February 24, 2012
Sears’s Chairman Makes a Real Estate Play After All
Rumblings that Sears Holdings is facing some liquidity issues makes yesterday’s announcement that the company plans to spin off roughly 1,000 hometown and outlet stores and sell 11 full-line mall stores to General Growth Properties less of a shocker than might be expected.
The company, controlled by hedge fund investor and chairman Edward Lampert, expects to raise upwards of $770 million from its actions. The latest move follows December’s announcements that the company planned to close over 100 unprofitable stores and that it had completed the spinoff of its Orchard Supply Hardware Store chain.
When Edward Lampert decided to bring together Sears and Kmart seven years ago, speculation was rampant that his motive was the real estate. After all, the chains were struggling mightily; how could they possibly do better under one holding company run by a person with no retail experience? Mr. Lampert, the shrewd investor, must have had a plan to sell off properties to make more money than he ever could operating them as a retail business.
But a funny thing happened along the way. Mr. Lampert kept insisting that he saw the potential of Sears and Kmart to thrive as retail entities. Sure, he closed under-performing stores and used the sale of property and transfer of leases to improve the balance sheet, but for the most part he has stuck, in his own unorthodox manner, to trying to turn the businesses around.
As a Wall Street Journal article pointed out, back in 2006 Mr. Lampert wrote to shareholders, "My goal is to see Sears Holdings become a great company whose greatness is sustainable for generations to come."
The criticisms of Mr. Lampert are well known. He has failed to make necessary capital investments in stores, gone through top executives at a clip reminiscent of the late George Steinbrenner, made investments in digital commerce that, while effective, could never make up for the business lost at physical locations, eroded Sears’ point of difference by making its core brands available to other retailers, etc.
So the question now becomes, where do Mr. Lampert and Sears Holdings go next?
- Sears Holdings Reaches $270 Million Deal for Sale of Eleven Sears Stores to General Growth Properties – Sears Holdings Corporation
- Sears Holdings to Separate Sears Hometown and Outlets Businesses and Certain Hardware Stores – Sears Holdings Corporation
- Sears to spin off hardware outlets, sell stores – Chicago Tribune
- In Retreat, Sears Set to Unload Stores – The Wall Street Journal
BrainTrust
Recent Discussions
Discussion Questions
Discussion Questions: What is your take on the news from Sears Holdings? Will these latest moves strengthen the company financially or hurt it beyond the immediate term?
Poll
Sears lost $2.4B for the quarter and over $3 billion for the year on “continuing operations.” (I don’t have the expertise to figure out how they arrived at their EBITDA results.) They are clearly bleeding money and have passed the point where they can simply leverage their real estate and other assets for strategic reasons.
Now the company is in survival mode, and being pressured every day by the credit community. Short-term investors may like the results in the past month (doubling since hitting bottom), but it’s hard to figure out how Sears addresses its biggest need, which is to address the outdated condition of its stores.
I think this will work well with Walmart’s plans to expand its neighborhood market format. Many of the Kmart stores are located between supercenters and will be a perfect fit for neighborhood markets. It’s been a known fact for several years that all Sears-Kmart properties are available. I think over the next couple of years we will see many more properties being sold, many to the new generation of supermarkets. Others, such as 50 year old stores, might be demolished and redeveloped for other uses. Overall this will strengthen the company and buy them more time. Kmart and Sears as a retailer? That’s been over for years. They will continue to be a retail zombie, perhaps indefinitely.
None of this is unexpected. The “old saw” story about real estate play is playing out as expected. Hometown stores offer small population communities home appliances as well as lawn/garden merchandise in an easy to shop floor design. Hardware are extensions of the core Sears store and likewise provide a convenient place to shop, directly competitive to an ACE or TrueValue format. Troubled stores being closed is not unique to Sears — get real. Footprint extensions support the brand and merchandise buying leverage, but obviously they are a format judged attractive for purchase, and revenue secured (by selling whole or in part) is needed.
There are brilliant people at Sears Holdings, passionate about the brands and fighting hard in a tough retail environment. While the pundits can snipe at Mr. Lampert, under his leadership they will continue to derive value from solid assets and successfully steer the ship through troubled waters.
