Sears and Misaligned Incentives

Posted on January 17, 2015

Category: Business

Sears continues its circle around the drain. After they go bankrupt, all the reasons why will likely end up as business cases in MBA curricula, but given my experiences shopping there, I believe one of the causes is misaligned incentives between the store and their sales associates.

Disclaimer: I know full well that the plural of anecdote is not data.

When my wife and I bought our house, it came with a Amana refrigerator with a water dispenser in the front. Fridge water dispensers use filters, which need to be replaced periodically, and for this particular fridge, the water filter in question was available at Sears in the local mall. So, when it came time to replace it, off to the mall I went.

I found myself in the appliance section at Sears, and flagged down a sales associate to ask where the filters were. Instead of simply pointing, he walked me over to the section, and waited as I made my selection. As soon as I started to walk away, "Are you ready to check out?" Since I also needed a garden hose, I said no and headed over to the hardware section. The guy looked crestfallen as I left.

Once in the hardware section, once again there was the hovering sales associate and the "Are you ready to check out?" as soon as I made a selection. This time I said yes, and it dawned on me what was going on while I was checking out. I confirmed my suspicions by asking the sales associate.

They are paid on commission.

There are several implications of this policy. The most immediate implication was that I was the unwitting asshole costing the appliance guy his larger commission on the more expensive water filter because I happened to decide to buy the less expensive garden hose afterwards.

It also means that it in the best interest of the sales associate, pay-wise, to get you to check out with them, prompting the "Are you ready to check out?" as early as possible. Because of the commission incentive, the sales process has aligned itself around a customer coming in for one item, or a few closely related items, from one department. Sears is missing out on sales that in other stores happens because the customer comes in for item A and notices they would like to buy some other unrelated item B as well.

Since customers generally leave once they've checked out, the store is always dead. I've gone shopping at the mall during December, when you can't even find a parking spot, and I might well have been the only customer in Sears (and that was only because I was leaving the mall to go to my car). This probably also accounts for the behavior of the sales associates I've seen: either one notices you and follows you about until you either buy something or get creeped out and leave; or you can't find one to save your life because they are busy following around other customers, and anyway, the store management likely cut everyone's hours because there are so few customers.

Psychologically, there are a few results of the "Hurry up and buy something" mentality. Since the sales push is to get the customer out of the door as quickly as possible, customers don't feel welcome shopping at Sears, and avoid the place. As an example, when it came time to replace the fridge, I purposely bought one that had a filter from someplace other than Sears.

Worse yet, my absence from shopping at Sears doesn't just cost them my purchases; it costs them purchases from other customers, as well. People are fundamentally social, and so a lack of other customers at a store sends a strong signal of the (lack of) desirability of that store. It sends a strong signal that the store is not cool. It might even make people question their safety in that store.

In the end, people don't shop where other people don't shop.