The phrase “too big to fail” became a political cliche when the Great Recession began. You may not know that it has been around for more than 50 years and always used to defend government bailouts of companies whose collapse might break the entire economy.
But, how about a once-proud company so big that it lumbers along while steadily losing ground to competitors, providing mediocre-to-poor customer service and exciting no one. Can you think of an organization that continues to function without facing bankruptcy or shareholder revolt despite having a tired brand, lackluster products and lots of red ink on the books?
The only one I can name is Sears Holdings Corporation, the current parent of the company that invented modern retailing. For the better part of a century, Sears Roebuck & Company was the world’s largest retailer and one of its most admired organizations. What is it today? If you are not so sure, that sort of says it all.
Has anyone under 25 been in a Sears store?
According to legend (as a PR veteran, I respectfully view the official version as myth, more or less), it all began in 1886 when Richard Sears, a railway station agent in North Redwood, MN took possession of some watches that a local jeweler refused to accept. Sears sold the watches, then reordered again and again, setting the ball in motion.
For a full century, Sears grew and adapted, both leading and following the nation it served. It first hooked consumers through its catalog. It opened Main Street stores, then the first suburban “big boxes,” then mall anchors. Sears controlled its distribution chain by investing in or owning manufacturers. In 1931, it started Allstate Insurance. In 1974, it built the world’s tallest building in Chicago as its corporate headquarters. Sears was big. It was successful and respected. Virtually everyone in the United States bought something there.
FADE OUT. FADE IN: PRESENT DAY. That’s how a movie script would make the transition. I am not qualified nor is it now pertinent to examine why the company, like so many other empires, went into decline.*
The Roman Empire was big too, so what
Today, Sears is a shell of all that it was and an enigma to more than a few of its stakeholders. Perhaps, Sears survives by uniquely being too big to fail. Though it gets little love or respect, it remains a substantial entity when virtually all of its contemporaries and long-time competitors (Montgomery Ward, Kress, Woolworth, Marshall Fields, Kresge and Grant) are remembered only by people collecting social security.
In 2005, über-investor Edward Lampert formed Sears Holding Corporation after double-down acquisitions of fading retailers KMart and Sears Roebuck & Company. Well before that, many analysts and business journalists were circling it like drooling vultures. Since the late 1970s, Sears habitually reorganized, relocated, rebranded, relinquished assets and really did just about everything else a clueless company can do insure failure. (Sears did not analyze Wal-Mart as a competitor until 1986.) But, they just couldn’t kill the beast.
In April 2012, a Crain’s Chicago Business special report, Sears – where America shopped reiterated problems that were endemic decades before Lampert took over.
Was this guy to small to succeed?
“‘You never know what the strategy or the plan is,’ says one executive who requested anonymity because of a confidentiality agreement. ‘What are we building? What are the criteria for success?'”
“‘The challenges the company faces today are far worse than ever before, but they’re very much self-inflicted,’ says Arthur Martinez, who served as CEO from 1995 to 2000.” Did Crain’s ask Martinez whether he was referring to himself, his board or those who came before and after? That sounds like a man NOT too big to fail.
“Equity analysts and other onlookers began to say that the combined entity had little chance of succeeding as a retailer.”
“‘Sears is past the tipping point. He’s going to preside over a slow liquidation of the company.’ This is Martinez again.
We all know how retailers such as Borders and Circuit City can disappear virtually overnight. But, Sear’s was floundering when those dearly departed enterprises were still expanding. Maybe, the company is just too big to fail.
Papa bear can hibernate for many more winters
Unless you track the industry, I bet you didn’t know that in 2012:
- Americans buy more Sears Kenmore appliances than any other brand. In fact, its market share is 50% higher than its closest competitor.
- The company — not to mention its largest shareholders, Lampert and entities he controls — has deep pockets. In August, it reported more than $2 billion in liquid assets. Sears recently announced plans to raise more cash by selling and restructuring, as it has been able to do throughout its history. Chronic reliance on asset sales is not much of a business strategy, but Sears’ brands, real estate and operating units can continue to feed the under-performing papa bear for some time to come. (By the way, Allstate net income was $788 million in 2011, on revenues of $33 billion, while Sears Holdings lost just over $3 million on sales of $41 billion.)
- The company’s stock (SHLD) closed on Monday, November 12 at $61.44 per share. It has a market cap of $6.5 billion. For the current month, analysts recommendation summaries range from hold to under-perform. In fact, some think the stock price would be well over $100 per share if its real estate holdings were not undervalued.
The sniping at Lampert hasn’t stopped since he took over seven years ago. For sure, he and his team have struggled to execute an effective strategy. C-suite turnover has been constant, with executives disparaging the effectiveness and appropriateness of his “micromanaging.” But, Sears became great because it was run by owners who had their own money at risk and ran it with certainty. They made some huge mistakes, but always moved forward. (Sears actually made and sold its own car, The Allstate, from 1952 – 53.)
When in doubt, I always blame the “suits”
Sears floundered when the suits took over. Lampert may not get it right, but he has been trying for only seven years to steer an amorphous behemoth that lolled slothfully for more than 20 years before he got there.
Here’s the best part. Lampert and his investment funds acquired 62% of Sears Roebuck and Company for a little over $1 billion, $16 a share. The previous management and board felt so stuck in quicksand that they literally gave away the store. So, today’s owners have been making a lot of money while they have been swimming upstream to get the balance sheet back in the black.
The latest rumor is that Sears will sell its Land’s End clothing unit for more than $2 billion in cash, perhaps twice as much as Lampert paid for the entire company seven years ago. Now, how do you define “too big to fail”?
*In his 1974 masterpiece, Management: Tasks, Responsibilities, Practices, Peter F. Drucker features an excellent summary of Sears’ growth and importance (Pages 50 – 57). He also hints that seeds of deterioration had already sprouted roots.