Wednesday, October 17, 2018

2008 Sears: A Murder in Suburban Chicago

It was just around midnight when Eddie Lampert pulled the plug and sent up the white flag.  Lampert is the hedge fund billionaire who bought Sears, combined it with K-Mart and after years of alleged attempts to make the thing work, declared chapter eleven reorganization, AKA bankruptcy.

The business itself is 125 years old.  Think about a skin and bones man or woman, marching zombie-like down the street and you see the stores themselves. Empty shelves, merchandise in messy piles, leaking ceilings, empty checkout stands. Millions of square feet of no customers.

Yes, we all feel nostalgia about the Sears of our youth and the youths of our parents and grandparents.  But that Sears hasn’t existed for a generation or longer.

Blame Amazon?  Blame Wal-mart? Or bad stuff at bad prices? Or no customers?

No. Blame Eddie.

Long before all this started, long before many had heard of Eddie, one retail analyst told Bloomberg Radio “When Eddie Lampert buys a retailer, the competition cheers.”

Well, they cheered. But after not much time, they stopped because Sears had become irrelevant.

Lampert is brilliant at one thing and one thing only.  Wall Street calls it “Financial Engineering.” But what that really means is shuffling paper around to buy time and/or borrow money, money there was no chance of repaying.  And who did he buy from? Mostly ESL Investments. What does ESL stand for?  Edward Scott Lampert.

What Eddie bought was his own brilliant idea: Sell all that real estate. Make big bucks.  It might have worked but right about the time the lightbulb in his head lit, the market for commercial real estate tanked.  So he tried to make a go of the stores.  Problem: He didn’t know Thing One about mass market retailing.  This is a guy who wandered around the stores looking for ways to cut costs when he should have been wandering around the stores with a paintbrush.  And a broom.  And some real lightbulbs.

He ended up closing stores and selling property at wholesale prices.  

Okay, a moment of kindness: Sears was already in trouble when he bought in.  For a while, he hired people who supposedly knew retail.  Turns out they didn’t, so Eddie took over personally.

He doesn’t know any better than his choices.  And so, he has stepped down as CEO, but not as chairman. The job he left is filled by a committee.  This is a typically bad management choice.  Committees don’t make great stores.  Merchants do.

So, what can they do to remain above water and should they even try?  Probably the answer to the second question is “yes,” because otherwise the suckers who bought stock will be completely screwed.

They still have a few things going for them.  Among them, some of the best appliances available today, Kenmore. And while they sold Craftsman tools to a competitor, they evidently want to continue selling them.

NB: they don’t actually manufacture the appliances, they farm them out to companies that know better. But the brand has moxie. They also have a fabulously complete repair service for those appliances. So there are two areas in which a reduced footprint Sears can do well.

If they’re going to be big in major appliances -- “whitegoods” to those in the industry, they probably can do OK with small appliances, too: Toasters and toaster ovens, coffee makers, blenders and mixers, vacuum cleaners and such.

They do okay with baby supplies, bicycles, exercise machines, bedding, etc.  Sales of all of the above require expertise.  To survive in those areas, they’d need experts on the sales floor, not minimum wage clerks.

To go with that, the only clothing they should sell are work boots and work clothes. Will they do that? Probably not.  Not unless Eddie hires some real merchants and keeps his hands off the advertising and staffing.

Is there anything else they do well?  Not really.

Richard Sears and Alvah Roebuck were purveyors of 19th and early 20th century merchandise. The world has changed.  They can’t face down Wal-mart but they can out-service the big box stores. If they hire the right people and put them in the right locations.

For now, Eddie & company have committed murder.  But maybe -- just maybe -- they can come out winners. And if they do, so will we.

I’m Wes Richards. My opinions are my own but you’re welcome to them. ®
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© WJR 2018

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