Lampert's Folly?

Edward Lampert's credentials are impeccable - Yale Skull & Bones, Goldman Sachs risk arbitrage under Robert Rubin (Secretary of the Treasury under Clinton), and of course the billion dollar hedge fund ESL Investments that he founded. Billionaire at 41, he even talked his way out of a kidnapping during negotiations to take over Kmart. Before 2007, his culminating merger of K-Mart and Sears was applauded by both the markets and many commentators.

Since then, however, SHLD has floundered. What happened?

While other retailers are recovering (ex-JCP), Sears can't even seem to be make money and more importantly, has been losing sales for the last five years.

A recent BusinessWeek article may hold some of the answers here. After reorganizing Sears into dozens of entities, each with CEO, board and profit/loss statement, the firm has devolved into bureaucratic infighting. With thousands of stores and over 200,000 employees, the firm has chosen to split itself internally into dozens of smaller entities (but not really). Sears has traded inefficient cooperation for efficient (if cutthroat) competition. A former executive describes Lampert's model has

created a “warring tribes” culture. “If you were in a different business
unit, we were in two competing companies,” he says. “Cooperation and
collaboration aren’t there.”

How did this happen? Lampert has interpreted free market economics and Ayn Rand's philosophy to make decentralization a key component of Sears. Lampert intends to have the invisible hand choose which business units succeed. However, a key non-free market part is Lampert. Because all units ultimately report to him and he disburses funds, this system is more like centralized planning. Units are vying for Lampert's attention, not trying to make SHLD. In fact, by artificially splitting apart Sear's business (which were formed roughly along market lines' of cooperation), he is disrupting the free-market economics that he seeks to follow.

Given this, is Sears's problem actually its Chairman, Lampert?

Icon source: http://blog.cleveland.com/metro/2011/12/sears_hq_isnt_coming_to_ohio_a…

 
Best Response

I think all that's needed is to walk into a Sears store and you'll get all the answers you need. I walked into a store to make a Christmas return a few months back and was floored by how empty/idiotic the store was. The whole idea of shopping for clothes, appliances, and tools under the same roof creates a chaotic shopping experience. Literally the only people who shop there are my grandparents. As the baby boomers die off in the next decade or two Sear's entire customer base will too.

With that said, someone I know and trust that works at MBB said Sears has a strong corp strategy/development program...and I don't think he was trolling. He recommended I look into it for FT recruiting coming up. Any insights?

Listen, here's the thing. If you can't spot the sucker in the first half hour at the table, then you are the sucker.
 

What's the problem? No one shops there. Simple as that. Both chains are legacies of a begotten age that ended decades ago. You can go to sears and most likely find nothing you need because they have all the basics but aren't specialized enough to carry things that people need besides a screw driver, TV or a t shirt. It takes a lot more than just those things to finish out what ever you need.

Follow the shit your fellow monkeys say @shitWSOsays Life is hard, it's even harder when you're stupid - John Wayne
 

The culture problem, while still existent, has somewhat been mediated by putting in format-level leaders (CMO of Kmart, etc). As someone who has recently worked there, the bigger problem is that it is run by someone who doesn't have retail expertise and doesn't know how to fix a retail company. Their ex CEO was a tech veteran who spent most of his career at IBM/Avaya. Now ESL is running it himself.

The company has been prioritizing too much of its efforts on two initiatives: what they call "integrated retail," and a rewards program called SYWR program. Everybody at SHC knows that IR and SYWR are Lampart's babies and BU's with the most attention/money/power.

Integrated Retail puts a huge emphasis on implementation of IT technology in Sears and Kmart stores. This has meant sending millions of dollars to get each store associate an iPad and/or an iPod touch. (Lampert brings this project up every single time store renovation is mentioned.) The idea is similar to that of Apple. They've also spend huge amours of money and human resource on RFID projects as well as expanding Sears.com & Kmart.com.

SYWR is a customer royalty program that gives customers points for money spent and sends them coupons based on customer segmentation. But it simply is a mess, especially given their customer base. I won't go into details, but it basically doesn't match with their target customers' behavior and becomes more of an annoyance for them.

At the same time, emphasis on these has meant less attention paid to the actual stores. Anyone who has walked into a Sears or a Kmart knows how old the stores are. The shelvings are a mess, and the layouts (of various departments) are confusing. Finally, the selection of merchandise is often lacking or simply unappealing. The lack of focus on merchandising, especially for Kmart, has also meant the loss of an identity for the brand. You go to Walmart or Costco for their prices. You go to Target for their "cheap chic" clothes. Lowes and Home Depot for hardware. Kmart? Who knows?

What they need is a CEO who knows with retail experience who will help improve the in store experience and the merchandising. That is, if EL doesn't plan on selling the company and spinning off valuable parts piece by piece.

 
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With that said, someone I know and trust that works at MBB said Sears has a strong corp strategy/development program...and I don't think he was trolling. He recommended I look into it for FT recruiting coming up. Any insights?

Yup they do. They only hire from 4 schools though (for UG--MBA recruiting also only at a few top schools.) PM me for more details.

 

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