Today, Explained - Killing Sears

Episode Date: February 12, 2019

Sears was on its way to the graveyard of American icons when its former CEO, a reclusive billionaire named Eddie Lampert, stepped in to buy it. Unfortunately, he’s the same CEO who led the company into bankruptcy. Learn more about your ad choices. Visit podcastchoices.com/adchoices

How does an American icon die? Does it go down swinging? Does it go quietly into the night? Sears, Roebuck, and company was once the biggest retailer in the world. You could buy your work boots there, get your car fixed, you could get your whole damn house there. I mean, a real house. I'm not talking about a portable trailer or something. A real house. Five rooms. Comes in a kit. For over a century, Sears was a brand that meant something.

It was part of America's identity. But all good things must come to an thousands of tens of thousands of employees whose jobs were at risk. There were hundreds of stores still, although Sears is much smaller than it used to be. And so there are major stakes to be had in deciding the fate of Sears. And so many people's livelihoods still depended on it and many people still shop there. Nathan Bomey is a business reporter at USA Today. He's been sitting in Sears bankruptcy court. On one side, you had the creditors of Sears. We're talking about the major mall owners like Simon and Property Group that don't want Sears around anymore. They want the space in their malls to be able to lease out to other people.

And then also the pension creditors, which basically amounts to the United States government, which has to step in and cover the shortfall in the pension funds for Sears. Those creditors all wanted Sears to go away because they felt like they could make more money if Sears was dead than if they were alive. And then on the other side, you have Eddie Lampert. Eddie Lampert is very, very deep in the Sears trade at this point. This was a guy who people were putting into the category of Warren Buffett. Lampert is proof positive that just having a lot of money doesn't mean you have any intelligence or skill. Brilliant, confident, cocky almost, success early on, a billionaire. In fact, I would submit he had no intent to run this company in any way other than to line his own pockets.

Who's Eddie Lampert? So Eddie Lampert is a very unique character. He is a chairman and longtime investor in Sears and actually also happens to be former CEO and the largest shareholder. And, you know, he comes from Wall Street. He comes from an investment background, kind of went out on his own decades ago and started to make a lot of money, you know, through investments like AutoZone, for example. He became a billionaire, but he also has a very peculiar background and unusual circumstance. About 15 years ago when he was kidnapped, a couple guys basically jumped him and held him for a ransom for a couple days. And then he talked his way out of it.

Wow. Because he's like a rich hedge fund guy. Why not kidnap him? That's exactly right. I'm not exaggerating. That's precisely what happened. And so I think that that contributed to the fact that he's a very secretive, quiet, reclusive person. He runs Sears primarily from an island in Florida where he doesn't really leave much.

It's said that he doesn't even go to the stores very often, doesn't go to the Sears headquarters very often. He does a lot of video conferences from his mansion, basically, in Florida. Is that the best way to run a retailer? I think a lot of critics would say no. At the end of this case, though, at the end of this bankruptcy, he was the last person standing who was willing to give Sears another chance. It sounds like it'd be easy to paint Eddie Lampert as a supervillain here. He's taking over Sears from his island mansion in Florida and then, you know, watching over its bankruptcy. But

he's also the only one saying, hey, let's keep the business running. Yeah, this is a very interesting turn of events for Sears because for the last several years, many critics have blamed Eddie Lampert for essentially presiding over the downfall of Sears. And in some cases, critics say that he stripped the company of assets for his own benefit. He's a hedge fund owner and has lent billions to Sears over time. You know, at USA Today, we reported last year that Eddie Lampert was getting north continue keeping this company alive because he has a lot to lose if it goes away altogether. So personal financial ruin. Not ruin, but maybe a big hit.

Yeah. Obviously, we can't see his books directly, but we can insinuate that it's likely he would take a major hit if the company liquidated quickly. What we've really seen at Sears is this gradual implosion, this very slow motion liquidation that's been going over the course of several years. Well, you know, Eddie Lampert has had a lot to lose if this company went away overnight and actually a more slow motion liquidation may benefit him in the sense that he has some of the real estate that Sears used to own. He owns a lot of that through basically a real estate investment trust. And he also stands to collect a lot of these

assets if Sears were to liquidate. But the problem is you don't want to fire a sale because then that reduces the value of the assets. So he wants to keep a lot of this alive. And perhaps he wants to keep it alive permanently. We can't say that all of his motivations are bad here. We're talking about 45,000 people keeping their jobs, and there's nothing bad about that. Is that the argument he made before the judge in this case? Yes, and that's what's really unusual here is to see Eddie Lampert be transformed into almost a populist figure of sorts, where, at least from a public relations perspective, he took a very smart approach by saying, listen, I'm the person who's going to stand up now for the employees.

