Post by a425couplePost by Dave GarrettPost by a425coupleSo, way back in January 1969, I'd settled on my plan.
As nice as the earlier plan of being a High School
History teacher and wrestling coach was, I was not going
to do that the rest of my working life.
I'd developed my finances to the point where I could
buy an old race car, race it for the 1969 season in
a couple of organizations, then sell it and go off
and join the US Marine Corps and embark on a
grand overseas adventure!
OK, bought the car & trailer. Next stop = Sears.
So, in the occupational clothing area I got my
Nomex long johns underwear.
Then I bought a toolbox (18" x 8" x 11") and
a fairly standard and complete set of tools for
what seemed a fairly expensive $69.00.
With quite a few additions over the years,
that basic set has served me quite well.
Sadly, eras end.
I see today, that Sears plans on selling off
their Craftsman tool line.
I need to get around to selling off my Sears stocks.
And I'm not sure I need to go into there any more.
They are selling the brand, not the tool line itself. Per an email that
was sent out to customers this morning, Craftsman tools will continue to
be available in Sears stores, but Stanley Black & Decker will gain the
rights to "develop, manufacture, and sell Craftsman-branded products
outside of Sears and Kmart".
I'm skeptical that the high-flown language in the email won't turn out
to be yet another thinly-disguised asset-stripping maneuver by the
vampiric hedge-funder management team that is intent on sucking all the
value out of the company, discarding the husk, and declaring bankruptcy,
but at least they plan to continue selling the tools. For now.
Dave
"Inside Sears' death spiral: How an iconic American brand has been
driven to the edge of bankruptcy
Hayley Peterson
One morning in late 2015, on Sears' vast Illinois campus, more than a
dozen employees huddled in a videoconference room on a floor dubbed "B6."
There two mid-level employees were preparing a presentation for the CEO,
Eddie Lampert, when their boss rushed in with some last-minute advice.
On a chart pad he wrote three words.
"He looks at the presenters and says, 'Do not say these words to that
guy,'" according to a former Sears executive who described the meeting
to Business Insider. "That guy" meant Lampert, who would soon appear on
a giant projector screen at the front of the room, beamed in live from a
home office inside a $38 million Florida estate - 1,400 miles away from
headquarters.
The pad with the three words was out of sight of Lampert's video feed.
One of the words on it was "consumer."
The stakes were high. If any of those words were uttered in front of
Lampert, the two presenters would "get shredded" by the CEO, whose
frequent tirades had fostered a climate of fear among the company's most
senior managers, another person - this one a former vice president -
explained.
These two and other executives say the word "consumer" can trigger
Lampert. He wants employees to instead refer to shoppers as "members,"
which is his term for customers who are enrolled in Sears' Shop Your Way
rewards program.
It was at that moment, as the executive attending the meeting watched
fellow employees anxiously censor themselves in front of Lampert, that
he realized he needed to flee the sinking 123-year-old company.
Sears is in trouble
eddie lampert Sears CEO Eddie Lampert. Reuters
Lampert, a former Wall Street prodigy, took control of Sears more than a
decade ago and became its CEO in 2013. But he's rarely seen in the
office, typically visiting about once a year for the shareholder meeting
and projecting into videoconference rooms at Sears' Hoffman Estates,
Illinois headquarters the rest of the time, according to interviews with
employees. He prefers to stay on Indian Creek Island off the coast of
Miami, behind a desk dressed up with the Sears logo. The island has been
dubbed the "billionaire bunker," partly because of a private police
force that protects the island's 86 residents.
"The only way you see Eddie is through a screen," one former executive
told Business Insider. "We used to joke about who had to go upstairs to
get fixed and see Oz."
Lampert's physical absence might be better received if Sears, which also
owns Kmart, was in better shape. But the retailer, famous for selling
everything from shoes to vacuum cleaners to whole houses, is facing its
biggest crisis ever. It's closing hundreds of stores. Others are in
shambles, with leaking ceilings and broken escalators. In some,
employees hang bedsheets to shield shoppers from sections that stand empty.
Lampert, a billionaire, is trying to keep Sears afloat. He recently
provided up to $1 billion in financing to help keep it in operation.
