Can Sears and Kmart Come Back from the (Near) Dead?

It’s been something the general public has been expecting for years and late Sunday, it finally happened: Sears, the Amazon of the 20th century, a leading brand for decades, filed for bankruptcy. Some say that the demise of Sears along with Kmart is just part of creative destruction. Both brands were on the way down when Sears and Kmart merged in 2005, so chalk it up to Amazon and move along.

While it’s true that both Kmart and Sears were struggling when former Sears Holdings CEO Eddie Lampert brought them together, Sears would not be in the desperate position it’s in if not for the malpractice of Lampert. Ethan Epstein of the Weekly Standard described Lampert to a T:

If Warren Buffett is the cuddly grandfather of American capitalism, investing in solid, well-managed businesses so they can prosper in the long run, Lampert is the sleazy uncle who shows up to the family reunion each year with a different girlfriend and new sports car.

I’ve written about Lampert’s mismanagement before.  Lampert was a hedge fund manager and as such saw Sears more as something to get profits from without investing much.  Like Toys R US before it, Sears is the victim of “Vulture Capitalists.” Lampert kept talking about a turnaround, but there was never any vision.  Stores were never updated.  I’ve been in Sears and Kmarts over the last few years and they’ve become sad forlorn places.  This story from CBS News shows how terrible Lampert’s leadership was:

Lampert, a devotee of the novelist Ayn Rand, reportedly made division heads compete for resources and money, believing that the competition would ignite innovation and sales. Instead, according to Bloomberg, the result was managerial infighting.

At the store level, shoppers weren’t happy, either. Sears failed to upgrade stores and keep shelves stocked with enticing merchandise, leading to customer defections.

 

The kicker of the article states that Sears, once a trusted name, became dirt. In 2016, women shoppers had given up on the brand and preferred to shop at Goodwill. Yes, Goodwill. When a thrift store is beating Sears, you know the situation is terrible.

Lampert has stepped down as CEO, and the hope is that chapter 11 will give the company time to restructure and retool. The company has added a restructuring expert to the board which is a good sign.

But is it too late to save Sears?  The company has closed so many locations that there are parts of the country that have no Sears or Kmart at all. If it restructures, what will Sears and Kmart look like?  Could they grow again?

I’d love to see these businesses grow back to some sort of prominence, but after cutting off so many parts of the company, what’s left may not survive.

Writers note: While Sears maybe down for the count, the name of Sears will live on through Sears Hometown Stores and Sears Outlet, which were spun off from Sears in 2012.


Contributor

Dennis Sanders is the Associate Pastor at First Christian Church (Disciples of Christ) in Minneapolis, MN.  You can follow Dennis through his blogs, The Clockwork Pastor and Big Tent Revue and on Twitter.  Feel free to contact him at dennis.sanders(at)gmail(dot)com.

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25 thoughts on “Can Sears and Kmart Come Back from the (Near) Dead?

  1. Yeah, it’s difficult to know whether Lampert believed his hype about Randism and divisions competing, or whether that was just something to say that made the right people happy while he collected his interest.

    I get to wondering sometimes whether this is an inseparable feature of a capitalist system that mostly focuses on private ownership, or just a wart on that system that started somewhere around 1980.

    So many things changed about then, it seems. For instance, the idea that a publicly held corporation’s first and foremost, perhaps only, duty was to its shareholders dates to the 1980’s, no earlier.

    Which makes me think that it’s only in recent memory that people look at a Lampert and think “that’s how it’s done” rather than “what a jerk”.

    But it must be said, I don’t really have much nostalgia for Sears or Kmart. And for the record, I think Home Depot and Lowe’s have had a hand in killing Sears along with Amazon.

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  2. Was Lampert the guy who said “we’re going to stop doubling the price of everything and then making it down 50%”?

    Because while, on one level, I kinda prefer the straightforward “if you see a belt marked $20, you know it’s going to cost $20” to the whole “mark it up over here, discount it over there” thing… but sales *PLUMMETED* after they changed that policy.

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  3. I doubt they can come back. A new K-Mart would be trying to break in against Wal-Mart and Target in the discount store space, Sears against Penney’s and everyone else in the department store space, plus the big box specialty stores like Home Depot and Best Buy. The whole question will be moot if the creditors get their way — I understand they want a chapter 7 liquidation, not the chapter 11 reorganization Sears has asked for.