Which is unusual because just months ago, all the employees were blaming him for presiding over the company's implosion. He kind of flipped the tables in the end with that message. And it worked because the judge in the case actually said he wanted to preserve jobs if at all possible. So this trial went down in New York. The verdict came down Friday. What exactly did the judge decide? He ended up ruling that he would allow the sale because he felt like the creditors had not made a strong enough case

that the company should be liquidated altogether. So the question now is, does he have any avenue through which to actually rebuild this company? Is that even his intent? Or will we continue to see Sears decline? You know, I think there's a very strong chance the company continues to close stores gradually over the next few years until there truly is nothing left. How does Sears compare to other big box stores out there? I mean, I walked into a Best Buy back in December and it was hopping.

It was thriving, which I found sort of surprising. Yeah, just a few years ago, they were left for dead. But they have come up with a huge turnaround. They've reinvented themselves. Best Buy actually just realized that, you know what, we don't need to sell CDs or DVDs. We need to provide services and we need to actually carve out portions of the store for these external partners to come in and essentially sell their products. And so you go into Best Buy now, you're not thumbing through CDs. You're actually engaging with

these service partners. And so Best Buy is actually not really selling as many goods now as it is becoming a part of your technology life. Is there any chance that Eddie Lampert wants to do something like that with Sears? Well, I think one of the strongest things that Sears has always had is the appliances and the home services sort of brand that they have. Fridges and washers and dryers. Sure. I mean, several years ago, I got a watch repaired there because I wasn't sure where else to get it repaired.

So I think they still have a brand. J.C. Penney just announced they're getting rid of appliances because they tried it for a few years to try to capitalize on the Sears decline, and it didn't work. So Sears knows how to do that, but I'm just not sure that they have the pricing power. I mean, they're competing against Amazon. And unfortunately, they sold the Craftsman brand. Now Craftsman's available in other stores. And now they have the Kenmore brand and the Die Hard brand still. They still own that. That's also been sold to

Eddie Lampert. But I would anticipate those brands will also become available in other places. So what's your sense? All told, after covering this case and learning a ton about this company's inner workings, what do you think's in store for Sears? I'd say that Sears faces a huge hurdle towards survival. I mean, it's hard for me to see five years out that Sears is still alive. You know, I mean, I think they have to add some new leaders, attract some talent that is willing to take a new approach. But if Lampert's still in control and has maintained his philosophy that the stores do not need to be revitalized, I don't see how those stores will come back. You know, just because he may have preserved

the best ones doesn't mean that they won't eventually fall prey to the same thing that felled all the other stores. What sets Sears apart from the competition? For starters, a sort of radical history. That's next on Today Explained. There's more for your life Cheryl Teaks is calling me Gotta have it We agree There's more for your life at Sears.

So shop around. Smile for daddy. Give him a high. Pull up a seat. Pick up a bike. Come on in and shop. It's so hard to stop. There's more for your life.

More for your life at Sears. Lewis Hyman, you're an economic history professor at Cornell University. Before the break, Nathan told me the future isn't looking too bright for Sears, Roebuck and company. You want to eulogize Sears with me for a while? I would love to do that. Okay, so when was it born and to whom? Well, it was born from one man's opportunity on the railroads of the far-flung Midwest, Richard Sears, who was a station agent. And he realized that there was money to be made in selling watches to other railroad men. And he begins to offer them on credit more or less and begins to accumulate some money and realizes that he has to get some watches fixed at the same

time and meets this guy named Alva Roebuck, who is an amateur watch repairman, and they start a business together, selling first watches and then getting into many other things as well. And so how long is it just a watch company? It is a watch company for quite a long time, but it shuts down, it reinvents itself, and we can really look to the invention of the modern Sears in the early 1890s. And the advantage of Sears is that they begin to connect the country and the city, much like the earlier Montgomery Ward's catalog. The Sears catalog had one key difference going for it, though, and that was it offered credit. They didn't have to send cash in advance. And it's kind of a crazy idea that you could offer credit to people that you've never

seen before. And of course had no credit scores. And so it's kind of this crazy enterprise that actually just worked. How did it work? Well, you would get a catalog in the mail, and at first it's just a small pamphlet, but over the years, in the early 1890s, it doubles basically every single year. And you could buy anything that you wanted. You could buy trousers, you could buy farm equipment, you could buy guns,

and you basically just sent a letter to Chicago, and they had this vast enterprise there and they could send you the stuff. And the stuff that came was at the prices that it would be in Chicago, wholesale. So it was just unbelievably cheaper than anything else that was available to you in rural America. And with all the fashion and glamour that comes with being from Chicago. How does offering credit revolutionize Sears' business model? Credit revolutionizes Sears' business model because cash is relatively scarce in the late 19th century. This is one of the big fights of the populist movement, trying to infuse more and more cash into the economy. But this is hard