Sears quote 2 1 Business Insider
Business Insider spoke with more than a dozen employees, ranging from
store clerks to senior executives, about the unraveling of Sears. Many
spoke on the condition that they not be identified for fear of legal
retribution from Lampert and Sears, including one person who specified
that she would only speak off the record upon the advice of an attorney.
Some said they had signed nondisclosure forms barring them from sharing
information about the company.
The content of this article was described in detail to two Sears
spokesmen, both of whom declined to comment when asked. Requests to
interview Lampert were also declined.
The employees who spoke to Business Insider describe an internal mess
with a revolving door of executives and low morale. Senior executives
say Lampert has cut investments in stores because he's trying to turn it
into a tech company that collects and sells customer data through the
Shop Your Way loyalty program.
In the past, Lampert has defended his strategy, saying he intends to
turn Sears into a more "asset-light" organization, but one that would
still include physical stores. He denies widespread claims that he's
stripping the company of all its most valuable properties and brands and
hastening its bankruptcy.
At the same time, he has executed a series of real-estate and financial
transactions to help prop up Sears. While the failure of the company
could certainly wipe out his hedge fund's investment in the stock, these
deals have set Lampert up to benefit in other ways, creating a conflict
of interest, according to a shareholder lawsuit.
Kmart A Kmart in Hillsboro, Ohio, uses white sheets to hide empty store
space. Mark Schmidt
Failure is a near certainty, according to industry watchers. Analysts
are expecting Sears to file for bankruptcy within the next two years,
and perhaps much sooner.
Former and current Sears staff members who spoke to Business Insider put
the blame squarely on Lampert for destroying the iconic American brand.
The next Warren Buffett
Lampert, 54, has the pedigree of a Wall Street blue blood. He graduated
from Yale, worked at Goldman Sachs, and started his own hedge fund, ESL
Investments, when he was 26. He was a celebrated investor for much of
his three-decade career.
ESL generated annualized returns of more than 20% a year for 20 years,
marking one of the strongest long-term investment records in history,
according to a 2013 Wall Street Journal article. In 2004, BusinessWeek
(now Bloomberg Businessweek) asked if Lampert was the next Warren Buffett.
LampertHome Eddie Lampert's home on Indian Creek Island. Bing Maps
But Lampert's career, before Sears' downfall, was not without drama.
Most notably, on a January evening in 2003, as Lampert was walking to
his car from his office in Greenwich, Connecticut, four people grabbed
him, shoved him into a rented SUV, and took him to a cheap motel, where
he was held captive for 28 hours, according to The Journal. The ever
private Lampert has never spoken about the incident publicly.
At the time of the kidnapping, Lampert was hammering out the final
details of a deal to acquire the discount retailer Kmart out of
bankruptcy. Then in 2005, he combined it with Sears to create Sears
Holdings in what was, at the time, the largest retail merger ever. ESL,
which has long been one of Sears' largest shareholders, now owns about
half of the company with Lampert.
About a year after the deal to create Sears Holdings closed, Lampert
described the company - which included more than 3,000 Sears and Kmart
stores - as a "$55 billion-revenue, 350,000-person startup."
"My goal is to see Sears Holdings become a great company whose greatness
is sustainable for generations to come," Lampert, then just chairman of
the company, told shareholders in a March 2006 letter.
He has publicly compared Sears' strategy to Apple's and Microsoft's, and
in his most recent letter to shareholders, he said that Sears is trying
to meet new customer needs like Uber, Amazon, and Tesla are doing. Sears
is facing more scrutiny from Wall Street than those companies, however,
because of the sheer fact that it's a retail company, he said.
"In an environment where new companies like Uber can raise almost
unlimited capital, what are the implications for older companies that
are held to a very different standard when it comes to profitability and
regulation?" Lampert wrote.
A hard look at the numbers shows that Sears Holdings looks nothing like
a fast-growing tech company. In the near term, Sears must raise about
$1.5 billion to stay in business through 2017, according to Moody's.
Sears Skye Gould
How Sears would raise that money "remains unclear," according to Kirk
Ludtke, an analyst at Cowen & Co. "But we suspect that it involves the
closure of a significant number of unprofitable stores," he recently wrote.
The company is doing just that. It announced in the last week that it's
closing 150 Sears and Kmart stores, or roughly 10% of its store base, in
early 2017. Sears has arranged a deal to sell its iconic Craftsman brand
to Stanley Black & Decker for about $900 million, which includes a cash
payment of $525 in the near term and another $250 million in three
years, as well as ongoing payments as a percentage of Craftsman sales.
