'While retail experts estimate that store chains traditionally spend $6 to $8 per square foot on annual maintenance, Sears is spending a fraction of that amount, said Matthew McGinley, managing director of International Strategy & Investment Group, an investor research firm.
"With roughly 250 million square feet domestically, [Sears] is spending about $1.90 a foot, which is a quarter of what you need to maintain share and keep it as an acceptable place to shop," Mr. McGinley said.'
To the average "person on the street", it may be patently obvious that when your stores are filthy and understaffed, no one will want to shop there. To Eddie Lampert, the way to juice EBITDA for a few years is to slash that maintenance money.
Pour one out for the death of multiple iconic American brands (Craftsman, Kenmore, and eventually Sears itself). Don't shed a tear for Lampert, since he's set himself up for a "heads, investors, customers, and employees lose" and "tails, I win" situation.
There's a kmart (which is owned by Sears and therefore in the same situation) near my old office and it's downright depressing to go in there. The lighting isn't bright enough, the store is run with a skeleton staff and everything looks a bit old or dirty. For example, the floor tiles are overdue for a replacement. Want to buy a watch? Good luck finding an employee to help you at the watch counter. But the most eerie part is that the store is so devoid of customers.
When I go to a nearby Target, you can hardly move around all the shopping carts in there. The Kmart, which is a similar size, might only have a few customers in the store at a time. Maybe Target is slightly more upscale, but even the Walmart nearby looks much nicer, plus has a better selection and similar if not lower prices.
Unlike many other retail stores, it doesn't even feel like Kmart is trying to adapt. Bestbuy has it's superior customer service (not exactly world class, but better than competitors). T.J.Maxx/Homegoods has an ever-changing selection of bargains and the feeling of being in a treasure hunt. Even J.C. Penney tried a new transparent pricing scheme (which failed). But I haven't seen Kmart/Sears try to do something similar.
Edit: changed the store is run on a skeleton staff to the store is run with a skeleton staff
I had a similar experience the last time I was in a Kmart. No employees, no other customers, empty shelves. Go to the electronics department and you'll find games for systems that were obsolete a decade ago. I don't understand how they've managed to stay open so long.
In some neighborhoods, the local KMart was the only local clothing store for miles. This was the case in the neighborhood a few miles away from me until the mid 2000s and the rise of Amazon.
We had a Kmart go under in our town recently. It was a dead store walking for years before it finally happened. Made entirely of cinderblocks, totally unkept, frankly it was reminiscent of dirt floor cinderblock villages I'd been to in Central America.
Target hasn't adapted that much because they didn't have to, what they were in the 90s was good enough to keep up with online competition. I don't pretend to understand all of it, but I can tell they have something that resonates with consumers.
His Hedge Fund bought a bunch of Sears debt and he took an activist investment which meant becoming CEO of Sears, in order to make his investment valuable.
Note: this is what Warren Buffett did several times, with massive leverage, to make his riches before he became the baby boomer conservative investment guru.
Sears just happens to be a household name that is getting a lot of discerning eyes on it.
>His ESL Hedge Fund has dropped 80% in value from its peak in 2006 to 2016, and has almost certainly fallen more since then.
this statement is kind of misleading because "value" means NAV, not actual losses. it could very well be that the fund neither made or lost money, but 80% of the investors pulled out.
From the sounds of it, his fund may have lost money, but his other ventures may have profited from his looting of Sears. The other investors may be losing out, but he's coming out ahead.
My wife and I walked into our Sears for the first time in forever. We were looking for a dress shirt for our son.
The place was almost completely empty of product. The shelves were bare, there was almost no racks to place things, and nobody was in the store to shop.
We both said to each other that there is not much time before it closes.
There is no reason to shop there since there is nothing there to buy.
I very rarely shop for clothes, but even then, Sears would probably be way at the bottom of my list when it came to dress shirts.
I can name at least 5 department stores that I'd check before even thinking about Sears when it comes to clothing. It is simply not their specialty, and it's weird to expect the selection to be good there.
I will, however, echo your sentiment that the store looks very bare and very few customers. It looks closer to a warehouse than a retail location.