Unfortunately, Sears is where America ‘used to shop’. Despite all of the tactics employed by Mr. Lampert and his team, Sears no longer has a point of real positive differentiation. Lacking same, as well as a cogent strategy to compete in the ever changing retail landscape (including online), makes the recent announcements somewhat prophetic.
While ‘success leaves clues’ failed strategies provide equally valuable lessons learned. For any business the ‘middle of the market’ is not sustainable in the long term as markets mature and change.
No big surprise here.
Sears Holdings has never addressed the real problems it faces. This is midway in the slow, all but inevitable march to the end.
This news is not a surprise for sure. Eddie and company have pretty much rung out all they can from the once great Sears, and now the bone picking begins. He’s making noises that the proceeds will be reinvested in the beleaguered stores, but frankly, I won’t hold my breath. At this point, unfortunately, I think it would be throwing good money after bad.
The only money left in Sears is in the property.
Selling off so much real estate will help cash flow in the long run. However, there is nothing in the announcement that talks about rebuilding brands, repositioning stores, or what will be done to create a strong business model. Without this information, it is difficult to see any other future than to continue to sell off real estate to pay bills.
Can we finally agree that Sears Holdings is not a retail company (and never was) and stop looking for a retail resurrection? Sears and Kmart were dead when fast Eddie bought them and he knew it. If those of us on the outside stop trying to look at this company as a retailer, we will all come up with a very functional and profitable strategy that does not include selling tools, washing machines and apparel.
Sears Holdings has not made, as Mr. Lampert predicted, a great retailing company “whose greatness is sustainable for generations to come.” Great talk, poor walk.
Sears Holdings has not been a golden road to retailing reality … just an opportunity to execute a business model similar to that of the U.S. Postal Service by spinning off 1,000 hometown and outlet stores plus eleven full-line mall stores.
Where does Sears Holdings go next? If there are only 39 steps to a demise, Mr. Lampert has already taken a long walk. While that jury may still be out, the verdict seems predictable.
This isn’t the Montgomery Ward story repeated, it’s hubris. It’s the height of what gives many people a bad image of corporate America.
As the stories show, it never was about rebuilding a formerly great brand to greatness, taking on Target and the rest to reclaim the rightful place Sears had in America’s hearts. It’s me first on a grand scale.
While JCP looked forward and honestly to the future, as we’ve talked about for awhile, Lampert has been shown to not care a lick about the iconic brand. Technology can’t save a brand.
The funny thing is the very brands he’s sold off are doing fine for others. With new competition for appliances coming directly from the brands who will deliver free direct from the ‘net bypassing Sears, I would expect their appliance loyalty to dwindle.
Again, it’s not about the loyal customers who built the brand, it’s about me, me, me.
Without their exclusive brands, who wants to go to a dumpy store and feel the same? With a $3 billion loss, it appears fewer and fewer. And yet the stock rises.
Let’s have a show of hands. Is anyone surprised by this? What does Sears, and for that matter Kmart, have to offer that is not being bought somewhere else?
They have been beaten by the competition for years. Sears is in our past.
Sears hasn’t had a coherent strategy for years. The strategy was “We have all this cheap space, let’s fill it up.” It had iconic brands and didn’t know what to do with them.
Real estate guys don’t run retail well. We had the Campeau era, and now we’ve had the Lampert era. What a waste!
There is a strategy in here somewhere, but it’s hard to find. The real estate idea won’t generate enough cash in this over-stored market to be a winner; they only have a few big brands to license out, and they only have so many stores they can sell/close to raise cash.
This really looks like death by a thousand cuts, sorry to say.
Losing 1,000 stores that aren’t performing would be a good thing, but who’s buying those? And how long will it take before something positive happens? You’re basically pushing money around and buying time (for what?) at this point.
I believe this is only the beginning of a very sad ending for a classic American brand.
Monty Python’s Holy Grail, remember? Sir Lancelot fights the Black Knight at the bridge? Is Eddie Sir Lancelot and is Sears the Black Knight? All the frustration and exasperation of the seven year battle to get past the unwitting retail icon and onto the search for who knows what.