The company is also looking for buyers for its Kenmore and DieHard brands.
And Lampert has been lending the company money to pay off debt and keep
it afloat. Within the last two weeks, ESL has promised Sears up to $1
billion in loans and letters of credit, in addition to a $300 million
cash infusion in the second quarter. ESL has suffered too. Its assets
are down to $2.8 billion from $18 billion in 2007, according to a March
2016 regulatory filing.
Traditional big-box retailers have been hit hard by the rise of online
shopping and falling foot traffic in shopping malls. But current and
former workers say Sears' problems have more to do with Lampert's
management and strategies than the larger industry changes.
'He would find a hole in the data and then explode'
The videoconference room on B6 where employees meet - virtually - with
Lampert, has become infamous for the shouting matches that happen inside
its walls.
The first time a new Sears vice president strolled into the room two
years ago, he found top managers sitting around a table, burying their
faces in computers. He tried to introduce himself - "Hey!" "Hi!" and
"How are you doing?" - but he didn't get much in return.
"I see everyone look up like, 'Do you know where you are?' And I was
like, 'What the hell is going on?'" he told Business Insider. He later
understood why.
Sears headquarters The Sears headquarters in Hoffman Estates, Illinois.
Reuters
Lampert has been known to get so angry in these meetings, particularly
when he is challenged, that employees gossip about who is getting
ushered into the conference room on any given day to "get their knees
cut off," one former manager told Business Insider.
The meetings typically start with a presentation, and then Lampert fires
off a series of questions to the presenter until he finds one that the
person can't answer, one former vice president said.
"He would find a hole in the data and then explode," the executive said.
"Then there would be a 45-minute rant."
Lampert's management style - including the harrowing videoconferences -
has been questioned before. In a July 2013 Bloomberg Businessweek
profile that focused on the fierce competition between business units,
the CEO defended his approach as a way to "drive decision-making and
accountability at a more appropriate level."
But the situation has taken on a far greater urgency in the three years
since that story was published. Sales are down 37% since early 2013,
Sears' debt load has spiked to over $1.6 billion, and the company is
losing well over $1 billion annually. To meet its obligations, the
company has been selling off valuable brands and properties.
Shop his way
Before Sears and Kmart, Lampert had no experience in retail. The big
plan he hoped would transform Sears was a rewards program called Shop
Your Way, which the company introduced in 2009.
Through the program, frequent buyers accumulate points for their Sears
and Kmart purchases and turn them into coupons and discounts. One
primary goal of Shop Your Way was to acquire customers' personal
information and sell it to other companies, according to a former
executive who worked on the program.
There's also a social networking component on shopyourway.com, where
members can see and comment on products their friends have liked or
purchased.
One user, who goes by the name Eli Wexler, posts frequently on the site,
asking questions such as if a $2,495 handbag is "too expensive, or is it
worth it?"
In 2013, Bloomberg reported that Eli Wexler is a pseudonym for Lampert
himself.
In February 2016, Lampert, presumably posting as Wexler, clicked on a
pair of boxing gloves and posed a question: "Does anybody have these?
Will it protect my hands since I punch very hard?"
Eddie Lampert Eli Wexler Shop Your Way
Lampert aggressively pushed the rewards program, requiring store
employees to meet ambitious quotas for new sign-ups. But in many ways it
backfired. The program is complicated, and it has held up lines at
checkouts, angering customers.
Because of the program, Kmart cashiers went from scanning 18 items a
minute to just five, according to a former assistant manager at one
store who left in 2012 after 12 years with the company. Some frustrated
customers abandon their shopping carts, forcing employees to return all
the goods back to shelves.
At the same time Lampert was pushing Shop Your Way and posting on the
site, employees started complaining that Sears had stopped investing in
its physical stores.
"While we have been criticized for not investing more in our stores, I
have explained in the past that the investments in our transformation go
well beyond our stores, but don't ignore our stores," Lampert wrote in a
letter to shareholders in February 2016.
Sears quote 1 2 Business Insider
"We believe that our investments in the Shop Your Way membership
platform and our integrated retail capabilities were more appropriate
investments given the massive shift in how customers are shopping and
how competition has evolved."
