Did you hear the news about Sears last Monday? Of course you didn’t. You’re not stuck in 1975, after all, so why would you absorb any news about the company? But this was worth a listen; it was pretty compelling stuff.
Here’s the gist: on January 7, Sears Holdings announced that Louis J. D’Ambrosio, the company’s chief executive of just two years, would be leaving in February due to family health matters. His replacement: Eddie Lampert, the hedge fund manager who engineered the merger of Sears and Kmart in 2005.
Mr. Lampert became majority owner of Kmart in 2003. While most people were initially at a loss to understand why the former Goldman Sachs star was messing around with yesterday’s retailer, the joke was (for a time) on them. Mr. Lampert wasn’t making a retail transaction, but a real estate play. The idea of even walking into a Kmart was so anathema to the East Coast financial and media elite that everyone had missed the gold mine of real estate sitting underneath the company’s stores, which were mostly located in densely populated urban areas.
Over the next several years, Mr. Lampert looked like a genius, as the value of that real estate continued to swell. And then he made his Sears deal. Crazy Eddie was at it again! As The New York Times pointed out this week, Fortune really laid it out there at the time, dubbing him the best investor of his generation. (He might have been, had he sold all that real estate, liquidated the company’s inventory and cashed out. Alas, no such luck.) Businessweek wondered if he was the next Warren Buffett. Maybe he was the next Bob Dylan!
Real estate machinations aside, the addition of Sears had the effect of turning the whole endeavor into a retail play again, and one that unfolded predictably: with a string of restructurings, a half-assed refreshing of stores and belated moves into e-commerce, none of which have prevented an inexorable slide toward extinction for both brands. The combined company’s same-store sales have declined for six straight years, and its market capitalization is one-sixth its level of early 2006. The company lost nearly $500 million in its most recent quarter alon
Yes, I know—they still do more than $40 billion in annual combined sales. But that’s down more than $10 billion since Mr. Lampert took over. And just as most Vegas casinos declined to make odds on the Mike Tyson-Buster Douglas fight in 1990, considering the result a foregone conclusion, I challenge you to find someone willing to give odds on sales recovering at this company. Sears might be the Buster Douglas of retailing, but I’m going to guess it isn’t.
While on the whole quite negative, coverage of the company nevertheless abounds with hogwash that’s apparently given some hope to the dwindling faithful, such as Sears’s recent “renewed focus” on its private-label Craftsman and Kenmore brands. Renewed focus? What the hell else were they focusing on? Someone else’s brands? (Don’t get me wrong: Craftsman makes some bad-ass tools. But so does Black & Decker.)
In December, one analyst was clearly reaching when he praised the company’s “improved in-store presentations and layouts.” I mean, what took them so long? Can’t they use the Internet to locate the nearest Home Depot or Walmart and go have a look-see? Actually, maybe they can’t. Because there’s also supposedly a new focus on something called “online sales” at the company. You don’t say! Are they sure that my credit card information will be safe if I send it over the Internet? Because if not, I think I want to give it to them over the phone. In 1995.
Now Mr. Lampert’s decided that he’s the man to run the retailer. Seriously, Eddie? I know that you talked your way out of a kidnapping in 2003, negotiating with bad guys who had guns, so you’re probably a pretty big fan of your own ability to find your way out of a tight situation. But this pickle is far more dire. And while you may think that being chairman of a company from afar for seven years while also managing your hedge fund qualifies you as an “experienced” retail executive, did you really think that you were the best man for the job? Or was it simply that no one else wanted it? Where’s Ron Johnson when you need him? Oh right, he’s on a similarly quixotic mission at JCPenney. If the guy behind Apple’s retail stores can’t turn things around, then nobody can.
Wall Street, of course, is a place where the ability to make money is often confused with an ability to run a company, as opposed to, well, moving papers around in an air-conditioned office. But you can’t save a terminally ill company with a spreadsheet, no matter what the geniuses in private equity might tell you. Even the folks at Mc-
Kinsey couldn’t turn Kmart around. And that was before Amazon came along.
If you need more convincing, I hereby offer you a statistically sound study of one consumer: me. I went into a Sears about four years ago, because my local Home Depot didn’t carry the model of cordless drill for which I was seeking a replacement battery charger. I left after 15 minutes because I couldn’t find anyone to talk to. Did I forget to mention that Sears has systematically underinvested in its retail locations compared with the competition in recent years?
Let’s just assume that it’s never going to get modern retailing right. Because why would it? Remember when Rudy Giuliani took it on the chin in 2007 for not knowing the price of a gallon of milk? I felt for the guy, because I buy milk all the time and couldn’t tell you the price. But a hedge fund billionaire running Sears? That’s like hiring a taxi driver as maître d’ at Le Cirque. There’s simply no way the man will feel it in his bones. I wonder if he’s ever even bought anything on Amazon. And that’s no insult: if I were a billionaire, I’d have someone else do it for me. But I’d also have someone else run Sears.
So here’s what’s left: more financial engineering of the sort that’s been keeping the whole thing afloat in recent years, such as spinning off units, renegotiating credit lines, and—don’t laugh—selling off that real estate. When that’s done, there’s going to be one hell of a going-out-of-business sale. Which will bring us all back into Kmart and Sears one last time.