The speculation about when—not whether—Sears Holdings would fold had become something of a parlor game for a time, with analysts jockeying to be the one to come closest to the bankruptcy date without going over. That guesswork seems to have ebbed recently though. Most now just seem incredulous that the company’s two chains—Sears and Kmart—are still around, with many questioning the motives of its chairman and CEO Eddie Lampert.
Lampert, through the lifeline that his hedge fund ESL Investments continues to extend to the anemic retail group, seems to be the only thing keeping the doors open at this point. The problem, critics say, is his motives are far from altruistic. As the biggest shareholder, Lampert stands to gain if Sears finely meets its demise given that the lion’s share of his investment is secured, according to a recent feature in USA Today.
The paper reports that to date, ESL has extended $2.4 billion in loans to the retail group. On that, Sears is thought to pay between $200 million and $220 million a year in interest.
In the meantime, the company continues to close doors, leverage its property and shop its most valuable non-real estate assets.
As of May, the company operated 894, with 72 more slated to close, down from more than 5,600 more than a decade ago, according to Vanity Fair. Though Sears has been far from the only retailer to shutter doors recently, the company seemed to be on a quest to do so for one reason: cost cutting. In fiscal year 2017, the group achieved $1.25 billion in cost savings.
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Additionally, Sears sold the Craftsman brand to Stanley Black & Decker for almost $800 million plus royalties. It’s also been looking to make a deal for Kenmore, apparently with no takers. As a result, ESL has commenced trying to convince the Sears board to allow it to purchase the brand.
The problem, according to Mark Cohen, former chief executive at Sears Canada, and Lampert’s harshest critic, is “He’s had a puppet board who have never pushed back in any way that anybody has ever seen, and why would they?” he said during an interview with Vanity Fair, calling them “meaningless” since they’re all on Lampert’s side.
In the profile story, Lampert attempted to justify the vision that brought the two chains together, saying “Kmart had the locations and Sears had the brands.” He told the publication Kmart’s off-mall stores were appealing, especially those that were positioned in close proximity to Walmart. He felt the big-boxer drew foot traffic that could also boost his brands.
This was in 2005 before mall-based stores were eyeing alternative locations as they are now. The following year, Lampert jumped on another trend that had yet to take hold: e-commerce. That was back when the CEO was actually engaged with the businesses, according to Cohen said.
“I’m told, for about two years, Lampert actually attempted to run the business,” Cohen told the publication. “So for about a year and a half or two years the financial performance of Sears Holdings looked pretty good, but in fact all that he was doing was completely cutting capital expenditures and operating expenses.”
Lampert has been cutting while others have been investing.
Thanks to the turmoil that came to a head last year that some retailers out of business, many scrabbling for innovative solutions and all shaken, store executives have shown an uncharacteristic willingness to invest. They’ve allocated funds to tech advancements that will help them finally address their e-commerce shortcomings. Additionally, they’ve been equally eager to revamp their stores, bringing them more in line with online operations, allowing them to better reflect how consumers shop and making them destinations people actually might want to seek out.
In the midst of this spending spree—which has seen Target remodel its doors to welcome a wider variety of shoppers and Macy’s redeveloping its boxes to create a more vibrant environment—Sears has been conspicuously miserly when it’s come to store upkeep let alone a much-needed evolution of the chain. In news report after news report on Sears Holdings, one thing comes up time and again: the deplorable condition of the stores. USA Today found that Sears Holdings spent 91 cents per square foot on capital expenditures, which included things like e-commerce investments and store maintenance, while rivals J.C. Penney spent $4.13 and Kohl’s infused $8.12.
Put another way, the retailer spends less than one half of 1 percent of annual revenue on upkeep to its stores and e-commerce business compared to 2 percent to 4 percent which is the norm for retailers, according to the paper.
“We believe that traditional measures of capex in a store do not apply to our evolving, member-centric and integrated business model,” Sears said in response. “We feel that you have to look at all investments and expenditures that potentially touch the customer experience, whether they be in-store, online, in the home or via our mobile platform.”
While Sears is in decay, its competitors are eagerly scooping up the shoppers the department store is abandoning.
Marvin Ellison, J.C. Penney’s former CEO, told analysts during the company’s first quarter earnings call that every Sears exit is a gain for his chain.
“The net effect is positive [when Sears stores close], and it was positive before we started strategically adding categories like appliances and mattresses and workwear so as we’ve introduced those categories when we see a Sears close, it’s a greater significant benefit to our business in the end process,” he said.
As for the customers that Sears has managed to retain, they seem frustrated with the current state of the stores, according to reports from shoppers contacted by USA Today.
“Everything seems to be going down instead of coming up,” Louise Johnson, a customer in Detroit, said.