What Eddie Promised
A performance evaluation of Edward S. Lampert, owner of Sears and Kmart
On relatively mild winter day in February of 2019, a hearing was held during which the future of former retail titans Sears and Kmart would be decided. Lawyers for the famously reclusive Eddie Lampert argued his points to the judge in a bid to keep the company alive. Creditors and others with skin in the game wanted Sears liquidated, so that they could at least partially be repaid. Former employees wanted to ensure that their pensions would remain intact. Judge Robert Drain had perhaps one of the most significant business decisions in recent memory from a business perspective; would the company that was started in 1892 by Alvah Roebuck and Richard Sears be allowed to continue to exist in any physical form? On one hand you had Lampert who wanted to keep it going, some say for personal enrichment, and on the other you had the aforementioned opponents, who wanted the company liquidated before Lampert could extract whatever value remained.
Ultimately, the sale of the assets of Sears Holdings Corporation to Transformco was approved, with Lampert as Chief Executive through his hedge fund, ESL Investments. To be fair to Lampert, it is very likely that Sears and Kmart would not physically exist if it were not for his purchase in 2019. It was not as if a leadership change was afoot however, since Lampert had been involved with Sears Holdings since 2003. He had his chance and failed and was now doubling down. Many have claimed it is because he had a strong fiscal interest in doing so, for his own enrichment.
In any event, now that six years have passed as of last month, we can take a look at those promises, point by point and see how the transformer did.
- Keep open 400 stores: today, Sears has eight stores remaining, with Kmart operating 4, mostly in United States territories such as Guam. There is one Kmart in Miami, Florida, that is a literal shell of it’s former self, operating out of the former garden section of the larger store, which has been subleased to At Home. FAIL.
- Transforming the Business: Eddie promised through his team that his Shop Your Way program and integrated retail initiatives would grow the business and allow for a greater retail presence. What instead seems to have happened is the former full line stores have been leased and sold, shrinking the primary business, retail, to a tiny fraction of it’s former glory. The home repair business, Sears Home Services, appears to be a main focus currently, and their vans are still on the street, but complaints about that service litter the internet. PARTIAL SUCCESS, but not how anyone expected.
- Paying Off Debts: For the most part, this was a failure. If you visit one of the few full line stores left today, you will see that Sears does not have a wide variety of goods. This is because during the bankruptcy process, Sears vendors lost hundreds of millions of dollars, totaling at least 303 million. A few of the major creditors from the vendor side of the table include Whirlpool, owed 22 million as well as Stanley Black and Decker and LG Electronics. Any effort to revive Sears (and Kmart) would have to deal with that legacy. FAIL.
- Honoring Pensions: Sears used to be a career-driven company. Employees might spend their entire lives with the big store. They could expect a pension at the end, which is virtually unheard of today, outside of government. Lampert arranged for the Pension Benefit Guaranty Corporation to take over the payments, which is a government agency. PARTIAL SUCCESS.
Eddie Lampert presided over Sears and Kmart during their sharpest decline, although to be fair they had been declining for some time. Measured by the metric that Wall Street cares about the most, the stock price, Lampert’s tenure is abysmal. Far from being transformative, Lampert has steered Sears into reefs and shoals, and the price has declined from a high of 134 dollars a share in 2007 to it’s current price as an unlisted zombie stock of 0.10 cents a share. Lampert simply does not make the grade and has not kept his promises as of yet. It’s likely someone, especially Lampert, will make some serious money in this affair, but it will not be made through retail operations and it will be made by cannibalizing the company’s assets, limiting the chances of any retail success. Maybe someone should put him on a Performance Improvement Plan. I won’t hold my breath.
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Read my full series on Sears and Kmart:
The Good Life Isn’t Here Anymore
