Lampert barely even a billionaire after Sears’ slide into bankruptcy
A business blunder for all time by former wunderkind
By age 25, Edward S. Lampert was already a Wall Street wunderkind, celebrated for his intellect, ambition and prodigious work ethic. The famed investor Richard Rainwater, the billionaire Hollywood mogul David Geffen, and Michael Dell and Thomas J. Tisch were among the prominent backers who gave him more than $200 million (U.S.) in startup capital.
At 28, he was the subject of a front-page profile in The Wall Street Journal headlined “The Climber.” His hedge fund’s 29 per cent annualized return landed him on the cover of Businessweek in 2004. Forbes pegged his net worth at $3.5 billion (U.S.) that year.
Then he bought Kmart out of bankruptcy and, in 2005, merged it with the venerable Sears.
With the bankruptcy this week of Sears Holdings, which he has run as chief executive and chairperson since 2013, Lampert, now 56, was back on the nation’s front pages. The coverage has been as damning as it was once fawning. Lampert has become the villain, accused of pillaging and destroying an American retail icon to further line his already stuffed pockets.
If that was his intent, it was a singularly inept effort. Lampert’s steadfast — many would say stubborn — commitment to Sears has cost him billions in personal wealth, not to mention the damage to his reputation. Nearly all of his early investors have abandoned him. His hedge fund’s assets have dwindled. Last year, one of his staunchest backers, the hedge fund manager Bruce Berkowitz, bailed out, saying that Sears had “wrecked” his hedge fund’s returns. The decline of Sears “has been hugely frustrating and fatiguing for me to watch,” Berkowitz told his investors.
Thanks to his early successes, Lampert is still very, very rich; his fortune today is estimated at $1.1 billion, according to the latest Forbes survey. He will likely emerge from the Sears collapse with many more assets than most people realize. He owns lavish homes in Greenwich, Connecticut, and Indian Creek, Florida, just off Miami Beach. But he no longer makes the cut for Forbes’ 400 richest Americans. His net worth has plunged by $3 billion since peaking at $4.5 billion in 2007, the magazine estimates. At Sears, all of his compensation was in stock. He never sold a share. The stock is now all but worthless.
“I’ve taken a huge personal hit,” Lampert told me this week in a wide-ranging interview, his first since the bankruptcy filing. “Not just in money, but time. There’s been an enormous opportunity cost.”
There was widespread skepticism when Lampert first merged two once-popular but struggling retailers in 2005. On one flank was the mighty Walmart. On the other was the fastgrowing Amazon. Sears lacked Walmart’s economies of scale and Amazon’s digital reach. But Lampert knew that great fortunes aren’t made by following conventional wisdom.
“Being a contrarian, being an independent thinker has never bothered me,” Lampert said. “I knew it was going to be hard no matter what. But I was trying to be opportunistic. I was willing to make a very big bet in money and time.” He pointed out that Jeff Bezos, Amazon’s founder, is now the richest person in the world, and Sam Walton, the Walmart patriarch, was the richest American in his day. “They both took advantage of an opportunity.”
The opportunity that Lampert, but few others, saw was the combination of Sears’ brands and customer loyalty and Kmart’s attractive real estate, most of it in prime standalone locations instead of aging malls. That promise seemed to be borne out in the early years. But the financial crisis and the collapse of the housing market hit Sears’s appliance and housewares sales. Sears never regained momentum.
By 2009, Lampert told me, he realized that nothing less than a radical transformation of Sears’s culture would allow it to keep up with the digital revolution that was transforming the retail industry. That year, he launched the store’s Shop Your-Way campaign as the cornerstone of a new data-driven and customer-focused strategy to compete with Amazon.
That’s where Lampert met his match. He said he didn’t pick the best executives to fully embrace the company’s digital makeover. “I underestimated how difficult it is to do and how critical are the right people to lead and to get people to buy in,” he said.
As one example, he cited his attempt to convert underutilized space into internet lounges, which offered customers free Wi-Fi and a place to relax. It was an attempt to get customers, many of whom didn’t have internet access at home at the time, into stores, much as Starbucks had attracted laptoptoting coffee drinkers.
This was anathema to traditional retailers, who measured success strictly in terms of sales per square foot and for whom any space not dedicated to merchandise was a waste. Nonetheless, the computer-equipped internet lounges were rolled out in 100 Sears locations — but in a half-hearted manner. “I’d visit a store, and there’d be 10 computers,” Lampert recalled. “Half of them wouldn’t work.” The lounges were abandoned. “We didn’t have store leaders or a CEO at the time who embraced the idea,” Lampert said.
In 2013, Lampert himself became chief executive, something he said he had never aspired to. He expected to stay in the role only a few months. “I wanted to be an idea generator,” he said. “I was trying to be a catalyst, not the operating person.”
Caught in a spiral of declining sales, huge losses, store closings, forced asset sales and relentless competition from online rivals, Sears fell into a war of attrition that ended with this week’s bankruptcy.
It’s far from clear that successful internet lounges, or even an agile culture that embraced change, would have saved Sears. Lampert has reaped criticism for underinvesting in Sears’ physical stores; for trying to run the company from his home office, instead of its Illinois headquarters; and for a revolving door in the executive suites. In the end, though, none of that may have mattered much, either.
“I had a vision and a passion, but I never thought of myself as the only person who could save it,” he said. “I may have been the only person who tried to save it.” He noted that no one ever approached him about buying Sears, even at a bargain price. “It wasn’t lost on me that other people didn’t think it was possible.”
Lampert insisted to me that Shop-Your-Way was showing promise but required far more time and capital than Sears could muster. “If I could have raised billions, I could have done things differently,” he said. “The ability to incubate ideas requires a huge investment.”
Lampert added: “I’m not fine with the outcome, but I’m fine with the effort. I’ve never worked harder or stretched further beyond my limits.”