"Integrated retail capabilities" is Lampert's term for shopping at
stores and online.
Sears stopped reporting its e-commerce growth in 2014, and Shop Your Way
is now a "giant margin drain," according to two former executives who
worked closely with the program. Part of the problem is simply that
Sears' clientele is generally older and less interested in online shopping.
"The reality is, when your top line falls as significantly as it has and
your customer base doesn't buy all online - they are middle-aged to
older, and they shop the store - as much as you try to shift channels to
online, it's just not happening," one former executive said.
Lampert has conceded that the company has "fallen short" on getting
customers engaged in the program.
"Our reputation will change when we get [the Shop Your Way network] to
matter," he said at the company's annual meeting in 2016, according to
Crain's Chicago Business.
'The ceilings are leaking and the floors are cracked'
Lampert's plan is for Sears to one day be a tech company, more like
Apple or Facebook than a traditional retailer, according to three former
executives.
"He's got it all set out in his mind, how he wants things to run,
regardless of any type of value proposition," said one former employee.
"If Eddie thinks it's 'cool' and it will position us with Amazon or what
the young people are buying, then you go marching toward it like a zombie."
Interviews with dozens of store-level and corporate employees over the
past year yielded a common refrain: Lampert is out of touch with reality.
"He refuses to put a dime in updating stores," one former vice president
said. "You walk in and you are embarrassed as an employee when the
ceilings are leaking and the floors are cracked."
"No one believes in Eddie's vision," this person said. "He has just gone
rogue."
Business Insider spoke to several store-level employees who said the
stores are severely understaffed, with some operating on fewer than half
of the employees they need. That has led to widespread complaints among
shoppers that they can't find an employee to check them out, so they end
up leaving the store empty-handed.
Lampert continues to assert that the retailer is in the midst of a
"transformation" into a more "asset-light" organization - rather than
the "protracted liquidation" that critics describe it as.
Sears Skye Gould
He's telling that to investors, analysts, and store employees in blog
posts, annual letters, and at shareholder meetings, as well as to
members of his senior team of executives, according to interviews with
Sears employees.
Can Lampert lose?
For all the problems in Sears stores, Lampert has set up his various
businesses in a way that means he has other ways to gain no matter what
happens to the company.
To be sure, ESL holds a majority share of Sears, and that stake has lost
three-quarters of its value just in the past few years - more than $1.5
billion since early 2015 alone.
But Lampert, through ESL, has loaned Sears more than $1.12 billion and
promised an additional $679 million over the past two years to help keep
the company afloat. In return, Sears pays origination fees and interest
directly to ESL, and, by extension, Lampert. A recent shareholder
complaint claims that Lampert and ESL made at least $19 million in fees
and interest payments from a $400 million loan in 2014.
Lampert and ESL could potentially seize stores and inventory if Sears
can't pay its bills. That $400 million loan, for instance, is backed by
collateral of 25 stores valued at $500 million total.
Even if the company went bankrupt, Lampert wouldn't walk away
empty-handed, according to bankruptcy experts and former executives.
"He's moving money from one pocket to the other pocket, and he's
protected himself on both sides," one former vice president said. "The
guy is a brilliant asset manager. He's just not a retailer."
Lampert benefits Skye Gould / Business Insider
Both tenant and landlord
Shareholders have filed suit against ESL for another way they say
Lampert benefits from both sides of Sears' dealings.
It starts with a real-estate investment trust called Seritage Growth
Properties, which Lampert created in 2015. Even though they are separate
entities, Lampert and his hedge fund own a little more than 43% of
Seritage. They also own a little more than 54% of Sears Holdings.
After creating Seritage, Lampert orchestrated a big real-estate deal.
Sears sold 235 stores to Seritage in 2015. Sears raised $2.7 billion
from the sale and rented back the store space from Seritage.
In many of these locations, Seritage has the right to take over all or
half of the square footage from the Sears stores and then rent the empty
space to other retailers at sometimes four times the rent.
"Seritage is transforming retail rents from $4 per square foot to
$20-plus," Sears director Bruce Berkowitz said in November on a
conference call for his investment fund, which also owns a stake in the
REIT. "Seritage clearly proves the point about the value of the real
estate remaining at Sears."
It has already happened in six stores and seven Sears auto centers,
according to Securities and Exchange Commission filings. Seritage has
converted half the square footage in nine other stores.
