Sears On Life Support

In the war for retail supremacy top Sears Holding brass continue to desert faster than members of the Iraqi military.  After parting ways with  Yum alum Alwyn Lewis, they have now seen the defection of the SVP of Home Services Mark Good and marketing chief Maureen Maguire.  They also lost Lands’ End chief David McCreight, who took the No. 2 post at Under Armour Inc. and Bill Stewart, Kmart’s chief marketing officer, who left in June to work on a campaign to protect gay marriage in California.  I met  both Maguire and Stewart last year.  My impression was that regardless of talent, it was difficult for them to function in an environment whose structure was defined by chaos.  Sears still has some some talent hanging on in the likes of head of Kmart retail chief Don Germano  and SVP of Supply Chain Robert Phelan.   How much longer they will tolerate Eddie Lampert’s “top to nowhere” management style or end up being the newest scapegoats is anyone’s guess.

Alywn Lewis left almost a year ago and has not been replaced.  His position has been filled in the interim by W. Bruce Johnson whose primary experience was in supply chain.  Word on the street is that Johnston is not a fan favorite of employees and is considered almost as aloof and out of touch as Lampert.   This can not be a good sign for quarterly numbers expected to be released shortly.  We should see another terrible quarter on the heels of the biggest quarterly loss since hedge fund guru Eddie Lampert took over the helm 3 years ago.

Sears top revenue generators are a telling sign of the bleak future.  While still the largest supplier of home appliances their market share is on steady decline to the benefit of of competitors such as Lowes and Home Depot offering better service and more aggressive pricing.  The loss of Home Services SVP Mark Good may be just as telling. His Home Services division was responsible in part for installing and repairing Sears appliances.  Good was widely considered one of Sears top talent acquisitions.  He was unable to turn around  a division already under constant attack for terrible customer interaction, shoddy response and scant part availability.  We could gasp and say that this is shocking and reflect on the once mighty Sears that supplied our parents and our grandparents homes but this spiral into complete retail irrelevancy was pre-destined from the moment Wall Street Hedge fund guru Eddie Lampert took over as majority shareholder and CEO.

In the retail industry same store sales is what Wall Street looks at to gauge how well as retailer is doing. It is not the final word in how well a store is really doing but for better or worse it is the bench mark. Edward Lampert prefers to use EBITDA (Earnings before interest, taxes, depreciation and amortization) as his benchmark. That is well and good for the egg heads. You can have all the MBA ‘s in the world working for you but in the end someone still has to want to walk into your store and buy something. That someone then has to want to come back. That someone then has to want to tell others to come and check it out.  Its called customer evangelism.   That is the cycle every retailer strives for.  You want someone to buy your product and tell others to buy it.  You want someone to like your “brand” and tell others to check it out.  When consumers stop participating in that cycle irrelevancy follows.

In what could be the most telling sign of the last gasp of a once proud retail giant, Lampert did something he swore up and down he would never do to generate revenue.  Sears in true pre-bankruptcy Kmart form has engaged in across the boards Midnight Madness sales and other sales gimmicks designed to rid Sears of an enormous amount of excess inventory. Sears has been in continuous mark-down mode ever since.  We can expect this to be reflected in their 2008 2nd quarter numbers.  Never-ending sales, markdowns and gimmicks are signs of flailing companies not healthy ones.

Ironically there is a book out entitled “Kmart’s Ten Deadly Sins: How Incompetence Tainted An American Icon. (Kmart is now owed by Sears Holding Corp) In this book one of the specific areas of incompetent actions discussed repeatedly in leading to the downfall of Kmart was the use of excessive sales and clearance gimmicks to generate revenue and get rid of excess inventory and how this is a major sign of financial distress. Even more ironic is the book was given to me by a high level Sears employee when I was at their headquarters last year. I would have thought they were all reading the book to learn from prior mistakes. Eddie’s reign over Sears to  date has been an example of mistake after mistake.  Mistakes of arrogance, ignorance and simple stupidity.  Case in point-Eddie does the smart thing.  He brings in Alwyn Lewis from Yum who had a proven track record in both generating revenue and employee relationships.  He then in true monarch form, gives Alwyn zero responsibility, zero direction and zero autonomy.  This formula  will always translate into zero productivity.  He basically says:

“This is what I want to see happen but you cant make it happen without talking to me first and I don’t talk to anyone.

