Because It Was Wreckable

The typical media report about the demise of Sears will argue that it was the inevitable victim of the rise of e-commerce. This is bullshit; there’s still tons of money spent at brick-and-mortar stores and plenty of profitable retailers. Sears/KMart almost certainly had to shrink, but it was far from inevitable that the chain would go bankrupt.

Instead, Eddie Lampert’s leadership exemplified not one but two ways of killing a company:

• First, although you have no experience in retail, formulate a plan to DISRUPT the industry with such obviously silly Randite ideas as “make your managers engage in a zero-sum competition” and “shoppers don’t care what condition the stores are in.”
• Then, when these management ideas prove to be a complete disaster, just loot the company.

David Dayen has an excellent story about how much money from this bust-out will end up in Lampert’s pockets, and if his dumb management ideas don’t work out he owes you a Coke:

So the leadership of the Sears empire—Lampert—is gradually selling off bits and pieces of it, mostly to Lampert. The cash generated from those deals in large part serviced Sears’s debt, the payments on which also went to Lampert. And now, having put Sears into bankruptcy, the top creditor—Lampert—stands to gain from the final fire sale.

Sears stockholders have already won a $40 million settlement over this style of self-dealing, claiming that the Seritage deal spun off the company’s assets at a bargain-basement price. But $40 million is a pittance of the total cash that Lampert has extracted. It’s hard to put a full number on it, but between the $200 million annual debt service, the $394 million in rent to Seritage, and the $314 million Land’s End stake, you could say conservatively that anywhere between $900 million and $1.5 billion have been ferreted out. And in bankruptcy, another $1.5 billion to $2 billion could be on the way. None of this, by the way, includes Lampert’s personal management fees from ESL Investments.

Yes, Lampert lost a lot of money on his Sears bet. His net worth has fallen, and confidence in his investment skills has waned. But much of that is due to his mismanagement of the company, in particular pitting parts of the business against one another (he installed three dozen different management teams and boards inside each department, specifically to foster competition between them, to disastrous consequences) and drastically reducing investment in the stores. In what we’re told is the iron logic of capitalism (and its moral justification), someone who destroys that much wealth and investment would personally suffer for those decisions.

But as of today, Eddie Lampert still has a personal net worth of $1.1 billion, and ESL has a portfolio value of $1.3 billion as of the end of 2017, most of it tied directly to Lampert himself. That doesn’t include what he will reap through the bankruptcy, or the ongoing revenues from the assets he has managed to capture. Meanwhile, the 175,000 workers who lost their jobs at Sears and Kmart over the last decade, and the 68,000 employees whose jobs are at risk today, have next to nothing to show for it.

Oh, yes, the workers. I recommend this story about workers at Toys R’ Us, another victim of a venture capital bust-out.