Holding Sears Holding
OK, enough's enough. After yet another round of news stories and commentary about what's wrong at Sears and how the end is coming and, hey, why can't they be the way they used to be, or at least the way others think they should be: After all of that, I can't take it anymore.
What part of cash flow management don't you all get?
While just about everyone laments about the coming demise of Sears Holding as a viable retailer, what they all seem to fail to realize is that Sears and Kmart stopped being viable retailers years ago. The corporate strategy is not about being retailers. It's about managing cash flow and draining said flow out of that corporate body. It's not about making money retailing. It's about making money managing money.
And that's it.
Not spending enough money on capital investment in the stores? Why should you when the objective is to save money which you can then throw off to shareholders? Especially when the main shareholder is Fast Eddie Lampert, who stands to gain the most from all the special dividends, stock buybacks and other assorted financial smoke and mirrors going on there.
Opening up distribution of the cornerstone brands like Craftsman and DieHard to competing retailers, seemingly taking away your point of differentiation? Of course, because you can then get licensing royalty checks on a regular basis from stores that actually have customers buying things. Besides, Sears has already moved ownership of those flagship brands into a third party entity called KCD (Kenmore, Craftsman, DieHard - get it?) which collects a royalty from Sears ultimately payable back to Lampert's ESL Investments for the privilege of using those names. It's all rather convoluted, but suffice it to say, there's cash being sucked out of this thing in a process that would embarrass Trump.
Buy back your stock, reducing the float and pumping up the share price? Sure, because the main beneficiary of the stock buybacks is none other than Lampert, the largest shareholder. He wins coming and going.
Rent out space to competing retailers inside your four walls, further reducing your merchandising presence? Of course, because that's a monthly rent check you can collect, and checks are as good as cash in Lampertland.
Barely keeping up a merchandising front to the general public? Yup, you do need to keep the body alive so you can keep draining out cash. So if you throw a merchandising bone out there every now and then - iPads for salespeople, layaway plans, some B-level celebrity brand - it's enough to keep some warm bodies coming through the door.
So what if the top and bottom lines are declining? Doesn't matter. So what if the stock price continues to deteriorate? Doesn't matter. So what if the stores look like crap? Doesn't matter.
What matters is that there's cash to be flowed.
Eddie Lampert is smarter than all of us put together, as evidenced by the continued failure of most people who know better to...well, know better. His ability to make money is only matched by his ability to make most analysts and business journalists look eminently stupid.
The only ones not being fooled are shoppers: They gave up on these stores years ago.
Ernest commented:
Just a poorly maganed store is all. It's pretty common everyone's cutting costs. The criteria to become a retail store manager isn't that ridiculous. I like the C.A.R.E philosophy I actually learned from working at Best Buy over 10 years ago. It stands for CONTACT every customer within 15 seconds or less within entering your zone, ASK to ask questions, RECOMMEND products and/or services that relate to the persons lifestyle or current requirements, and ENCOURAGE the sale. It works.
Josue commented:
As part owner of a small business, I can coifrnm that we are all in the same situation. It would be better for employment to pass a tax, fee, entiltlement whatever it is going to happen than it is for us to remain in constant limbo. At this point business can't plan for hiring because we have no idea what an employee is going to cost us. Once we know how much it will cost to hire someone we can make economic desions based on cost benefit analysis. As it is we can only see the benefit side with the cost side unknown.
Mayara commented:
As part owner of a small business, I can cofrinm that we are all in the same situation. It would be better for employment to pass a tax, fee, entiltlement whatever it is going to happen than it is for us to remain in constant limbo. At this point business can't plan for hiring because we have no idea what an employee is going to cost us. Once we know how much it will cost to hire someone we can make economic desions based on cost benefit analysis. As it is we can only see the benefit side with the cost side unknown.
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Madstabber commented:
So show me $400/share revenue anywhere else.
gianna commented:
Warren- I enjoyed your article. I'm extremely interested in SHLD's movement of their brands into KCD IP LLC. From what I have read the bonds are held in their Insurance Company and could be sold down the road. If those bonds are sold to his hedge fund and Sears goes belly up, does his hedge fund then own those brands and all of the related royalty income? SHLD has been extremely quiet about this transaction and it is becoming scary.
Thanks
JR commented:
Warren,
Great article to what is currently going on at SHLD. But, I have to ask you this question- Do you think this bleeding it dry approach was his original plan? Or did this recently become the plan after his failure to sell or lease any of the vacant or under performing real estate? holdings
Ron Larson commented:
Warren, Good Job!!!! At last someone noticed that the emperor is walking around naked. Or in this case being nakedly greedy. Another American icon being raped in public. I wonder who it was that decided that Bloomingdales could be more than just a furniture store, find someone like them and give them Sears to run.....please?
lampert commented:
I think 10 years from now we'll look back and see that not only was Lampert smart in capital allocation but that he was also able to turn the retail operations around when no one thought he would. That'd be his legacy.
sevets1 commented:
What's wrong with Sears...everything....
Sears vs. Sears.com - they are two separate entities, at least that's how they operate.
1.) Ordered weight set, Oct. 23, 2011, online to pick up at Stratford Sears, Bloomingdale, IL. After arriving at store, was told by store manager that the one item they had was not complete. He offered to order one, but it wouldn't be available until February 7, 2012.
2.) Received Sears sale email via email later on Oct. 23, 2011, offering 10% discount. I ordered same weight set online, but at Woodfield Sears, Schaumburg, IL. Received email on October 24, item not available. Called Woodfield store but was told to talk to Sears.com because it was their inventory issue.
3.) Called Sears.com on phone, October 24, explained issues 1 and 2. Customer service person found (3) weight sets at SpringHill Sears, West Dundee and placed order for me, with additional discount. Received email an 1.5 hours later that item not in stock.
4.) Called Sears.com and spoke with supervisor. Said item was obvously not in stock, but she could see me similar item....except that the similar item was TWICE the price of the original item, but she couldn't lower the price.
At best, Sears and Sears.com are incompetent and do not work in tandem. At worst, this is a case of 'bait and switch'. Sears offers excuses and apologies, but no workable solution (paying double what I intended to pay is not a workable solution). Bottom line, if customers can't trust the website, they need to think about doing Internet shopping elsewhere.
