Well folks, it could finally be “curtains” for my favorite piñata, Edward “Eddie” Lampert, CEO of Sears Holdings. His own personal ATM machine (Sears), which has spewed billions in cash every time he keyed in the right password, is about to break down. You know how upset you get when a vending machine swallows your quarters and doesn’t eject the bag of nuts you selected, and you proceed to beat and shake the machine? Well, since his machine has not been maintained since he bought it, much less updated or re-booted, so to speak, it continually took in fewer and fewer dollars, and now the window is beginning to say: “we’re sorry, your withdrawal request exceeds your account balance.”
So Eddie has a couple of choices. Forget about “beating and shaking” the machine, because it may be too late and too costly to fix it, at least under the scrutiny of shareholders, Wall Street and the general public. He can continue to manage the business down into eventual bankruptcy, at which time he can decide to either reposition and repair the business and manage it out of bankruptcy, or liquidate. Or, he might choose to lead a leveraged buyout, as has been rumored.
However, for any of those scenarios, other than liquidation, he is going to require more than his own capital, either from investors and/or in the case of an LBO, a private equity partner or partners.
And, now I ask you, with Eddie’s track record in running the business, in either of the scenarios (other than liquidation), what investor or private equity firm would partner with Eddie if he were to remain at the helm? Would you?
Having said this, I remind myself that he is the abracadabra man, particularly when it comes to financial engineering. So, don’t be surprised if he keys in another password, maybe “r-o-e-b-u-c-k,” and lo and behold that ATM goes “cachunck” and spits out more cash. And, “fast buck Eddie” rides again.
At least I could continue on with my favorite piñata. But, I’m tired of that relationship. And, I really don’t believe there’s any more magic up his sleeve. And, there are no “passwords” left, sirens are sounding on the bridge of the ship, life boats are being lowered into the water, and Mr. Lampert, as its captain, must make the final life or death decisions.
Following is what I would advise.
Turn the ATM Machine Into a Retail Business
Did I hear myself right? Yes I did. But, to pull that magic trick off, it’s going to require that Eddie change in very major ways, none of which are going to continue adding “fast bucks” to his ATM. In fact, he’s going to have to take all the “fast bucks” he’s made over the years, plus a lot more, and put those bucks back into the ATM (that’s rather than “taking them out,” folks), to turn it into a retail business.
And, the first thing I advise Mr. Lampert to do is to pull together all the bucks and financial friends he’s going to need to do an LBO. Once he’s accomplished that, he should fire himself and find a retail rock star to become CEO, and then, sorry to say, get out of his way.
Come on Eddie, I know this might be the most painful thing you’ve ever done. Because, I know you believed you were, indeed, that rock star when you formed Sears Holdings. But, after a flurry of interesting, yet unsuccessful tactics, and “Zara-like” (as in fast fashion) executive turnovers, in an attempt to right the business, it just kept sinking.
Then at some point, your real genius kicked in and retail management turned into financial management, which by the way, you have managed brilliantly.
Once the new rock star is in place, you should urge the retention of a five star consulting firm to assist in the long and complex process of developing a strategic plan for consolidation, right-sizing, cost-cutting (if there is any left), all to stabilize the business in the medium term. Simultaneously, there should be a competitive and consumer repositioning plan with a reassessment of the entire business model and finally, growth strategies and objectives.
This would obviously take several years and hundreds of millions of dollars. And, since Mr. Lampert has been in the risk assessment business his entire career, he does need to weigh this kind of enormously risky decision. Is Sears now totally irrelevant and unfixable, ready for the briny bottom, or can it be transformed to the status of the glorious retailing juggernaut it once was?
Should Eddie put his money where his mouth was upon forming Sears Holdings or should he look for another ATM machine?
Good luck Eddie, Either way, I no longer need you as a piñata.