I thought about Sears at one point when they owned Lands End. Back in the day, our Sears was probably 10% household goods, 30% clothes, 20% tools, 20% appliances, 10% TVs, 10% jewelry. So a lot of clothes.
Speaking of craftsman....Sears sold them off a few years ago. They seem to be making a resurgence in Lowe's stores. They're being sold at a slightly lower price point then the Lowe's standard Kobalt brand.
> [Craftsman tools] seem to be making a resurgence in Lowe's stores. They're being sold at a slightly lower price point then the Lowe's standard Kobalt brand.
Is that really a resurgence or just an attempt to profit by burning up the brand's remaining goodwill?
I can't imagine Craftsman tools maintaining their reputation after they've been been positioned as the cheaper alternative to store-brand tools for a while. They must be cutting massive corners to achieve that price-point.
Very much a case of burning the remaining goodwill.
The tools are also sold in Ace hardware stores, and the warranty is absolute garbage (which was one of the main selling points originally). I broke a 1/2" wrench, and needed proof of purchase for a warranty replacement. At this point, Harbor-Freight may be higher quality, but they definitely have better warranty support.
Harbor Freight is one of the only consumer-oriented tool sellers that's constantly and regularly improving their product lines. There are enough stores that it's handy for most, and their warranty returns are really easy.
I'm getting tired of reading all the ill-informed Harbor Freight bashing. Frankly, they're at least at good as most tools in the consumer market at this point.
Oh, and their stuff is vastly higher quality than the mid-century, consumer-oriented, American-made junk that I inherited from my grandfathers. I keep that stuff around just as an example of how "American made" didn't necessarily mean quality.
At Harbor Freight you can buy two of anything for the price of one of the same thing elsewhere. Keep a spare for one the first one breaks down, plus there is always a 20% discount coupon.
Used to be finding a busted up Craftsman tool, like in the gutter and run over a few times, was a windfall. You could walk into any Sears and get a free replacement no questions asked.
Yep, pretty strange to think that Kobalt and Husky are now the solid choice in the big box stores, and Craftsman is a contender for something you might want to use once or twice but not get too bent out of shape if it fails.
> "To boost “visibility and accountability,” Lampert explained in a letter to investors, he divided the company into more than 30 business units, including product-based divisions (apparel, tools, appliances), support functions (human resources, IT), brands (Kenmore appliances, Craftsman tools, DieHard batteries), and units focused on e-commerce and real estate. Under the new scheme, each business unit had its own president, chief marketing officer, board of directors, and, most important, its own profit-and-loss statement.
Large technology companies and industrial conglomerates such as General Electric also take a decentralized approach. But retailers tend to favor an integrated model. That way, different divisions can be compelled to make sacrifices, such as discounting goods, to attract shoppers to stores."
> "Former Sears executives say their biggest objection to Lampert’s model is that it discourages cooperation. “Organizations need a holistic strategy,” says Erik Rosenstrauch, former head of Sears’s DieHard unit, who is now CEO of Fuel Partnerships, a retail marketing agency. As the business unit leaders pursued individual profits, rivalries broke out. Former executives say they began to bring laptops with screen protectors to meetings so their colleagues couldn’t see what they were doing.
Appliance maker Kenmore is a widely recognized brand sold exclusively at Sears. Under SOAR, the appliances unit had to pay fees to the Kenmore unit. Because the appliances unit could make more money selling devices manufactured by outside brands, such as LG Electronics, it began giving Kenmore’s rivals more prominent placement in stores. A similar problem arose when Craftsman, Sears’s beloved tool brand, considered selling a tool with a battery made by DieHard, also owned by Sears. Craftsman didn’t want to pay extra royalties to DieHard, so the idea was quashed."
> "The bloodiest battles took place in the marketing meetings, where different units sent their CMOs to fight for space in the weekly circular. These sessions would often degenerate into screaming matches. Marketing chiefs would argue to the point of exhaustion. The result, former executives say, was a “Frankenstein” circular with incoherent product combinations (think screwdrivers being advertised next to lingerie)."
