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.











Reader Comments (Page 1 of 2)
8-23-2009 @ 4:23PM
George said...
What a mess Sears has made of their franchise. After WWII they came out of the gates and expanded everywhere, eventually burying their biggest competitior, Monkey Wards. Then they got rid of their professional sales staff because they were making too much money and it has been downhill ever since. Sears was invincible, how could they have fallen so far?
8-23-2009 @ 4:31PM
RICH said...
In addition to poor products, pricing, and service, Sears also tops my list in predatory marketing and lending practices; I haven't darkened the door of a Sears store in a year and a half and likely never will again.
8-23-2009 @ 4:31PM
Shaun said...
What comes up, must come down ;)
8-23-2009 @ 8:22PM
Eric said...
I worked for Sears for 37 years mostly in store management positions. I experienced great times and some times not so good but we always found a way to rebound successfully. During my last few years '05 to '07 I encountered VP's that were focused on trash can liners outside of the store and finger prints on the glass doors as much as customer service, merchandise presentation and sales growth. There seemed to be a real lack prioritization and true customer focus which continues today! Being in stock on advertised items and basics would be a good place to start. I only shop there to use my retiree discount!
8-24-2009 @ 8:16AM
zekezena said...
Another Over paid, Over Hyped, Hedge Fund, Master of the Universe, Genius, who has run a company into the ground. Does Cerrubus and Chrysler ring a bell. Lampert is over rated.
8-24-2009 @ 8:27AM
dskaalrud5 said...
Sears is a brand associated with your grandparents and has failed to shake that stodgy old-fashioned image which is why they are failing to connect with younger consumers. While it's a brand that represents quality (Kenmore, Craftsman), consumers equate Sears with being outdated.
8-24-2009 @ 8:41AM
paul smith said...
I watched Sears go from a service-oriented, quality retail store to a k-mart. I always bought my clothes, shoes, jewelry, and appliances there. They were of high quality, with knowledgeable sales people, (on commision), and quality merchandise. Now, it's just another discount emporium with minimum wage kids stocking crap in bins for the customer to pick over... Tore up my Sears Card years ago, and never went back. And I'm but one of thousands or miillions that can tell the same story. When you sacrifice quality for crap.... You can close the doors.
8-24-2009 @ 8:51AM
superglide125 said...
I quit buying things at Sears' after a pushy saleswoman kept nagging me to apply for extra credit (cards) she would not take no for an answer. When I finally got away from her I complained to customer service and never went to her station to make a payment again.
The increase in Sears' credit card interest is another reason I closed the account I had for over 25 years. In these days of financial hardship, it is without conscience or concern for their customers that they have raised their ineterst rates. People are losing their jobs, their homes, where do they think this extra money is going to come from?
I say hurray - I hope Sears' crashes and burns. I will NEVER buy another thing from them.
8-24-2009 @ 9:30AM
Mike said...
Sure, let's hire a "coach" who's never played the game before and pay him lots and lots of dough-----for failing. One of these days the stockholders will get it through their thick heads that the corporate boards are the problem---for hiring and paying huge salaries to LOSERS.
I just got a notice in the mail about Sears jacking up the credit card fees. I don't owe anything on mine and WON'T anytime soon. I only use it when I really need some household item(fridge, stove, etc) and they knock off 10-15% if you use your card. I then pay it off when the bill comes in.
8-24-2009 @ 9:52AM
Gary said...
I have not shopped at a sears store in years but I was alwasy a store credit card holder. When I finally went to a sears for some auto repair I tried to pay with my sears card only to be told by the salesman that my card had been cancelled for lack of use. Sears never informed of this it was the salesman after the repairs had been done. I had to scramble to find the cash to pay for the repairs. Sears deserves to fail and should fail. Who treats customers like this?
8-24-2009 @ 10:02AM
OSHP367 said...
They just raised their interest rates to 25.4% PLUS PRIME!!! That will equate to 30% real soon and they will be having their going out of busines sales within 2 years.
8-24-2009 @ 10:06AM
Jim Hamblin said...
Eddie was a self-appointed overnight authority. Experienced retail-watchers could see the train wreck in the making.
This may be another Humpty Dumpty situation and a reminder that the best retailers have both a left brain and a right brain.
Wonder if this would be a good acquisition for Penney's?