Sears Business Insider/Hayley Peterson
Sears also has the option to exit all the leases and give the space to
Seritage. This is good for Sears when it needs to close stores, and it's
good for Seritage, which can then rent it out to other companies. Sears
has already begun to do this, terminating leases on 17 stores it plans
to vacate this month.
But in their lawsuit, shareholders accuse Lampert of stripping Sears
Holdings of its core assets to benefit himself and his hedge fund. They
say the Seritage deal unfairly enriches Lampert at the expense of other
Sears investors, as the stores were sold well below market rates.
"Eddie Lampert used his position at Sears as its CEO and controlling
shareholder to further his and his hedge fund's interests rather than
the best interests of the company [by spinning off its] crown-jewel
assets to the REIT at an unfair price," said Ned Weinberger, a partner
at the law firm Labaton Sucharow LLP, which is representing the
shareholders.
'There are so many people running for the door'
The meeting in which employees were instructed not to say the word
"consumer" was the last straw for one senior executive who spoke to
Business Insider.
It was emblematic of an overarching problem plaguing Sears: Lampert
"doesn't want to hear anything that challenges his vision," even if it
could help improve business, he said.
The executive sought guidance from a colleague after the meeting, who
advised him to jump ship.
"He said, 'On your watch, this thing is going to sink,'" the executive
said. "This is when I knew I had to leave."
Sears quote 3 1 Business Insider
There has been an unusual number of high-level departures from Sears in
the last several years. At least 67 executives - vice-president level or
higher - have left the company just within the last two years, according
to LinkedIn data. Fifteen of them left after less than two years of
service, and seven left after less than 12 months, according to the
employees' profiles.
The departures include Sears' chief financial officer, Robert
Schriesheim; its executive vice president, Jeff Balagna; and its
president and chief member officer, Joelle Maher. None of the three
responded to Business Insider's requests for comment on their departures.
Kmart (39) A Kmart store in Richmond, Virginia. Business Insider/Hayley
Peterson
"There are so many people running for the door not just because the ship
is sinking, but because the captain of the ship is screaming at them,
blaming it on them, and telling them it's their fault," one former vice
president said.
Evercore ISI analyst Greg Melich, the last remaining stock research
analyst covering Sears, noted last year that Sears executives "tend to
last less than a year or two."
One mid-level employee who currently works in the corporate office said
people are quitting, updating their LinkedIn profiles and résumés, and
"having whispered conversations" in their cubicles about the state of
the company.
But no one really knows what's going to happen.
"As of right now, it is all up in the air," this person wrote.
'The game's over'
Sears' suppliers, meanwhile, are getting nervous and canceling orders,
according to current and former corporate employees, as well as
representatives of the manufacturers.
An employee who worked out of Sears' former New York City design office,
which the company shut down in July, said vendors have started canceling
orders because they can't get insurance on their shipments.
"It started happening about a year ago, and then it started happening
more and more," this person said.
Sears Quote 4 Business Insider
A mid-level manager at headquarters also told Business Insider that
suppliers have been canceling contracts.
"It's getting really hard to do my job," this employee, who works
directly with Sears vendors, wrote in an email. "A lot of vendors are
discreetly cutting ties with Sears."
The employee declined to provide names for the companies involved out of
fear of retribution if they were discovered as the source of the
information.
All of this, industry watchers say, means chances for Sears' survival
have dwindled.
"They are going out of business," said Van Conway, an expert in
bankruptcy and debt restructuring and CEO of Van Conway & Partners.
"This snowball is 90% of the way to the bottom of the hill."
That's one reason those executives look so nervous in that
videoconference room at headquarters, while Lampert, sitting at home in
Florida, keeps finding ways to plug holes with cash infusions.
One day, Sears' assets will likely run dry. And right now, there's no
sign of a strategy that would cure the underlying business by restoring
brand loyalty and sales, Conway said.
"The game's over," he said.
SEE ALSO: Sears is closing 150 stores - here's the full list
SEE ALSO: Sears' obsession with Wall Street is killing the retailer for good
http://www.businessinsider.com/sears-failing-stores-closing-edward-lampert-bankruptcy-chances-2017-1
KoolAid comes in many flavors, including 'Eddie Lempert'.
Drink it or die. Drink it and die. Whatevs.