> "Eventually Lampert’s advisory committee instituted a bidding system, forcing the units to pay for space in the circular. This eliminated some of the infighting but created a new problem: The wealthier business units, such as appliances, could purchase more space. Two former business unit heads recall how, for the 2011 Mother’s Day circular, the sporting-goods unit purchased space on the cover for a product called a Doodle Bug minibike, popular with young boys."
> "In the weeks leading up to Black Friday in 2011, Sears discovered that some of its rivals planned to open on Thanksgiving at midnight. Sears executives knew they should open early, too, but couldn’t get all the business unit heads on board, according to former executives. (A Sears spokesman says the decision “was not contingent on the business unit structure.”) Instead, the stores opened early the following morning. One former vice president drove to the mall that night and watched families pack into rival stores. By the time Sears opened, he says, cars were leaving the parking lot."
I have personally not worked for a major retailer, but I have worked for a vendor to several major retail chains in North America.
It is certainly not the industry norm to have this kind of management and internal competition serve as a substitute for merchandising know-how. I think these quotes from the article speak for themselves.
The only way those decisions make sense to me is if you're purposely trying to kill a business while maintaining plausible deniability to pick it apart and leave the minority shareholders with nothing.
Which will be the reality for Sears. Lampert will blame everyone else, while ignoring his personal failings as a manager of a large retail business. Because, hey, his hedge fund made bank. And tacitly, that's his goal. Conflict of interest is written all over this.
"The team didn't execute. Oh well." While his decisions directly lead to ballooning costs (A couple years back I read how many units ended up with redundant accounting/HR/etc, sapping their budget for store presence), stores that feel lower rent than a rural flea market (the last time I was in a Sears it was a mess; this was in a major metro area), and the cheapest merch, that made Goodwill seem upscale.
They could also be ideologically driven. This seems like an attempt to run a company like a Randian free market utopia.
Unsurprisingly, it loses out to a well-ran, centrally managed, autocratic command economy, that fosters competition between different teams, and also, by force, compels co-operation between different departments.
The level of enforced organizational dysfunction described there is genuinely astonishing.
Competition has its place in a business, and that place is almost always exclusively sales. Trying to impose it upon other parts of an organization rarely ends well.
I was at Sears a few times recently since my daughter was working there as her first job. Her job was to keep the clothing nice but the problem was the hangers didn't have any divets on them to keep the clothes from sliding off, so her main job was to put everything back on the hangers as they fell off. She couldn't keep up. Often all of the employees would have to stay late to put the clothes back on the hangers. Also another thing I noticed is that checking out took 20 minutes because the process was really slow. I wanted to buy things but after the first couple of times waiting in line I just gave up the idea of buying anything. It is pretty obvious the CEO has never visited any of the stores.
Libertarians will now make themselves scarce. They will soon resurface with a complete revisionist history of ifs and buts to wash their hands off this latest disaster of their ideas in practice.
Meanwhile others will continue to pay the price for their delusional anti-social ideology.
No other major retailer creates completely siloed divisions, each with its own C-suite of executives. No other major retailer throws common-sense merchandising tenets to the wind in service of some idea of a "free market" of ideas.
If you reference the article in that comment thread above:
"Large technology companies and industrial conglomerates such as General Electric also take a decentralized approach. But retailers tend to favor an integrated model. That way, different divisions can be compelled to make sacrifices, such as discounting goods, to attract shoppers to stores."
Competition sounds great in theory. At Sears, Lampert divided the company into 30 units, each with its own profit and loss statement.
Space in the weekly circular was farmed out to the unit bidding the most, resulting in:
-Toys for boys being advertised on Mother's day, because that department bid the most for space in the circular
-Lingerie being featured next to tools.
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Because each unit had its own P&L, and its managers were compensated accordingly:
-One Sears tool brand choosing to use an external battery supplier, because it didn't want to pay royalties to a Sears division that made lithium-ion batteries
-Sears stores not opening early for Black Friday in 2011, despite all its peers doing so, because to do so required agreement among the 30 business unit heads
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It is perfectly reasonable for retail buyers to consider what mix of products to use, and whether to devote shelf space to external or house brands.
