SEVERE WX : Wind Advisory - Winter Weather Advisory - Winter Storm Warning View Alerts
STREAMING NOW: Watch Now

Why Eddie Lampert stuck with Sears

Eddie Lampert was heralded as a ...

Posted: Oct 18, 2018 11:43 AM
Updated: Oct 18, 2018 11:43 AM

Eddie Lampert was heralded as a financial genius when he bought Sears in 2005 through a merger with Kmart. BusinessWeek ran his picture on the cover with the headline "The Next Warren Buffett?"

No one thinks that now, with the possible exception of Lampert himself. He slashed costs with a chain saw. He let Sears and Kmart stores grow barren and rundown, eventually leading Sears into bankruptcy.

Bankruptcy

Business and industry sectors

Business figures

Business financial trouble

Business, economy and trade

Companies

Company activities and management

Eddie Lampert

Financial performance and reports

Retail and wholesale trade

Sears Holdings

Banking, finance and investments

Financial markets and investing

Securities trading

Stock markets

Real estate

Kmart

Funds and investment trusts

Hedge funds

Lampert made his money at Goldman Sachs risk-arbitrage department, and at legendary investor Richard Rainwater's hedge fund. He used that money to start his own fund. His best bet was on AutoNation and AutoZone, which soared in value and made him a billionaire.

Lampert's first investment was in Kmart, which he bought out of bankruptcy. He cut capital spending, inflating earnings and its stock price. He then used that inflated stock to buy Sears.

He hasn't gotten rich as Sears' CEO and chairman. He took $1 a year in salary since becoming CEO, and he received the rest of his pay in now worthless stock and options. His majority stake in Sears' stock has essentially been wiped out.

As Sears blew through its dwindling cash reserves, Lampert's hedge fund made loans to the company money that were backed by the company's assets, including including real estate balances on Sears credit cards. That made him Sears' largest creditor: Sears owes him at least $1.3 billion. Even if Sears liquidates, he'll end up holding real estate worth hundreds of millions of dollars.

Lampert also acquired some of the most attractive Sears and Kmart locations through a real estate investment company, Seritage (SRG), of which he is also the chairman and a major shareholder. Seritage bought hundreds of properties from Sears and Kmart.

The absentee CEO

Lampert is not well liked at Sears. He runs the company from afar, staying at his home in South Florida. He mostly interacts with Sears executives in suburban Chicago through conference calls. Sears' corporate filings lists Lampert's primary office as his Miami-area home.

"Everyone knows it's the last company, the last person you want to work for in retail," said Jaime Ward, head of the retail finance group at Citizens' bank. "He doesn't get retailing. It's been obvious to everyone in the company. The headquarters employees have been working under duress for the last five to ten years."

Sears had little direction under his stewardship. He failed to hire experienced retail leaders, appointing himself CEO in 2012. He gave up the CEO title as part of its bankruptcy filing, turning the company over to a group of other top executives, though he remains its chairman.

"You have to employ experienced people. You have to protect your most important, most productive assets," said Mark Cohen, the former CEO of Sears Canada, now the director of retail studies at Columbia University. "He did none of that."

Lampert has defended his record by claiming he prolonged the company's life with his loans. He points to the vast sums of money that he and his hedge fund have pumped into Sears in recent years.

"This funding has given the company time it would not otherwise have had to adjust its operations, attempt to return to profitability, and maximize its asset values," he said in a September blog post. Lampert did not respond to multiple requests for comment.

Lampert stuck with Sears longer than most private equity investors, which typically have a much quicker trigger on moving into bankruptcy and then liquidation once losses start to mount. Toys "R" Us, Sports Authority, Gymboree and Claire's, all purchased by private equity firms, ended up in the same boat.

But critics said Lampert stuck with Sears simply to give himself a chance to harvest its most valuable assets.

"The cynical side of me says he's been staying with the business for the benefit of Eddie and his hedge fund, and at the end of the day he'll make out just fine," said Ward.

Lampert could continue to benefit from Sears long after the company's bankruptcy

He offered to buy the company's Kenmore appliance brand — once valued at $2 billion — for $400 million, and offered $70 million to $80 million for part of Sears' home services division. Those deals never happened, but he still could end up buying some of those assets as part a bankruptcy auction.

Sears also intends to sell most of its remaining stores as part of the bankruptcy process. Lampert is expected to be the initial bidder for those properties.

If Sears does go out of business, Lampert could continue to sell Kenmore appliances, rent stores to other retailers or develop the property into condos or other use.

Oregon Coronavirus Cases

Data is updated nightly.

Cases: 139355

Reported Deaths: 1904
CountyCasesDeaths
Multnomah29403466
Washington19370183
Marion16840250
Clackamas12186142
Lane8850113
Jackson723497
Umatilla702874
Deschutes528341
Yamhill333851
Linn322950
Malheur321755
Polk259940
Klamath256848
Josephine186836
Benton184614
Douglas180547
Jefferson173925
Union115817
Wasco112723
Columbia108218
Lincoln104417
Coos102116
Hood River99423
Morrow96810
Clatsop7185
Crook66914
Baker5835
Tillamook3732
Curry3275
Lake2605
Grant2171
Harney1906
Wallowa1003
Gilliam531
Sherman480
Wheeler201
Unassigned00

California Coronavirus Cases

Data is updated nightly.

Cases: 3235045

Reported Deaths: 38268
CountyCasesDeaths
Los Angeles108548815614
San Bernardino2685421719
Riverside2668492970
Orange2391752768
San Diego2300662421
Santa Clara991741278
Kern91119591
Fresno863361084
Sacramento846531194
Alameda71298906
Ventura67066546
San Joaquin60545844
Contra Costa55593492
Stanislaus49500803
Tulare43574542
Monterey38434261
San Mateo34510356
San Francisco30734293
Santa Barbara27149267
Solano27141118
Imperial25745510
Merced25743332
Sonoma25160251
Kings20223161
Placer18034188
San Luis Obispo17151161
Madera14068175
Santa Cruz13088136
Marin12067166
Yolo11276146
Shasta10144132
Butte9865136
El Dorado824566
Sutter812984
Napa807050
Lassen530916
San Benito523851
Yuba522730
Tehama456446
Tuolumne351241
Nevada339473
Mendocino332236
Amador307433
Lake272932
Humboldt265227
Glenn202822
Colusa19079
Calaveras171323
Siskiyou150413
Mono11454
Inyo105329
Del Norte8783
Plumas6185
Modoc3924
Mariposa3575
Trinity3065
Sierra950
Alpine740
Unassigned00
Medford
Partly Cloudy
32° wxIcon
Hi: 46° Lo: 27°
Feels Like: 32°
Brookings
Cloudy
41° wxIcon
Hi: 43° Lo: 32°
Feels Like: 35°
Medford
Cloudy
32° wxIcon
Hi: 28° Lo: 5°
Feels Like: 32°
Medford
Cloudy
32° wxIcon
Hi: 46° Lo: 31°
Feels Like: 32°
Klamath Falls
Mostly Cloudy
30° wxIcon
Hi: 36° Lo: 14°
Feels Like: 18°
Rain and snow continue for Wednesday
KDRV Radar
KDRV Fire Danger
KDRV Weather Cam

Community Events