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  4. Doctor Jay:
    I get to wondering sometimes whether this is an inseparable feature of a capitalist system that mostly focuses on private ownership, or just a wart on that system that started somewhere around 1980.

    So many things changed about then, it seems. For instance, the idea that a publicly held corporation’s first and foremost, perhaps only, duty was to its shareholders dates to the 1980’s, no earlier.

    Duty to shareholders has always been a thing – that show we got the original Great Depression. What changed post-1980 was the emphasis on short term profit above all else. If we ever get back to building value as the over riding proposition – and with an reexpanded definition of value that includes long term stability – we will be on to something.

    But it must be said, I don’t really have much nostalgia for Sears or Kmart. And for the record, I think Home Depot and Lowe’s have had a hand in killing Sears along with Amazon.

    I don’t buy it. They may not have helped, but Sears as it was didn’t compete in all their markets. I thin Sear demise helped them in that as it was clear that Sears was going down the appliance makers shifted business to keep market penetration. And selling off Craftsman Tools was stupid – thought i can now get nicely designed Craftsman tool boxes at lowe’s.

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    • What changed post-1980 was the emphasis on short term profit above all else. If we ever get back to building value as the over riding proposition – and with an reexpanded definition of value that includes long term stability – we will be on to something.

      Very much this. The essence of vulture capitalists in particular, but huge swaths of modern capitalism in general, is that if an asset can either produce steady but modest profits over the long term, or it can be burned off for a short-term windfall, burn it!

      A few decades of this an American companies are largely unwilling to sell quality products at any price. Earlier this year I had to buy a new clothes washer. My expectation going into the shopping process is that I would expect a new machine to last on the order of fifteen years. This used to be the norm for durable goods of this sort. It turns out that all those name brands have been crapified. They are cheaply made, with the result that they only last about five years: a win-win for the manufacturer and retailer. The sole exception is Speed Queen, an old-school company that still builds washers and driers like your mother used. They have about one percent of the market, don’t advertise, and refuse to expand. I paid nearly twice as much as I would have for a Maytag, and am glad for the opportunity.

      I tried to look up who owns Speed Queen. I didn’t get a satisfactory answer, but I suspect is has been in one family for generations, with each generation regarding the company as a legacy to be passed down. Quality products generally come from this sort of company. Publicly traded corporations pretty much can’t operate this way, as some venture capital outfit will bull its way in and gut the place.

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      • Publicly traded companies can operate to create quality products, but they have to put customers over shareholders and develop a thick skin against the prognostications of Wall Street and the fact that their share price will not be their strongest indicator.

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      • The essence of vulture capitalists in particular, but huge swaths of modern capitalism in general, is that if an asset can either produce steady but modest profits over the long term, or it can be burned off for a short-term windfall, burn it!

        This doesn’t quite make sense. Generally, the current price of an asset is the value of its future positive cash flows times some kind of discount rate. What decides whether someone takes the long side or the short of a trade is their discount rate, which depends on what type of business they are in. The asset doesn’t get “burned” it’s just traded between people with different investment horizons. These aren’t questions of ethics or values; they’re questions of the capital planning horizon.

        A few decades of this an American companies are largely unwilling to sell quality products at any price. Earlier this year I had to buy a new clothes washer. My expectation going into the shopping process is that I would expect a new machine to last on the order of fifteen years. This used to be the norm for durable goods of this sort. It turns out that all those name brands have been crapified. They are cheaply made, with the result that they only last about five years: a win-win for the manufacturer and retailer.

        What makes you think that this is because of short-sighted CEOs or vulture capitalists and not merely a reflection of what customers want and are willing to pay? And again, there are legitimate reasons why someone might prefer a $500 washing machine that lasts 5 years over a $1,000 washing machine that lasts 15 years.

        The idea that short-termism is some kind of rampant problem is mostly a political talking point. Not that it doesn’t happen, but how much it’s happening and how big of a problem is a point of contention in the literature.

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      • Very much this. The essence of vulture capitalists in particular, but huge swaths of modern capitalism in general, is that if an asset can either produce steady but modest profits over the long term, or it can be burned off for a short-term windfall, burn it!

