The non-strategy of Edward Lampert to save Sears
The non-strategy of Edward Lampert to save Sears
For many years, it was a favorite game of corporate riddles: What is Edward Lampert's final plan to revitalize Sears? It's time to consider the possibility that I really did not have one.
A reading of the 15 annual letters from the president of Lampert suggests that he believed he could outperform the rivals he considered inflated. The hedge fund veteran formed Sears Holdings, the marriage of Sears and Kmart in 2004, when the company had $ 55 billion in revenue, rivaling Target Corp. and dwarfing Macy's Inc., but spending much less on home renovations. stores or other expansions.
Amazon.com Inc. has remodeled retail in the years since, forcing retailers to retire, many resort to strategies that require large investments in online shopping tools and expensive upgrades to physical stores.
"Eddie came into the job with the perspective that he was going to run a retail business in his own way, and he did not believe in conventional wisdom," said Mark Cohen, former executive director of Sears Canada and head of marketing at Sears. "It did not work."
Not long after the $ 11.5 billion Sears-Kmart deal, Mr. Lampert wrote that there was no "grand strategy unique" for Sears, and he remained committed to that.
He was reluctant to commit capital for new companies. Describing a plan to convert Kmart's independent locations into Sears stores, he said that "we will not only bet on any concept, but we will test, evaluate, refine and 'prove the mathematics' so that the investment is justified." Initiative after the initiative fulfilled an equally lukewarm commitment, by not attracting the investment needed to gain strength.
There was the plan to turn Kmart into an e-tailing power station with stores that serve as collection points. (Today, a similar boost of several years is helping Best Buy Inc. recover.) But Sears technology spending was negligible compared to Walmart Inc., Target and Amazon. Walmart spent more than $ 2 billion in e-commerce in the fiscal years of 2015 through 2016, roughly equal to Sears' capital expenditures throughout this decade.
Efforts to make the most fashionable clothing deals, such as the Kardashian Kollection, Kollapsed Kwickly.
"There was a lot of underinvestment," said Greg Melich, a retail analyst at research firm MoffettNathonson. Messrs. Cohen and Melich say that Sears was not well managed before Mr. Lampert arrived. The stores were outdated and the operations inefficient. "But his strategy of creating value did not help," Melich said.
Mr. Lampert, who started an investment firm in the 1980s and made his name as a pioneer of hedge funds. Among its best bets: AutoNation Inc., the largest chain of dealers in the United States. He entered the retail industry as many companies spent billions annually on new stores. Mr. Lampert, in annual letters, said he did not need to keep up with Target or Home Depot because the Sears collection of more than 2,000 stores was more than enough.
The "store closing" signs announce discounts at Sears in New Hyde Park, N.Y.
Photo:
Shannon Stapleton / Reuters
But Sears invested only $ 4 billion in capital expenditures between 2006 and 2017, including updating stores or creating initiatives like a loyalty program that gathered customer data. That represents less than 1% of revenues during that time, compared to Target and Macy's spending of 4% of revenues.
While Sears spent $ 6 billion on share buybacks, those two rivals also repurchased shares aggressively during that period, but not at the expense of innovation. Target spent approximately $ 23 billion on repurchasing shares during the time, but distributed $ 31.6 billion for capital improvements.
Sears sold billions in stores and formed a real estate company based on certain assets. He downloaded or spun out Craftsman tools, the Canadian-based credit card division of Sears, Landsier End and the California hardware chain Orchard Supply.
Mr. Lampert could not be reached for comment, but he has repeatedly refuted claims that he deprived Sears and Kmart, saying the company has been treated unfairly and that hundreds of millions in technology spending has been ignored.
Many rivals stopped capital spending after the financial crisis. After a series of bankruptcies that claimed the companies that went from Circuit City to Borders, the sales managers withdrew from the physical expansion and put money into technology companies. Although they tend to be more efficient, investments in technology do not immediately satisfy the demand for the immediate return of the investment that Mr. Lampert presented in several of his letters.
"It is very difficult to" harvest "a retailer's investments, since the needs and preferences of consumers change," Melich said. Companies must be agile in a competitive market, be willing to adjust the strategy to reflect changing trends, but ultimately, they must stick to a five-year horizon.
Pressing for a better return on investment that never materialized, Mr. Lampert lost sight of the most important player in retail sales: the customer.
"When someone approaches a Kmart or Sears, they do not see ROI," Cohen said. "They see light bulbs that are burned, potholes in the parking lot and an entrance door that looks like it was hit with a hammer."
Mr. Lampert did not confuse the company's legacy. He misjudged the future of the company. A recent study by the Edison Trends research found that Sears' e-commerce sales were only 17% of Macy's, although overall revenue was about two-thirds of Macy's.
Cohen, who now teaches at the Columbia School of Business, said Sears' long legacy as a leader in catalog sales and his first experiments with the Internet laid the groundwork for a different fate for the company whose ads he once said was " where the United States buys. "
"Sears could have been Amazon," he said.
Write to John D. Stoll in john.stoll@wsj.com
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