What would happen if a brilliant hedge fund manager took over a retailer and ran it with a rigid focus on financial metrics, putting aside all that soft stuff about branding and marketing?
Take a look at Sears Holdings (NASDAQ: SHLD), and you have your answer. While macroeconomic trends haven't exactly been the company's friend, the stock has plunged from close to $200 per share in early 2007 to its current price of $66 per share. Just a few months ago it was trading in he mid-$20s.
In a scathing piece in Barron's (subscription required), Jonathan R. Laing explains just what a mess of things Lampert's strategy has made. Sales are tanking because of uncompetitive pricing, poor service, and lousy merchandising -- and the upside that once came from liquidating the company has disappeared with the arrival of a meltdown in commercial real estate.
Worse, aggressive stock repurchases have rendered the company's balance sheet weak and overleveraged. According to Laing, "The danger in milking the stores is that a retailer can pass a point of no return, in which falling sales trump tight cost controls and profitability goes into irreversible meltdown. Some analysts see Sears Holdings inevitably facing that fate down the line."
For now, the "Liquidate and make everyone rich" scenario is off the table -- and horrifically-timed share buybacks have also helped to destroy what shareholder value hadn't already been torched by a tanking real estate market, pension fund shortfalls, and good old-fashioned operating losses. Back in January of 2008, Herb Greenberg wrote this about Sears:
With real estate values falling, some experts have said the value of Sears real estate is suffering at the hands of the real estate market. One retired retail veteran I know, who has held top real estate positions at many of the largest retail concerns, has a different take. "The real problem," he says, "is that the portfolio has the same meager value today as it had just prior to Mr. Lampert's purchases! There are many reasons for this. In addition to the obvious facts that competition has passed them by, the two main reasons are: the myths associated with the assumptions connected to leasehold value, the restrictions imposed on the value of the Sears-owned mall stores."
A year and a half later, and that's all more true than ever. The question for investors is whether that's already more than reflected in the stock price. Sears was sexy once, but now it's downright contrarian.
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Reader Comments (Page 2 of 2)
8-24-2009 @ 2:35PM
secondthought said...
I purchased a new refrigerator from Sears in January and emailed the rebate the next day after delivery. They still have denied my rebate even after resubmitting. Sears, you suck. That will be my last purchase EVER from you. And like another person stated, the place is dimly lit and dismal looking.
8-24-2009 @ 3:00PM
Dan said...
Wall Mart has stolen the thunder of American retail and it's a shame that there is only room for one, but it's what's going on in our globalist world. People want it cheap and the most part don't car about how long it lasts because they'll be ready to buy a new one shortly. When the manufacturing was in the US, you could rely on it being of good quality, and then NAFTA. Thanks neocons and Clinton you have changed all of us to a third world in just a short time and made Wall Street and the CEOs filthy rich, as well as the communist goevernmet in China. You have done the share holders well. Ops except middle American 401ks, oh well as long as you got yours.
8-25-2009 @ 10:47PM
Bunnye said...
I worked for Sear's from 1963 until 1992. I retired and went back part-time in 2000 until 2009. I had surgery in February and was terminated in July because I couldn't return to work. My Doctor still has not released.me. I was told by 2 people that I had one year to return to work before I was terminated. I hate to make a fuss because I am retired now and still can get my discount. I was in the store a few weeks ago to purchase a few things and the Mall where I worked is like a Ghost Town.
8-25-2009 @ 10:54PM
monarda said...
out of curiosity, googling "sears customer service lacking" from my current, first and soon to be last experience with Sears. I wanted a particular range displayed on the floor, not in stock at the store apparently the computer said and after 5 days of being promised call backs on WHEN the local store would have the range by salesperson, floor manager and today another salesperson (the first salesperson apparently had a death in the family so I'll concede on that point to be merciful), I'm still waiting.
I wanted to give Sears my business but reached my end today. Not only did the floor manager never apologize for not calling me , but he hurriedly gave the salesperson stock #s murmuring "check these out" and walked away from the salesperson's questions with a cell phone already to the ear. So now supposedly this salesperson might call me back in the next hour with an ETA on store delivery but I do not hold out hope on this. I realized as I walked to the family owned appliance store nearby that what led me to Sears were childhood memories that have no relation to the reality at this particular branch, in this department. Being a worker myself, I've saved for 5 months and will pay slighly more for what I found to be the superior (and immediate) customer service at this family owned business. Sorry Sears, I tried.
9-11-2009 @ 12:06PM
EdW said...
I was a loyal Sears customer for over thirty years; seldom did a week go by that did not find me purchasing something at my local Sears store. I knew many of the store clerks by name, their families' trials, and so on. All of my major and most of my minor appliances came from Sears. I also had a $5000 line of credit from Sears through my credit card; from time to time I would carry a balance, but I really tried to -- and almost always -- paid my balance in full every month. This was in the days when there was no grace period, and interest would accrue from the date of purchase, so Sears got a little "vig" from me whether I paid off the balance or not.
Shortly after Mr. Lampert (Lamprey?) took over, I got into a bind with someone who held a stake in my business; I am a sole proprietor DBA, not a corporation. This, of course, had a deleterious effect upon my personal credit, although I qualified for a conventional home loan a year later. During this trying time, I received a letter from Sears, informing me that my credit card would no longer be honored at their stores. Mind you, I had never had any sort of credit issue with Sears; the bill came, I paid, and that was that. I don't know if the 50-point drop in my FICO score caused this revocation or if some bean counter decided that I simply was not paying enough interest, but it was what it was.