Or as we like to say, “retail ain’t for sissies.”
Sears has become irrelevant and when they are finally gone, will hardly be missed by most consumers.
“So the question now becomes, where do Mr. Lampert and Sears Holdings go next?”
Mostly down. If I read the press release correctly, the plan isn’t to spin off the stores in the sense of selling the real estate, but rather selling the rights to operate the stores (presumably to those who are somehow connected with the operations now — which would conflict with David’s idea to Walmartize them). Good luck with that.
Sears describes this as — surprise! — allowing it to “concentrate on its core business” (which is not, apparently — and contrary to most everyone’s beliefs — downsizing and issuing upbeat press releases).
This slow-motion suicide is very difficult to watch, especially for those of us who worked for Sears & Roebuck at one point. Is this the best that Eddie Lampert can do?
Extracting value from our assets is what we all do. The difference is that we’re retailers and we see Sears through the lens of our perspective. No doubt Mr. Lampert is a brilliant gentleman; his interests and expertise lie elsewhere.
More Discussions
Why Did Amazon End Palm Pay?
What’s behind Amazon’s pullback on palm pay?Will Spotify’s New Page Match Feature Impress Bookworms?
Will Spotify’s new Page Match feature drive sales of both audiobooks and physical books?Is it Fair To Describe Walmart as ‘Basically’ a Tech Company?
Is Walmart becoming a tech company?
Sears lost $2.4B for the quarter and over $3 billion for the year on “continuing operations.” (I don’t have the expertise to figure out how they arrived at their EBITDA results.) They are clearly bleeding money and have passed the point where they can simply leverage their real estate and other assets for strategic reasons.
Now the company is in survival mode, and being pressured every day by the credit community. Short-term investors may like the results in the past month (doubling since hitting bottom), but it’s hard to figure out how Sears addresses its biggest need, which is to address the outdated condition of its stores.
I think this will work well with Walmart’s plans to expand its neighborhood market format. Many of the Kmart stores are located between supercenters and will be a perfect fit for neighborhood markets. It’s been a known fact for several years that all Sears-Kmart properties are available. I think over the next couple of years we will see many more properties being sold, many to the new generation of supermarkets. Others, such as 50 year old stores, might be demolished and redeveloped for other uses. Overall this will strengthen the company and buy them more time. Kmart and Sears as a retailer? That’s been over for years. They will continue to be a retail zombie, perhaps indefinitely.
None of this is unexpected. The “old saw” story about real estate play is playing out as expected. Hometown stores offer small population communities home appliances as well as lawn/garden merchandise in an easy to shop floor design. Hardware are extensions of the core Sears store and likewise provide a convenient place to shop, directly competitive to an ACE or TrueValue format. Troubled stores being closed is not unique to Sears — get real. Footprint extensions support the brand and merchandise buying leverage, but obviously they are a format judged attractive for purchase, and revenue secured (by selling whole or in part) is needed.
There are brilliant people at Sears Holdings, passionate about the brands and fighting hard in a tough retail environment. While the pundits can snipe at Mr. Lampert, under his leadership they will continue to derive value from solid assets and successfully steer the ship through troubled waters.
Unfortunately, Sears is where America ‘used to shop’. Despite all of the tactics employed by Mr. Lampert and his team, Sears no longer has a point of real positive differentiation. Lacking same, as well as a cogent strategy to compete in the ever changing retail landscape (including online), makes the recent announcements somewhat prophetic.
While ‘success leaves clues’ failed strategies provide equally valuable lessons learned. For any business the ‘middle of the market’ is not sustainable in the long term as markets mature and change.
No big surprise here.
Sears Holdings has never addressed the real problems it faces. This is midway in the slow, all but inevitable march to the end.
This news is not a surprise for sure. Eddie and company have pretty much rung out all they can from the once great Sears, and now the bone picking begins. He’s making noises that the proceeds will be reinvested in the beleaguered stores, but frankly, I won’t hold my breath. At this point, unfortunately, I think it would be throwing good money after bad.
The only money left in Sears is in the property.