Not long ago  I had dinner with an employee at SHLD who reported directly to Eddie Lampert. The employee confided to me that while everyone knew what Alwyn was brought in for, the general consensus was that no one knew what he was in fact doing or what his responsibilities were. He seemed to be a guy just “floating” out there with no real focus or impact.  Was that Alwyn’s fault? Absolutely not. I believe he was extremely qualified to help turn Sears around. I also believe that they will not find anyone out there more qualified to replace him which is why his position is still vacant.  When they do find someone it won’t matter.  The problem was not Alwyn.  The problem was Eddie Lampert’s total lack of understanding of retail and how to delegate.  He did not have that understanding then and unless he has undergone an epiphany in the last year, there is no reason to believe anything will change no matter who he sticks in there.

Eddie is about control. Eddie is about spreadsheets, data, algorithms, stock buybacks, numbers hocus-pocus, Ivy League MBAs, the latest Wall Street Journal book of the month, advance teams, posses, and entourages. In other words, he is completely out of touch.  In all fairness to him, he didn’t suddenly one day lose touch.  All those things he is about have made him a huge success in the hedge fund numbers crunching world where you don’t have to leave your office and don’t have to talk to anyone but the crunchers.  Until Eddie is ready to be a “regular guy” talking to “regular customers”  in the trenches the only big change at Sears Holdings will be when he unloads bits and pieces and finally dumps at “Midnight Madness” prices.

At this point, does anyone really even care?

4 Comments For This Post

  1. Dennis (2 comments.) Says:

    Great article Brian. To the point and very detailed.

    It will be sad to see the giant go when it finally does. For years anyone going into a Sears store could tell that they really did not have a clue anymore about retail.

    Years ago (1970’s) you could go there and the sales people actually knew their departments, knew the products.

    In the 1980’s that started to go and when they added those checkout kiosks for several departments it became so difficult to find a sales person at all that it became a pain to shop there. The only department that had ANY knowledge was the appliances. Looks like that is on the way out too, sad.

  2. Robert Stinnett (1 comments.) Says:

    Great article!

    It is so sad to see this happened. Sears was where my mom and dad shopped, and for years I’ve tried to throw business to them. Almost all of our appliances have the Kenmore label on them. We trusted the Sears brand, because we trusted the people behind the name. I still cling onto the Kenmore and Craftsman brands, but honestly, this is all they have going for them anymore.

    I hope, when the lights are finally turned out for the last time in this American icon, that a retailer such as Lowes or Home Depot picks up and carries on the Kenmore and Craftsman line.

    If Sears were smart they would focus on these two areas. They would become the appliance and tool leaders. They’d stop focusing on clothes, housewares and the such and just focus in on the two brands that everyone still loves and knows.

    But, I suspect sooner rather than later, they will go under. It will truly be a sad day.

    Robert Stinnetts last blog post..Amazon’s Social Behavior Experiment

  3. John Sullivan (7 comments.) Says:

    Great post.It’s is very sad.I worked for Sear’s here in San Antonio many yrs ago at their call center. We were trained to be deceptive.I had some problems because I was on the customers side. Sears should of been to. I don’t feel sorry for Sears.
    Like Yahoo, Aol and countless other American companies once you let the cancer in it’s just a matter of time.It is amazing that there corporate raiders can swindle so much money to actually become the CEO of a company like Sears.
    You should write a book called,”The Destruction of the American Corporation”
    The people in this country need to wake up and act fast.
    Excellent thanks

    John Sullivans last blog post..DO FOLLOW- monthly recap

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