Tuesday, May 26, 2015

As the Nation goes, so goes Sears

Sears -1940

  • Sears, Roebuck & Company (aka Sears) was founded by Richard Warren Sears and Alvah Curtis Roebuck in 1886 as a mail order catalog company.
  • Sears began opening retail locations in 1925.
  • Sears made history in 1974 when it completed the 110-story Sears Tower in Chicago, then the world's tallest building.
  • Sears was the largest retailer in the United States until October 1989 (which then had been surpassed by Walmart).
  • Sears terminated its famous general merchandise catalog in 1993 because of sinking sales and profits.
  • Sears was purchased by Kmart in 2005, which renamed itself Sears Holdings upon completion of the merger (a deal managed by billionaire hedge fund manager Eddie Lampert, who is a 50% shareholder today.)
  • In 2009 the Sears Tower was renamed the Willis Tower after the London-based insurer (Willis Group Holdings, Ltd.) received a taxpayer subsidy.

(January 09, 2013) Sears is now Lampert's Company to Kill (By Joe Cahill)

Don't take Eddie Lampert's move into the CEO chair at Sears Holdings Corp. as a hopeful sign for the foundering retailer. If the hedge-fund mogul knew how to fix Sears, he'd have done it by now. Mr. Lampert has always called the shots at the company he created in 2005 by merging Kmart Holding Corp. with Sears & Roebuck, but his official appointment as CEO after Louis D'Ambrosio's abrupt resignation on Monday does mean we can stop pretending.

We can stop pretending that Mr. Lampert is the second coming of Warren Buffett. We can stop pretending that he knows more about retailing than career retail executives. And we can stop pretending that Sears and Kmart will be around in their current form over the long term. What's really happening at Sears is what retail analyst Howard Davidowitz calls a “slow-motion liquidation.” And you don't need a retail expert to run a liquidation. A dealmaker like Mr. Lampert will do just fine.

(May 20, 2015) Why Sears Holdings Corp. Investors Should Hate Eddie Lampert (By Rich Duprey)

A decade after merging the ailing Kmart and Sears & Roebuck chains into a retail holding company, billionaire hedge fund operator Eddie Lampert has presided over the transformation of two once-great industry names into shells of their former self, stripping virtually everything of value from the company.

Back when Sears Holdings was still generating profits, Eddie Lampert was using the company's available cash to buy back its high-priced stock to juice per-share earnings. Between 2005 and 2010 (the last year the retailer reported a profit), Sears recorded net income of almost $3.8 billion, but spent over $5.8 billion on share repurchases [stock buybacks]. It was a careless decision at a time when many other businesses were curtailing their buyback programs to adjust to the recession and constrained consumer spending.

Sears Holdings lost around two-thirds of its value since 2011 ... Sears no longer had any money to spare. Cash on the balance sheet went from $4.4 billion in 2005 to just $250 million at the end of last year ... Like a neutron bomb that leaves just buildings standing in the wake of its blast, Eddie Lampert has blown through Sears Holdings and left an empty hull of a business.

(May 25, 2015) The Corporate Archipelago (by Paul Krugman)

Some of us may spend our workdays like yeoman farmers or self-employed artisans, but most of us are living in the world of Dilbert. And there are reasons for this situation: in many areas bureaucracy works better than laissez-faire. That’s not a political judgment, it’s the implicit conclusion of the profit-maximizing private sector. And people who try to carry their Ayn Rand fantasies into the real world soon get a rude awakening. [He then links to the article below]

(December 10, 2013) Ayn Rand-loving CEO Destroys his Empire: The invisible hand waves bye-bye to Eddie Lampert, whose business plan has run Sears into the ground.

Once upon a time, hedge fund manager Eddie Lampert was living a Wall Street fairy tale. His fairy godmother was Ayn Rand, the dashing diva of free-market ideology whose quirky economic notions would transform him into a glamorous business hero. For a while, it seemed to work like a charm. Fast-forward to 2013: The fairy tale has become a nightmare.

While Lampert was caught up in Ayn Randian delusions of crass materialism and cut-throat capitalism, he failed to realize that a business is an experience as much communal as it is individual. Employees are not just competitive beings — they benefit from cooperating with each other and perform better when they are respected, rather than beaten down and driven by fear.

* Adam Smith (known as the father of American capitalism) references the invisible hand of God as the power driving the American economic form of capitalism. Market Watch: Ayn Rand vs. Adam Smith (Adam Smith, author of "The Wealth of Nations" and "The Theory of Moral Sentiments". Ayn Rand, author of "Atlas Shrugged" and "The Fountainhead".

Maybe the billionaire CEO of Sears will go after his workers' pensions next. It's predicted Sears will go bankrupt by 2020 after 134 years in business. The company is expected to announce quarterly earnings on May 28, 2015 — estimated at $0 — and is already on the "watch list" (and may go bankrupt sooner, rather than later).

And as Sears goes — and the nation goes — so goes Burger King too (but in a different way).

Bain Capital, in partnership with TPG and Goldman Sachs, acquired Burger King in 2002. Then in 2005 Vornado Realty Trust bought 7.5 million shares of Sears Canada. That same year Vornado Realty Trust said it would support and vote in favor of the Sears/Kmart merger, ending months of uncertainty over whether it would mount a challenge to the transaction.

Later that same year, an investment group consisting of affiliates of Bain Capital Partners LLC, Kohlberg Kravis Roberts & Co., and Vornado Realty Trust announced the completion of the Toys "R" Us acquisition for $6.6 billion.

In late 2010, 3G Capital of Brazil acquired a majority stake in Burger King in a deal valued at $3.26 billion. Four years later 3G Capital, along with Warren Buffett's Berkshire Hathaway, eventually merged the company with the Canadian-based doughnut chain Tim Hortons under the auspices of a new Canadian-based parent company, Restaurant Brands International. By doing this, Burger King will avoid hundreds of millions of dollars in U.S. taxes in one of the most notable of several corporate tax "inversion" deals of the year.


Last year merger and acquisitions (in deals worth at least $1 billion or more) almost doubled from the year before — with many American companies selling out to foreign companies. American multi-national corporations have also spent close to $1 trillion in stock buybacks last year. The reason maybe two-fold:

1) since multi-national companies are not bringing back profits made overseas to avoid taxes (thereby depriving investors of earnings, such as dividends), stock buy-backs increases the value of the remainder of the outstanding company stock (thereby pacifying the stockholders).

2) because more and more executives on the company's board of directors prefer to pay themselves with stock-options (which are also taxed less as capital gains rather than as regular wages) — that's another reason for stock buybacks (to inflate the value of their stock options).

Corporations have been meeting the "demand" side of supply, and so have no real pressing need to expand or reinvest in their company — or hire people. And with an over-saturated labor market, they also feel no pressure to raise wages.

Also, over $2 trillion in overseas earnings sits idle in offshore banks, waiting for domestic tax laws to change so these companies can repatriate those foreign earnings.

In the mean time, corporate raiders will continue to take American companies down the path of destruction for short-term gains at the expense of the nation and everyone else. As "multi-national" corporations, they feel no patriotic duty to any one country or to their citizens. They will suck the life-blood from the veins of our nation until nothing is left but decay and ruin all throughout the land.

And our leaders in Washington D.C. have enabled their corporate masters to do this for the past 30 years.

* Do you have a caption for this photo?
Bain Capital, Sears, Burger King, Toys "R" Us

Related Post at Rolling Stone (August 29, 2012) Greed and Debt: The True Story of Mitt Romney and Bain Capital

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