        Please provide concrete examples of this. Are you referring to something like profiting off of a sale-leaseback?

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  5. Sears is toast, imo. Macys (or whoever their parent company is now) may look to acquire some Sears locations in places where they are not already present or the anchor (which I don’t think are many) – though I think Macys also shut down a lot of underperforming stores over the past few years.

    Similarly, Walmart or Target may move into the big box location where existing Kmarts are, but again, they largely already done this where it makes sense. Perhaps Costco or one of the other clubs will expand more (Costco hasn’t been afraid of puting stores relatively close to each other within a metro area in the places I have lived)

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  6. In 1992 I was shopping for my new baby and Sears had apparently just rolled out a big nationwide promotion for the movie ET.

    Which had, of course, come out in 1982.

    My husband and I laughed and laughed about that, especially since everything had been marked down to like 99 cents and even then no one was buying it. And the ET merch was the only stuff in the entire store that wasn’t entirely picked over, disorganized, and half-empty. There were dozens of clerks just lurking around asking us if they could help. We were just like “How can they be SO BAD at doing this?”

    Honestly, it’s amazing they’ve hung on as long as they did.

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  7. Oscar Gordon: And the reason this happens over and over is that I don’t believe Business Schools are interested in trying to teach executives to be creative, or to even recognize any creativity/genius in anyone but themselves and their peers.

    I don’t think business schools actually teach leadership. and their claims to “create” executives is laughable at best. Executives are grown, not created. Which is probably part of the problem as well.

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      • nope, through old fashioned or quaint things like experience. You can’t send someone to school where they get a narrow view of the possible, tell them thats all there is, and then toss them into dynamic organizations and call them anything other then shell shocked. Its why so many CEOs and COOs and board members are so dang old. Taking a fresh business school graduate and making them an executive is taking a technical subject matter expert and making them an artist. Absent some of that hard won experience, they will never really lead.

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        • I took one management class in my library school degree, shared it with other graduate degrees in information sciences.

          The differences between those of us with decades of actual experience in the workforce, or better yet any management experience AT ALL even if they were relatively new to working (like less than 10 years) vs. the newbs fresh out of their undergrad degrees with only “apprentice” type jobs under their belts (internships, working for one owner of one small company, etc.) were extremely marked, and mostly (not entirely) did not favor the newbs….

          All that to say, yes, I agree with you.

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  8. If “vulture capitalists” killed Sears and Toys R’ Us, then labor unions killed Hostess.

    Sears, like Toys R Us, were on the wrong side of change. Were there managerial mistakes in both cases, yes of course. However, I’m as sure as I’m short that even if you had the “right” kind of management (i.e. not of the hedge fund/private equity sort), both companies would meet the same fate. Patient and inexpensive equity or debt capital doesn’t invest in companies with this kind of risk profile.

    Like the ownership of Toys, I don’t think Lampert or his company intended to own long-term but got stuck doing so but that’s a whole other story.

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  9. Dave: Like the ownership of Toys, I don’t think Lampert or his company intended to own long-term but got stuck doing so but that’s a whole other story.

    That’s mostly my point. They wanted to wring as much profit as possible out of the company in as short a time as possible and move on. They had no long term vision and no real desire to preserve the brand reputation.

    j r: The idea that short-termism is some kind of rampant problem is mostly a political talking point. Not that it doesn’t happen, but how much it’s happening and how big of a problem is a point of contention in the literature.

    Judging by the widely reported market outcomes of so many companies across so many sectors that have, essentially, been “Sears-ed” I’d say its a problem. Both from the stand point of long-term income streams (which IMHO are far better supports of economic growth them gimmicky tax cuts), as well as from the standpoint of economic security more broadly. If in fact America truly needs to be a manufacturing giant again (a debatable point) then companies have to allowed to remain in business for decades and build quality products. thanks largely to automation you can choose to build a 15 year washing machine that turns a nice profit but isn’t expensive for the consumer, because by doing so you are ensuring customer loyalty.

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    • That’s mostly my point. They wanted to wring as much profit as possible out of the company in as short a time as possible and move on.

      You say that like it’s a bad thing. It’s really not if you look at it the right way.

      They had no long term vision and no real desire to preserve the brand reputation.

      What makes you think that? Do you understand what moving on constitutes?

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