It is not reasonable for the instructive structure to be constructed in a way where the company loses customers and sales because each individual unit's decision makers have a financial incentive to do so.
No other major retailer operates/operated this way, and I'd wager that no one will try doing so in the future.
> Make departments compete for capital. Give capital to those with the best return.
That will inevitable result in a race to convert corporate commons (brand goodwill) into short term gains. That kind of game will be won by making your peers lose faster.
I agree that we should approach questions like this with some kind of epistemic modesty.
At the same time, if you look at Sears's peers, most of them are still alive and kicking, if not thriving. E.g. Target, Wal-Mart, Macy's, Kohl's, JC Penney, Best Buy etc.
> At the same time, if you look at Sears's peers, most of them are still alive and kicking, if not thriving. E.g. Target, Wal-Mart, Macy's, Kohl's, JC Penney, Best Buy etc.
That seems like confirmation bias to me. I could write a much longer list of national retail chains gone out of business over the last decade and a half. Circuit City, Mervyn's, A&P, Borders, CompUSA, Toys R Us, Marshall Fields, the list goes on.
I think we'll just have to agree to disagree on who Sears's peer companies are. I meant to compare Sears to other large department stores, though Best Buy is obviously more a peer to Sears's appliance/hard goods departments.
It's hard to find data from 2003 (when Lampert merged Sears and Kmart), but flip to page 3 of this PDF: https://core.ac.uk/download/pdf/7105653.pdf. All of those retailers except Sears are still healthy companies.
In regards to the examples you brought up, I think there are some questions about how comparable they are in terms of retail niche and scale. The Circuit City example I'll concede. They sold a lot of similar products as Sears.
-Mervyn's
From their wiki:
>Based on 2005 revenue, Mervyn's was the 83rd largest retailer in the United States.
It seems that Mervyn's is more of a regional chain? Not a national retailer.
-A&P
If this is the same east coast A&P that I know, this was a grocer. Doesn't really seem to be a peer of Sears.
-Marshall Fields
They were acquired by Macy's, not shuttered. Shareholders may have taken a haircut from the company's peak share price, but they weren't left with nothing. Sears trades at ~$1 as of today.
-Borders
If you mean Borders the specialty book seller, I don't really see how this is comparable to Sears.
-CompUSA
A specialty computer retailer, that to my memory did not even sell appliances? I don't see how they're a peer to Sears.
-Toys R Us
A specialty toy retailer vs a department store? I'd also note that there's been widespread debate about whether Toys R Us was done in by its debt-laden LBO (https://www.bloomberg.com/news/articles/2018-03-09/toys-r-us...). Also worth noting it has not been a public company since 2005.
There's also the question of whether some in this list have not been mismanaged themselves. You point to Toys R Us, but I've certainly heard similar questions about Borders and A&P, for instance.
Many retailers fail. There are few surviving department stores and weaker bug box stores get culled frequently.
Sears was unique as it was a legacy company who screwed up at every turn. The smart move for the shareholders would have been to spin out the business units and sell the valuable real estate.
I will never forget reading this article (from 2011): https://www.wsj.com/articles/SB10001424052970204517204577042....
'While retail experts estimate that store chains traditionally spend $6 to $8 per square foot on annual maintenance, Sears is spending a fraction of that amount, said Matthew McGinley, managing director of International Strategy & Investment Group, an investor research firm.
"With roughly 250 million square feet domestically, [Sears] is spending about $1.90 a foot, which is a quarter of what you need to maintain share and keep it as an acceptable place to shop," Mr. McGinley said.'
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Nor will I forget reading about his management philosophy where different Sears departments have to compete for money in the budget. Money to advertise, to purchase inventory, etc. (https://www.bloomberg.com/news/articles/2013-07-11/at-sears-...)
To the average "person on the street", it may be patently obvious that when your stores are filthy and understaffed, no one will want to shop there. To Eddie Lampert, the way to juice EBITDA for a few years is to slash that maintenance money.
Pour one out for the death of multiple iconic American brands (Craftsman, Kenmore, and eventually Sears itself). Don't shed a tear for Lampert, since he's set himself up for a "heads, investors, customers, and employees lose" and "tails, I win" situation.