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Has Eddie Lampert Sunk Sears?

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With Sears’ decline now in a high-velocity spiral, all eyes are on CEO Eddie Lampert, whose strategic vision seems to be falling short of visionary. While the once dominant retail dynasty has been suffering since the 90’s, profitability has plummeted since the beginning of Lampert’s reign, with sales down $10 billion and stock devalued by 64 percent. Sears’ cash reserves have been depleted to an historic low. Rumors of massive asset sales to avoid bankruptcy persistently haunt the company.

And Lampert has made sure his imprint on the company’s operations is indelible. He’s only been the CEO since January 2005, but insiders say he’s really been running the show since he orchestrated Kmart’s $12 billion buyout of Sears eight years ago. Few think Sears’ current outlook is confidence inspiring. Mary Ross Gilbert, managing director at Imperial Capital, warned, “The way it’s being managed, it doesn’t work. They’re going to continue to deteriorate.”

How exactly is Sears being managed? The most withering criticism of Sear’s performance has been focused on Lampert’s radical restructuring of the 120 year-old company’s divisions. In an effort to generate better, deeper and more actionable data, and to revitalize the company’s performance by infusing it with a  spirit of internal competition, Lampert splintered the company into thirty warring divisions.

But rather than a productive rivalry, a corrosive war ensued. Divisions began to compete directly with each other, cannibalizing Sear’s customer base. Each division’s bonus is based on its own individual performance incentivizing one division to inflate its numbers at the expense of another. Kenmore, a stand-alone unit within the Sears constellation, discovered it could gin its numbers by selling outside merchandise, a maneuver to the advantage of the division but disadvantage of the company at large.

And the internal fight for resources rose to the level of adversarial rancor. Insiders report that division heads annually petition for  funding directly from Lampert, who presides over the solicitations remotely by computer from his $38 million mansion in Florida. They desperately inflate their revenue projections while Lampert distractedly dispatches emails, hardly ever looking up from his computer’s screen.

Lampert, a former hedge fund manager, actually runs Sears like a hedge fund portfolio, fracturing the sprawling company into a series of compartmentalized units, all locked in battle with one another. Ideologically committed to free market principles, Lampert believes that competition in divisions should catalyze better performance, compel budgetary streamlining and encourage more rational business strategies.

Even in the face of intense criticism, Lampert continues to defend his approach. “Decentralized systems and structures work better than centralized ones because they produce better information over time. The downside is that, to some, it appears messier than centralized systems,” he said. Lampert also contends that fracturing Sears into semi-autonomous units allows him to gather “significantly better information and drive decision making and accountability at a more appropriate level.”

And Lampert has pushed hard for that data, making its retrieval and analysis a central feature of his overarching strategy. To this end, he hired Paul DePodesta, the statistician famous for using unconventional metrics to turn around the Oakland Athletics.

His detractors, however, maintain that the company is a shattered version of its former self, no longer animated by a shared vision of success. Shaunak Dave, a Sears’ executive who left in 2012, said that Lampert’s strategy has undermined its cohesiveness. “If you were in a different business unit, we were in two competing companies. Cooperation and collaboration aren’t there.”

Sear’s woes have also had a marked effect on its once vaunted reputation for customer service. According to recent report issued by Consumer Affairs, 86 percent of Sears’ customers are dissatisfied with their shopping experience, ranking the store below competitors like JC Penney, Kohl’s and Macy’s. Best selling author and sales expert Grant Cardone observed, “Right now, it’s easier to steal something from Sears than to buy something. The lack of customer service is putting Sears in big trouble.”

Many are surprised, given the depth of Sears’ challenges, that Lampert has managed to hang on this long. Former JC Penney CEO Ron Johnson was ousted from his position after merely eighteen months on the job. Given the mounting general consensus regarding Sears’ gloomy future, experts and industry insiders have openly speculated if the end of Lampert’s tenure grows near.

 

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