American tragedy or creative destruction?
“Shriveled and sickly,” the once mighty Sears “limped into bankruptcy” this week, said Suzanne Kapner in The Wall Street Journal. The 125-year-old retailer had been a repository of American dreams. Its catalog, once delivered to nearly every American home, brought items that had been “the province of city to the rural population,” such as men’s suits and vacuum cleaners—and even the steel-string guitars that gave rise to the Delta blues. Sears, Roebuck and Co. opened its first store in 1925, and by the 1930s was adding a new location every three days. In Chicago in 1973, it built “the 110-story Sears Tower, then the world’s tallest building.” But in recent years the retail giant was crippled by the “unorthodox strategies” of its billionaire majority owner, Eddie Lampert— who ran the firm by teleconference from Florida—and the rapid rise of Amazon, “an endless online catalog that sucked profits out of the business.” During Lampert’s 13 years in charge, the company saw its number of stores plummet from 2,300 to 687. Its unraveling “erased $30 billion in shareholder wealth from an April 2007 peak, and more than 200,000 jobs.”
Lampert’s bet on Sears was “a spectacularly bad investment,” said Katherine Burton in Bloomberg.com. The retailer was already struggling to compete with Walmart when it merged in 2005 with the Lampert-owned Kmart. “Sears rolled through four CEOs in eight years” before Lampert himself took over in 2013. The hedge-fund manager had a talent for maneuvering out of tight spots: He’d once “persuaded four men who kidnapped him in January 2003 to let him go after holding him for 30 hours, blindfolded and handcuffed.” But “saving Sears required more than fast talk.” Lampert tried to turn things around by slashing costs and pitting executives against one another. Along the way, in “the most unseemly element of the saga,” he picked up a majority stake in Sears’ valuable Lands’ End spinoff. And his hedge fund owns roughly half of Sears’ $5.3 billion debt, extracting more than $200 million a year in interest.
The billionaire “blamed the economy, the weather, Walmart, Amazon, and everything else” for Sears’ decline, said The New York Times in an editorial. In truth, its fall was caused by a combination of its owners’ greed and others’ innovation. The company’s co-founder and namesake, Richard Warren Sears, “harnessed two great networks to serve his enterprise: the railroads and the United States Postal Service.” When the Postal Service introduced free rural delivery in 1896, “every homestead in America came within reach” of Sears’ 1,500-page, 100,000-item catalog. Now Amazon is one of the post office’s biggest clients, and like the early Sears, it’s pushing the boundaries on pricing, sourcing, marketing, and regulation.
Sears’ true cause of death was that ruthless, but essential, process called “creative destruction,” said Joe Nocera in Bloomberg.com. Yes, “it’s hard to envision anyone doing a worse job running Sears than Lampert,” but its end was ordained long before he arrived. Sears’ fate was sealed at the apex of its power in the 1970s, when executives in Chicago sat writing “lengthy memos to each other that had little to do with what was happening inside the stores.” When they were asked “which competitor they most feared, the answer that invariably came back was ‘Nobody.’”