Page 2 of 2 Sears majesty to hedge-fund dust
By Julian Delasantellis
Unlike many of the other mammoths of American merchandising, you never would
find him down on the sales floor, making sure the restrooms were clean or that
the salesclerks on the return desks were courteous. No, in running perhaps the
most fabled, trusted name in American commerce, Lampert gave every indication
that he cared very little about the enterprise that others before him had
labored over a century to build.
Although both Sears and Kmart both maintained their separate store identities,
(which did not stop Nike, not wanting to be tainted from any downmarket reek
possibly wafting over from declasse K-Mart, from pulling its wares from Sears)
in reality, a strange form of symbiosis between Sears, Kmart and ESL
developed that essentially blurred the demarcation lines between all three.
In essence, during his now more than three-year term as the chief executive of
Sears Holdings, Lampert has conclusively proven that he has very little
interest in the actual retail operation of Sears. Same-store, year-over-year
sales, the key metric for retail success, have spiraled down month after month,
quarter after quarter, even though the first years of Lampert's reign were a
time of significant US economic growth-with attendant free spending by US
consumers.
Retail advertising budgets have been slashed. Funding for maintenance, upkeep
and renovation for the stores have been cut way back; at many shopping centers,
the Sears store is becoming more the mall eyesore than its anchor. As for
investing the capital to maintain healthy levels of inventory in both stores,
so that customers don't find empty shelves when coming in to look for a product
and then turn around and never come back, well, that's not all that important
anymore, either.
You might think that any retailer acting in such cavalier contravention to
time-honored retail principles might have received the highest possible measure
of approbation and sanction from Wall Street.
Not true. During the first two years of the Lampert reign, the stock market
adored Sears Holdings. The stock was up 15% in 2005, 47% in 2006, as opposed to
much more modest rises of 2.5% and 7% for those years in the general RTH retail
stock index.
What could be the cause of this seeming contradiction? Had the stock market, or
at least the specialist station where Sears Holdings was traded, entered a
bizarre sort of Fantastic Four reversed dimension, where bad corporate
practices were now good, and incompetent management now adored?
If only the explanation were this innocent. In reality, what has been happening
with both Kmart and Sears during the Lampert era was that the operating
expenses for both entities have been cut to the bone, in order to free up the
billions that Lampert would use for hedge fund speculation at ESL. The point
was no longer to manage these respected entities in such a manner that they
would flourish and thrive for the benefit of the stockholders, the employees
and the communities in which they and the customers lived; now, it was to
generate large returns for the shareholders alone (of which Lampert was, of
course, the largest one) and keep Sears and Kmart alive long enough to bleed
them dry.
Looked at in this light, the stock's superior returns in 2005 and 2006 are easy
to understand. Those two years were very good vintages for the hedge fund
industry. As I explained in
Hedge Funds: Playing dice with the universe (Asia Times Online, July 6,
2006), those were the days when the funds had discovered a very simple way to
make absolute scads of money. If everybody took massive similar positions in
the same investment, these positions, simply through the weight of the amount
of money being directed at them, could not help but appreciate. Reading the
financial media from that time, I half expected to see a picture of Lampert
water-skiing on Long Island Sound, with an accompanying caption announcing that
"Eddie Lampert Now Walks on Water".
But as all readers of this site well know, things sure changed in 2007. Many of
the hedge fund strategies that paid off like slot machine jackpots in the
previous two years, such as huge heavily leveraged bets on subprime mortgage
paper, came up lemons last year. Sears Holdings' profits fell 99% from the
third quarter of 2006 to the same period of 2007. The stock is down 50% from
its high in April of 2007, as opposed to a less than 5% decline by the RTH
retail index.
Also,the news that Lampert's ESL bought an $800 million stake last year in
Citigroup, just before the subprime storm made landfall, when the stock was
trading at $51 (as opposed to its current price of under $24) has not helped
him further his burning desire to be known as the Dauphin to King Buffett of
Omaha, either.
Herb Greenberg of the Moneywatch web site named Lampert as the worst chief
executive officer of 2007; considering last year's competition, quite the
distinction.
Sears stockholders, who two years ago toasted young prince Eddie as their risen
savior, are now an ornery, ill-tempered, mean-spirited crew. Last February,
Lampert tried to convince them to stand firm and true; he actually compared
himself to Eli Manning, the American football quarterback who led his underdog
New York Giants to an improbable win over the heavily favored New England
Patriots in last February's Super Bowl. In response, I'm sure that many of his
stockholders would have reacted favorably to the sight of Lampert being briskly
"sacked" by a whole side of 150 kilogram American football linebackers.
To this observer, the sorry saga of Sears illustrates just how far distorted
American ethics and values have become from exposure to the great credit and
money carnival of the past few years. "All that is solid melts into air, all
that is holy is profaned," Karl Marx wrote in 1848. In this case, nobody
thought twice, nobody blinked an eye, when Wall Street took a truly unique
American institution, Sears, and turned it from a fine, respected American
society matron into a common streetwalker reduced to pimping through the night
for Eddie Lampert.
Last year, the New York Times' Gretchen Morgenson noted that more American
national income was produced by financial engineers, people like Lampert who
manipulate the amorphous abstraction called money, than by the mechanical
engineers who manipulate actual physical realities such as steel, concrete,
mortar and oil. In his new book Bad Money (reviewed May 10 by
Joe Costello), Kevin Phillips notes that "By 2004-6, financial services
represented 20 to 21 percent of gross domestic product, manufacturing just 12
to 13 percent."
Somewhere along the line, America got the idea that the buck generated from
financial services, from manipulating money, from passing it from hand to hand,
was equivalent, or even superior to (after all, you come home with a lot better
smelling clothes after a day on the trading floor compared to a day at the
steel mill) the same buck made actually making and sustaining something - such
as the great brand Sears once was.
Here is the actual core of the current crisis of American overconsumption. The
music has stopped, the dance is over, the great credit and money creation
machine of the past few years has shut down. As the dust settles, we see that,
for all the money, and supposed wealth, created over the past few years, very
little of actual value, of real worth remains. As does now Lampert's, as does
now America's, and its dream of endless wealth created through little or no
actual work, phantasms still dance into and out of our world with the pages of
a calendar, and only the very foolish mistake their ever-vertiginous presence
with reality.
Somewhere in all the packing boxes my wife and I are yet to unpack almost two
years after our house move are the pictures she had taken every year of our
son, in the 1970s and 1980s, at the Sears Portrait Studio. Millions of other
20- to 50-year-old Americans have similar pictures, from the same source.
Very few observers think that Sears can survive much longer, still under
withering competitive pressure from Wal-Mart and being bled to death by the
likes of Lampert. In a few years, our granddaughter will see the pictures of
her daddy at her age, wonder what the "Sears" means on the back of the picture.
If my son asks me what to tell her (and, come on, how likely is that?), this is
what I will say. "Honey, sometimes grownups act very silly."
Julian Delasantellis is a management consultant, private investor and
educator in international business in the US state of Washington. He can be
reached at juliandelasantellis@yahoo.com.
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