In 2006, hedge fund manager Edward S. Lampert was ranked number 67 on a Forbes list of the top 400 richest Americans, just above Amazon exec Jeff Bezos. Sears Holdings, which includes the Sears and Kmart brands, had a share price hovering around $162. That was then, and 11 years later both seem to be circling the drain as Sears’ shares have dropped to about $7.
The Sears Conundrum
When Lampert initially proposed combining two struggling retailers, Kmart and Sears, investors were excited at the opportunity to breathe life back into the undervalued, poorly managed corporations. With the hedge fund wunderkind at the helm, this was a merger that was destined to make them each a fortune.
Times, however, have changed substantially and Sears Holdings is finally having to admit what many shoppers realized long ago: “Substantial doubt exists related to the company’s ability to continue as a growing concern.” The company is experiencing perhaps the slowest retailer death ever seen in the market, but as it hemorrhages $1 billion a year, Lampert and his few remaining investors are hoping for a miracle.
Where Did Sears Holdings Go Wrong?
Brick-and-mortar retailers have had a hard time since the eCommerce boom, but that alone wouldn’t have been enough to bring these giant brands down. A third element was required, and many experts are pointing the finger directly at Lampert. His insistence upon personally managing the weary retailers was very likely the straw that broke the camel’s back.
“He was a very successful investor before he took over Kmart and Sears,” Mark Cohen, former CEO of Sears Canada and a professor or retail studies at Columbia Business School, explained in an interview with the New York Times. “He seemed to think he was smarter than anyone in the retail business, but he had no idea how to run the company from Day 1. Lampert had no experience in retail, and no management competency whatsoever.” Cohen also alleged that Lampert is systematically liquidating Sears, calling the hedge fund manager a “financial pirate.”
Although Lampert has called for a “fundamental restructuring” of Sears, simply cutting $1 billion in costs won’t be enough to keep his sinking ship afloat. Lampert is suffering, too, having dropped to number 309 on Forbes’ top 400 richest Americans list. He seems to be determined to go down with his prize.