have been focused on nothing else. Instead, they were playing around with the "store of the future" and telling themselves they would succeed selling "socks and stocks."
For the sake of symmetry, we should note that Walton did not pay much attention to Sears. In his autobiography, he only mentioned it once, and not very flatteringly. "One reason Sears fell so far off the pace is that they wouldn't admit for the longest time that Wal-Mart and Kmart were their real competition," he wrote. "They ignored both of us, and we both blew right by them."
It has often been observed there are no mature markets, only tired marketers. Unfortunately, nobody at Sears was making that observation, and there is no company which it described—or which demonstrates the pitfalls of denial—more perfectly.
Adapted from Denial by Richard S. Tedlow by arrangement with Portfolio, a member of Penguin Group (USA), Inc., Copyright © 2010 by Richard S. Tedlow.