Selling off so much real estate will help cash flow in the long run. However, there is nothing in the announcement that talks about rebuilding brands, repositioning stores, or what will be done to create a strong business model. Without this information, it is difficult to see any other future than to continue to sell off real estate to pay bills.
Can we finally agree that Sears Holdings is not a retail company (and never was) and stop looking for a retail resurrection? Sears and Kmart were dead when fast Eddie bought them and he knew it. If those of us on the outside stop trying to look at this company as a retailer, we will all come up with a very functional and profitable strategy that does not include selling tools, washing machines and apparel.
Sears Holdings has not made, as Mr. Lampert predicted, a great retailing company “whose greatness is sustainable for generations to come.” Great talk, poor walk.
Sears Holdings has not been a golden road to retailing reality … just an opportunity to execute a business model similar to that of the U.S. Postal Service by spinning off 1,000 hometown and outlet stores plus eleven full-line mall stores.
Where does Sears Holdings go next? If there are only 39 steps to a demise, Mr. Lampert has already taken a long walk. While that jury may still be out, the verdict seems predictable.
This isn’t the Montgomery Ward story repeated, it’s hubris. It’s the height of what gives many people a bad image of corporate America.
As the stories show, it never was about rebuilding a formerly great brand to greatness, taking on Target and the rest to reclaim the rightful place Sears had in America’s hearts. It’s me first on a grand scale.
While JCP looked forward and honestly to the future, as we’ve talked about for awhile, Lampert has been shown to not care a lick about the iconic brand. Technology can’t save a brand.
The funny thing is the very brands he’s sold off are doing fine for others. With new competition for appliances coming directly from the brands who will deliver free direct from the ‘net bypassing Sears, I would expect their appliance loyalty to dwindle.
Again, it’s not about the loyal customers who built the brand, it’s about me, me, me.
Without their exclusive brands, who wants to go to a dumpy store and feel the same? With a $3 billion loss, it appears fewer and fewer. And yet the stock rises.
Let’s have a show of hands. Is anyone surprised by this? What does Sears, and for that matter Kmart, have to offer that is not being bought somewhere else?
They have been beaten by the competition for years. Sears is in our past.
Sears hasn’t had a coherent strategy for years. The strategy was “We have all this cheap space, let’s fill it up.” It had iconic brands and didn’t know what to do with them.
Real estate guys don’t run retail well. We had the Campeau era, and now we’ve had the Lampert era. What a waste!
There is a strategy in here somewhere, but it’s hard to find. The real estate idea won’t generate enough cash in this over-stored market to be a winner; they only have a few big brands to license out, and they only have so many stores they can sell/close to raise cash.
This really looks like death by a thousand cuts, sorry to say.
Losing 1,000 stores that aren’t performing would be a good thing, but who’s buying those? And how long will it take before something positive happens? You’re basically pushing money around and buying time (for what?) at this point.
I believe this is only the beginning of a very sad ending for a classic American brand.
Monty Python’s Holy Grail, remember? Sir Lancelot fights the Black Knight at the bridge? Is Eddie Sir Lancelot and is Sears the Black Knight? All the frustration and exasperation of the seven year battle to get past the unwitting retail icon and onto the search for who knows what.
Or as we like to say, “retail ain’t for sissies.”
Sears has become irrelevant and when they are finally gone, will hardly be missed by most consumers.
“So the question now becomes, where do Mr. Lampert and Sears Holdings go next?”
Mostly down. If I read the press release correctly, the plan isn’t to spin off the stores in the sense of selling the real estate, but rather selling the rights to operate the stores (presumably to those who are somehow connected with the operations now — which would conflict with David’s idea to Walmartize them). Good luck with that.
Sears describes this as — surprise! — allowing it to “concentrate on its core business” (which is not, apparently — and contrary to most everyone’s beliefs — downsizing and issuing upbeat press releases).
This slow-motion suicide is very difficult to watch, especially for those of us who worked for Sears & Roebuck at one point. Is this the best that Eddie Lampert can do?
Extracting value from our assets is what we all do. The difference is that we’re retailers and we see Sears through the lens of our perspective. No doubt Mr. Lampert is a brilliant gentleman; his interests and expertise lie elsewhere.