I have not spent a dime there since. The problem isn't scuff marks of the floor; it's the high-handed manner with which they deal with their "salt of the earth" customers. May Lampert and his minions burn in hell.
9-29-2009 @ 12:48PM
Larry said...
I have read most of the comments on here and can not believe that Sears was the retail giant that everyone said they were. They 10 yrs ago were close to closing the doors. Quality products yes they were known for that when people would spend good money for a good product. Now we shop discount stores and look for the cheepest price instead of quality. You spend nothing on a tool and want it to last forever,you do not want another credit card but complain when offers are made for 0% and you can not take advantage of it. Poeple want and want but do nothing to make it better. When you shopped at any store do you fill out the surveys or do you just say " I will not go back", Sear and all other retailers have made changes to get people in the door complain about poor quality and pushy sales people, most stores do not have any,You still shop Wally world for the lowest price and no customer service.Untill we change retailer will still go out of bussiness and Sears maybe on that list but shop price or Quality.
10-02-2009 @ 10:21AM
LOYAL said...
HEADED FOR DUMPSTER ... MR.LAMPERT NEEDS TO TAKE TIME TO TALK TO HIS HUMAN RESOURCE MGR. & HIS ASST.IN THIER COZY H.O. OFFICE. THEY ARE OUT OF TOUCH!!! YOU CALL THIER I-800 , YOU DONT GET RESPONSE. YOU WRITE LETTER TO THEM YOU DONT GET NO RESPONSE. WERE TELLING YOU ,YOU HAVE LOTS PROBLEMS IN YOUR STORES AND IT STARTS WITH YOUR STORE MGR. I USED TO WORK AT SEARS , MANY YEARS OF LOYAL SERVICE,DOZENS OF AWARDS,AND LOTS OF LOYAL CUSTOMERS. WELL, THOSE LOYAL CUSTOMERS WHO IS YOUR BUSINESS WONT BE BACK ! I WAS LET GO OVER YOUR 90 DAYS REFUND POLICY WITHOUT A WARNING OF POLICY CHANGE .THATS SEARS FOR YOU.
I WORK FOR ANOTHER RETAIL COMPANY NOW AND WILL CONTINUE TO PROVIDE GOOD CUSTOMER SERVICE. ITS GOOD TO KNOW THERES OTHER GOOD RETAIL COMPANY OUT THERE WHOS BUSINESS IS RUN PROPERLY.
AS FOR SEARS, ITS TOO LATE TO SAVE SEARS.
1-16-2010 @ 4:55PM
exlandsender said...
I agree with most of the above. I was a Sears customer as my kids were growing up. I bought a lot of clothing, appliances and household items there. Then things started changing. Name Brands were gone. The catalog was done. They no longer would stand behind their products. They spoke rudely to my son who answered the phone concerning selling us siding.
I worked for Lands' End for 26 years. I was in customer service. We were trained to treat others how we would want to be treated. Lands' End did and I think still has a "guaranteed period" policy. Gary Comer the founder of Lands' End operated totally on the premise that you should take care of your customer, take care of your employee and the rest would take care of itself. Lands' End was built and succeeded on this motto. Gary eventually had to sell Lands' End due to ill health and died soon after. He sold to Sears and believed his company would be taken care of. He did not see Sears Holdings/Eddie Lampert acquire Sears and Kmart and also therefore Lands' End. I think if he had a crystal ball he would not have sold his beloved company to them. Many if not most of the over 20 years of service employees have been let go, fired, or cut from the workforce. Many changes of hands in the CEO position and others in leadership. Many positions are open and will remain open. Who would move here for an insecure company knowing they could be let go at the drop of a hat??? Now calls are scripted and workers are forced to ask pointed questions regarding needing hats to go with coats, socks with shoes, shirts with ties etc. SELL< SELL< SELL is the name of the game. Who cares what the customer needs? Employees are treated terribly. Calls are monitored always and employees are verbally abused for not following the script or protocol or whatever reason they can find to humiliate the employees and give them bad reviews. Those using health insurance were the first out, many who were disabled but could still do the job are now gone, a phone center was closed, and then long term benefited employees have been dismissed on a daily basis. Still to this day several years later.... SEARS also does not want to pay their property taxes in Dodgeville and are contesting them. They are not a good employer, or a good community supporter like the former Lands' End was. It is a sad story. When Sears goes under it will be devastating to this small town and rural community that many people rely on for employment. It is the main employer and is about 45 min away from Madison, Wi. the nearest city. I have many family members still employed there and no one is happy. And then they wonder how come they can't get people to apply for their part time holiday positions. This is not Chicago. We are a community. We are family. If you hurt one member of the family/community the others are not going to rush in to apply for your stinking holiday positions. Eddie...if you don't care about the company or the employees or even the customers, then sell it to someone who will care. Too bad those kidnappers let you go. Too bad you didn't learn a lesson from that experience. Life is short and should be spent in a better way then being greedy. You are destroying the company and the community and that is unforgiveable. I would not step foot in a Sears or a Kmart now for any reason unless there are some big changes made.