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A blistering report portraying a slow-moving trainwreck at Sears is likely to reignite fears that the company is in serious trouble. Crain Chicago’s Brigid Sweeney, says the mood at the Chicago-based retailer has become “toxic and defeated” since hedge fund manager Eddie Lampert merged it with Kmart in 2004.
Lampert was hailed as “the next Warren Buffet” in a Businessweek cover story in 2004 in advance of his takeover of the company.
“Great investors see deals within deals,” William E. Oberndorf, general partner of the SPO Partners & Co. value fund, said at the time. “He’s in rarefied company.”
But by 2007, Sears was tanking. Businessweek ran an editorial imploring Lampert to “act fast” as profits plummeted 40%.
“You never know what the strategy or the plan is,” one anonymous executive tells Sweeney. “What are we building? What are the criteria for success?”
Even high-level executives lack the chairman’s trust and approval to implement strategic transformations, Sweeney writes.
Lampert has proven a “capricious micromanger” who “[bounces] from one pet project to another,” she says.
“Initially obsessed with e-commerce and online sales, he next became enamoured of social media, going so far as to establish a proprietary internal Twitter-like system over which he prolifically communicated with employees via a nom de plume, Eli Wexler (a reference to Yale, his alma mater).”
Sweeney also found:
- Lampert has been known to “[rip] into [Sears] executives before they’ve gotten through the second screen of their PowerPoints.”
- Eight high-level executives have resigned just in the past year
- Sears is spending less than a quarter of the $8 per square foot typically invested into stores, according to New York-based International Strategy & Investment Group.
In December, Sears announced it was closing up to 120 stores and posted a $2.4 billion loss last quarter.
BI contributor Margaret Bogenrief asked in January, “Do we even need Sears?” and suggested private equity may be the only way to save it.
“The image is atrocious. The stores are old and they’re run down. They don’t look like a nice place to visit,” Ron Friedman, a partner in the retail and consumer products industry group of accounting firm Marcum, LLP, told USA Today in February. “I don’t think that the Sears we see today can be around from a year today. It has to change.”
With the exception of a brief glimmer in April 2010, when its stock price climbed above $120, Sears’ stock price has fallen nearly 52% to $52 since Lampert’s takeover in November 2004.
Sweeney quotes several sources that Lampert bought into Sears at approximately $16 a share, “meaning he’s not close to losing his money and won’t throw in the towel soon”.
Counting both real-life and virtual trips, a Sears spokesman said the company clocked more than 1 billion shopper visits in 2011.
But the company has dropped to the 10th-largest retailer in the U.S. based on revenue, and the fourth-largest “broadline” merchant behind Wal-Mart, Costco Wholesale Corp. and Target Corp, according to Sweeney.
Wall Street is already circling. Sweeney quotes Credit Suisse analyst Gary Balter’s note from December that suggested a liquidation end-game for the firm.
“We continue to believe that Sears will sell off or spin off assets in a controlled liquidation of its chain, monetizing the assets least tied in with Sears’ U.S. stores first,” Balter said. However, “over time, selling off the profitable assets is unlikely to be a winning strategy.”