8-24-2009 @ 11:25AM
cpain said...
Here's a thought: What about a store that supplies only American made goods? It starts small, without a lot of over-stock, limited runs and cash only. The store can only sell clothing, appliances etc. made here in the USA. Think of it like this: when you go to the supermarket - if you have to choose between produce grown in the US or from another country which do you choose? Let's figure out a way to fuel our economy by being our own best customer. Even a small step, is a step in the right direction.
8-24-2009 @ 11:12AM
vbeek2002 said...
Sears is good for nothing. Their name has been on a downhill slide for 25 years. Buying KMart was the dumbest thing EVER. Just shut Kmart's doors. Sears should change their name and rebrand themselves. The dumbasses in this country will forget it was Sears and they might regain business. Sears is overpriced and EVERYTHING they sell is only a rebrand. WHO wants their Whirlpool appliance to say 'Kenmore'??? Not me. Why? because Kenmore is synonymous with Sears and Sears = CRAP. Here's an example: I purchased a nice rechargeable drill for my father. After a while the cheap battery charger cracked (after the warranty expired, of course). I went to Sears to get a replacement charger. The charger itself was as expensive as a NEW DRILL with two extra batteries and another charger. What kind of B.S. Is that??? It's time to STOP throwing stuff away and start making a QUALITY product right the first time. Let me throw away my laptop just because the power cord is bad...WTF???
8-24-2009 @ 11:14AM
Angela said...
I don't like to shop at Sears at all. It is because, quite simply, I cannot abide the atmosphere. The local Sears is dimly lit, understaffed, minimalist in a bad way, and just unappealing. It feels like a funeral home. The clothing is so crammed together, it's claustrophobic, and the employees look and act like they've been embalmed, too. Think zombies (without the blood & gore). And I'll be damned if any of the 2,000 employees in the overstaffed electronics department can give you a straight answer. It doesn't matter what the business strategy is. If people do not want to shop there, a retail store, even a chain of department stores, cannot be successful.
8-24-2009 @ 11:19AM
Dave Spofford said...
I'm old enough to remember when buying something at Sears meant good quality and a reasonable price. If you go in there today, you'll find some good merchandise which is being sold at premium prices by the least informed salesforce coupled with a credit card that that pushes the limit of the usary laws. If you have a problem with your purchase you'll have to talk to everyone in the stores chain of command to get what other stores give you wihthout the hassle. Sears will soon be going the way of Montgomery Ward and I don't beleive anyone other than Wall Street will give a damn.
8-24-2009 @ 11:33AM
user said...
OSHP367, i just recieved my opt out option of the 25% increase in the credit cards, I OPTED OUT, THEY CAN KEEP IT
8-24-2009 @ 11:57AM
Sonja Dunbar said...
We replaced all of our large appliances at Sears and are pleased. I only use their credit card to get discounts and free interest. I never buy anything else there. We have a Sears store that was so busy 20 years ago they added a second floor to the store, but now the store is practically empty most of the time. To me, Sears and Penney's were similar when I was growing up in the '50's, but Penney's has somehow stayed with the times better than Sears. But, I don't buy much of anything at Penney's, either, since they seem to cater mostly to the very young in fashion. I do buy home goods such as pillows, drapes from them once in awhile.
9-01-2009 @ 9:01AM
Levi Stubbs said...
I used to work for Sears, managing a Parts & Repair Center. Sears literally has shot themselves in the foot by keeping Eddie Lambert at the helm. Instead of being customer service orientated, which was what made them the retail giant they used to be, the company is now focusing on how much revenue can they pay the people who work in Hoffman Estates, IL. They closed the store I managed and left a gap in the community. Our store provided parts & repair services that encompassed a 100 mile radius in the north central part of Louisiana. Now the nearest places are 100 miles to the north and south of central Louisiana. Our customers were quite upset because they counted on our friendly customer service goal that I had my staff to focus on. Also, the rate of pay at the retail store in Alexandria, LA is just above minimum wage, which makes working for them like a high school kid working part-time. We live in a country that corporate America is only concerned about executive bonuses and not what the customer needs and the front-line employee needs. Sears will continue to decline if the corporate strategy doesn't change real soon.
8-24-2009 @ 1:53PM
john said...
THAT JERK RUINED SEARS,HE SHOULD GO TO JAIL WITH THE REST OF THEM