“Sears will be joining them in the dustbin soon after, I’m afraid.”
Sears is owned by Eddie Lampert. He heads his own private equity “investment” firm, not unlike a recent candidate for President of the United States. His investment strategy consists of purchasing tired company, stripping them of assets, firing workers to cut costs and then milking them until they no longer produce cash. His business plan is to flip the company or shut it down and harvest the remaining assets leaving the bondholders and former employees holding the bag. Investment to Eddie is all about putting money into his pocket, not into the businesses he purchases. Forbes estimates his net worth at $3.1 billion and you don’t get that kind of money by reinvesting the cash collected at Sears into freshening up the store.
Early in his career he worked at Goldman Sachs, the large investment bank that profits from selling bonds for the US treasury as well as financing private equity firms and other firms. He is sometimes compared to Warren Buffet, although Buffet does actually allow his companies to reinvest some of the cash they generate into operations. Unfortunately, Eddie is more typical of today’s financier.
Lampert purchased struggling Kmart and Sears. He merged the two companies in 2005 and has been slowly bleeding them of cash and assets, closing store locations and making no investments to upgrade the appearance of the stores. Each year since he has owned them sales have declined. Most locations today are tired and shopworn, understaffed, and thinly inventoried. Low store customer count is another defining characteristic of his stores. So is high management turnover in the organization.
Sears does still own some good real estate. Recently Eddie has started harvesting the real estate without closing the store. The freestanding Sears store at Friendly Center in Greensboro, NC has been dramatically downsized so that part of the store can be leased out for a new Whole Foods store. Perhaps Eddie believes the affluent young premium food store shoppers will stop next door to buy a Craftsman lawn tractor or cheap clothing on the way to or from the grocery. If not, he can shut the remaining Sears portion of the store down and lease it out.
If someone studied the private equity boom in the US over the past 30 years, they would likely find it has been more about stripping assets from viable companies, laying off employees, and offshoring operations in order to make a few raiders such as Eddie Lampert and his Wall Street bankers fabulously wealthy than it has been investing in assets to spur economic growth. For good reasons that study will not be funded and the story will not be written. However, those citizens who have been downsized when a private equity firm purchased their company, or who have eyes and can see the once great firms like Sears reduced to shells, know the truth. The rest will continue to believe the Bain Capital Staples story is typical of the private equity world.
Interesting...