to come by, especially for farmers who really settle their accounts once a year. So offering things on credit is essential to get access to rural Americans who were so dependent on credit, especially in the South, where we have many sharecroppers, many tenant farmers who are dependent on one store in their area for all their needs. And that store relied on credit. I wonder, you talk about the South, and especially in this time period, was the catalog available to any shopper, black or white? Well, this is one of the interesting, curious things about the Sears catalog and its radical, almost radical history. That for southerners, especially black southerners, the catalog was a way to evade the control of the general store, which we think of now as this sort of like folksy, romantic place, but actually was a site of a lot of control. The store owner there, who often was in cahoots with the local landowner, who you may rent

from, was an agent of white supremacy. And so black farmers couldn't buy the same clothes as white farmers. Black farmers couldn't buy the same food as white farmers. They wanted to create a very visible distinction between white and black people in the South. But all that is undone when you have access to a catalog. It enables black farmers to just order nicer clothes even than the white farmers could get at the country store. And so this is pretty amazing for black Southerners. And of course, there is a massive reaction against it. I was going to say, was Whitey pissed? Whitey did not like it. So there were mass burnings of these catalogs in the streets.

Whoa. Organized by local store owners. There were contests who could bring in the most catalogs to be destroyed. And they framed it as we don't want these outsiders coming in and destroying our way of life. But, of course, that way of life was not so great if you were a black farmer. It's so funny to think of Sears as a radical American retail company, because I think when most people think of Sears, they think about like that fuddy-duddy store at the mall that no one goes to anymore.

Exactly. And, you know, what's interesting also is that they weren't self-consciously racial radicals. They were just trying to make some money. And black consumers are part of that money. And you can't tell the race of someone looking at their name on a slip of paper asking for credit. So there's no way they could actually regulate that even if they had wanted to, which they didn't.

But just to illustrate the extreme lengths that white people were committed to white supremacy, there were all kinds of rumors circulating that Richard Sears was black, that Alva Roebuck was black. And they had to actually show pictures of themselves to prove that they were not. And this was meant to get white customers to stop buying from Sears and Roebuck. Now, the interesting thing there is that rumor still persists, but it's been flipped on its head. to many people, especially African-American people, they are proud of Alvaro Buck being black as one of the sort of great African-American retailers. He absolutely was not. But it speaks to the power of the racial imaginary in thinking about this kind of consumption.

So how does the company go from being this radical catalog to being the store and the mall? Well, the answer is simple demography. So as people move from the country to the city, there's less demand for the catalog. And so in the 1920s, as people begin to have more cars, they're able now to move around. They can drive into town to go shopping. Sears begins to open chain stores, following the lead of the A&P and other kinds of retailers that really emerge wholeheartedly in the 1920s. And these stores are located on the edges of town mostly, and they're decidedly male. So the head of Sears at the time said he wanted someone to feel comfortable spitting on

the floor if they did that in their home. This is about, you know, lots of hardware and men's gear and men's hunting clothes. And so it was a very male space. And so you can see the movement from the chain store in the 1920s, you know, following out, again, the demographic shift of Americans into the suburbs, into the mall. And then this is where the story begins to go a little downhill because there is this constant need for reinvention. And so how does Sears continue to evolve as a department store? So in the 1980s and 90s, credit begins to be separated from retailers. So you could get something called a credit card that allowed you to move from store to store.

You didn't have to just go to the same place every time. And at the same time, American shopping begins to change. Instead of going for mid-range retailers like Sears, where you could get quality things, but at a relatively high price point, Americans begin to shop in a very bifurcated fashion. They begin to shop for their everyday commodities at places like Walmart, and then at the same time, buying luxury goods at the new outlet stores, which begin to really explode in the 1990s. So Sears is really hammered by a one-two punch of this more expansive access to credit cards that allow people to go to other places and the changing way in American shop, looking for cheap everyday goods as well as luxury goods at outlet malls. So is this how Sears fails? So yeah, this is how Sears fails. It fails to reinvent itself in the age of the internet. It fails to connect with young buyers. It clutches to its

older model long after that model is dying. And it doesn't reinvent itself enough, which leaves it open to private equity coming in and carving it up, as so many industrial companies and retail companies have been carved up over the last 30 years. So the story of Sears is the history of America, because it tells the story of America, moving from the country to the city to the suburb to the Internet. My first dress and my first doll My first trip down to the mall You know, Lewis, I didn't tell you this,

but I worked at Sears for some time in my youth. What did you do there? I sold shoes to men and women. What did you learn about feet? I can look at a man or woman's feet to this day and tell you what size shoe they're wearing. That's amazing. Lewis Hyman has never worked at Sears, but I'm Sean Ramos for him, and I've never worked at Cornell University, so there you go. You'll be the first place

I'll always try Cause just like me You have so many sides Come see the many sides of Sears.