Eddie “the Magician” Lampert Has No More Rabbits or Hats Left

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\"\"Or does he? He’s fooled us before with his abracadabra – now you see it, now you don’t, flimflammery. And at Sears Holdings’ annual meeting last week, he once again waved his wand around and tried to convince all in attendance, or on the call, that reality was not really reality at all, or maybe it was just alt-facts. In fact, he went all “Mark Twainian” on us by saying, “Reports of the death of Sears Holdings and its subsidiaries Sears and Kmart have been greatly exaggerated.” He even got a little “Trumpian” with a hint of paranoia insinuating that the media was his enemy. Instead of accusing them of “witch-hunting,” he said the headlines can “sandbag” the company. He referred to such headlines even from a decade ago and said, “You look at these headlines, and you might think they were from a month ago.” As an aside, I’m sure many of those headlines were from yours truly and The Robin Report. And yes, they could be from a month ago because I have written several blogs about Sears’ demise fairly recently, and all of the headlines across media-land have not really changed since Eddie took over the two sinking Titanics, (seems like a century ago). Most of these headlines, certainly mine, have simply cited the facts (aka reality) that the business continued heading south from his day one.

Eddie’s mantra could have been opposite that of Jeff Bezos, “get big fast,” to “get small fast.” However, “fast” is relative when one considers the time it takes to sink a roughly $50 billion “Titanic,” which was the combined sales of Kmart and Sears in 2005 when Eddie took the helm. As reported last December, after its 20th consecutive quarterly decline in sales and revenues, the combined top line number had dropped to about $25 billion. More warning lights are on the bottom line. They lost $2.2 billion in 2016 and over $5 billion over the last three years. And during the past decade, the number of Kmart and Sears stores has dropped from more than 3,800 to 1,430.
In the face of this dark reality, Eddie “the magician” makes this preposterous comment in the annual meeting: \”We don\’t need more customers. We have all the customers we could possibly want.\” I guess this was an alternative fact that he hoped we would believe. However, the factual reality is that not only does he need more customers, he needs to keep the ones he has, who according to the top and bottom line numbers, seem to be leaving in droves.

So do we have any reason to believe the sinking ship can be saved, much less find a path to growth?

More Wand Waving

Defying gravity, Eddie “the magician” performs a levitation illusion. He says, “We know our financial results don’t provide a demonstration that what we’re doing is working. There are a lot of elements that are working, and a lot of elements that need improving. I feel very strongly that what we’re doing deserves a chance.”

Have we not heard this litany before—like over and over?

Then he lashes out at the sandbagging press. He cites a headline, “Vendor Cuts Off Sears.” He complains, “We don’t call up the newspapers and say, ‘We just cut off a vendor because they’re jerks,’ but they will do that. Then it becomes, ‘Vendor Cuts Off Sears.’ If you’re a vendor and you read that, you say, ‘Let’s call them up and get better terms.’”

Duhhh!! Of course, in fact, vendors are very nervous about not getting paid and will either demand a better deal or cut Sears off altogether.
One shareholder spoke up, suggesting that Lampert was sounding both paranoid about vendors and in denial about the future of Sears. Lampert responded with quotes that you cannot even make up. “There’s a lot of things happening behind the scenes. They’d (people in general) be shocked at the behavior of so many parties trying to take advantage of our situation. That’s not paranoia, that’s just reality. If you’re playing basketball, and the refs are not calling it when you’re elbowed in the chest, you have to deal with that.”

His comment on being in denial about Sears’ future was a bizarre comparison to Amazon. He said, “A lot of people who have been in denial, in some people’s view, eventually broke through. Amazon — people said it’s growing, they like Amazon — but they never make money. They missed [the company’s potential]. It was in plain sight. As soon as we make money…people are going to look and say, ‘How did I miss this?’ But we need to prove it’s working. I accept that … our financial results give people a lot of ammunition to shoot at us.”
Eddie, the only people who are going to be saying “how did I miss this” regarding Sears, are those shareholders who continue to believe you’re a magician, and rather than short the stock, they sink with the ship. To compare Sears with Amazon in any way is just plain laughable. The magician rambled on with tactical bromides about promotional deals, a “Shop Your Way” Sears MasterCard, using stores as showrooms, and blah, blah, blah, blah, blah.

“It’s not traditional retail,” Lampert said. “We’re focusing on the customer and our members, and how we bring value to them. It’s not just selling products.” That’s for sure Eddie. You are not selling products and that is why you are going under.

No Rabbits or Hats Left

And, according to a statement from Sears Holdings annual report for the fiscal year ending in January, there appear to be no rabbits left, or hats to pull them out of, in the “magician’s” bag of tricks. The report stated, “Our historical operating results indicate substantial doubt exists related to the company’s ability to continue as a going concern.” It cited that continuing operating losses were choking off liquidity that might limit its access to new merchandise and new funding.

So when Mr. Lampert rails against the sandbagging press, and their dire headlines, isn’t he being a tad hypocritical when his own annual report headlines his potential demise?

From day one, when he acquired Sears and merged it with Kmart, he operated the business as though he had absolutely no retail experience, which of course he did not. He declared in a 15-page manifesto in 2005 that traditional measures of retail success, such as same-store sales, were no longer relevant.

So the magician proceeds with his illusions, hoping to pull growth out of a hat. Cost-cutting, slashing capital spending and store maintenance, closing stores, putting other stores in REITs, selling assets like the Craftsman tool brand and putting Kenmore and DieHard into the line-up: all of these were, and still are, the magician’s tactical realities in search of the illusion of profitable growth.

The illusion is about to end.

Man the Lifeboats

Like the metaphorical Titanic, there are not enough lifeboats for all of the passengers, (read shareholders). So will “Captain” Eddie, like all good captains, go down with the ship? Not a chance. As I have written before, he’ll sell off whatever deck chairs (assets) are left, including real estate and brands. He will pocket his share of the equity in any of those assets. And then he will inflate his private raft and float away into the night.



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