...And Then There Were Four: The End of Kmart
The eighth in the series "Who Killed Sears and Kmart?" How the media covered the story of Kmart's downfall.
The following appeared in Medium in March 2022.
You probably saw a recent story about Kmart. The chain which once boasted 2400 stores in the 1990s is down to the last 4 stores. I’ve noticed two stories making the rounds about this sad occasion. The Daily Mail from the UK talks about how mismanagement and failure to modernize hurt the chain. The Daily Mail chalks it up to the “retail apocalypse.” But I want to highlight what they said about the 2005 merger with Sears and the leadership of one-time CEO Eddie Lampert:
Its debt was eventually bought out by hedge fund operator Eddie Lampert, who combined merged Kmart with Sears in a deal worth $11 billion.
But Lampert, who continues to own the company, failed to revitalize it, and both Sears and Kmart again filed for bankruptcy in 2018.
The Mail makes it sound like Lampert gave it the good college try but just wasn’t able to turn the chain around.
But that’s not the real story.
“His strategy (Eddie Lampert) from the very beginning was to pull cash out of that business,” said retail journalist Warren Shoulberg in a 2021 interview. “It was not to run the businesses. If it had been to run the businesses, we would have seen very different activities. But instead, they kept selling real estate and it wasn’t just real estate. They sold brand names. They stopped investing in their stores,” he continued.
None of that was found in the Mail story. Why? The article was half a walk back in time and half how Kmart made the wrong moves. But nothing was found about how it seems the plan was to bleed to company dry. The Philadelphia Inquirer did a little bit better, but that’s not saying much. Here is their money quote:
The Sears chain merged with Kmart more than 15 years ago under the hedge fund operator Eddie Lampert, who has turned their liquidation into a business plan. Both retailers filed for bankruptcy in 2018. Sears and Kmart stores, operating under the Transformco entity, are still controlled by Lampert and have closed en masse in recent years, leaving valuable real estate behind to be sold or redeveloped.
The Inquirer at least gave a sentence, but it left people hanging. The reporter wrote this bombshell of a sentence: an owner of a company had no business plan other than liquidation. Why didn’t the journalist look more into this?
I’m not a professional journalist, but I was able to use Google and find some stories by reporters that did do their homework. Why couldn’t these reporters do that?
This has been par for the course for major media in dealing with Lampert and Sears/Kmart. It’s pretty obvious that Lampert’s objective was to strip the company for cash. His actions caused thousands to lose their jobs and put their pensions at risk. Why was that not something the news media was willing to take on?
Having observed this story, I think there are a few reasons. Most of them coalesce around media narratives. A media narrative is basically a spin or point of view we give to a certain story. Narratives can blind people from looking deeper at a story because a journalist or a consumer of news will look at the story and place it into a ready slot that fits their beliefs.
So, looking at the Kmart story, the narrative is three-fold. First, Kmart had been in trouble for years before the 2005 merger with Sears. Its downfall was something that happened a long time ago- Eddie Lampert’s management (or mismanagement) only accelerated the inevitable. The second narrative is that the jobs at Kmart aren’t worth much and anyone can find its replacement. It’s not such a big deal. Finally, it’s the retail apocalypse. Brick and mortar stores are closing all the time due to online choices like Amazon.
So those are the three reasons (there are probably more, but those are the three that I’ve seen). Now it’s important to remember that all narratives are grounded in some reality. The problem comes when we think the narrative is the only story out there. All of them create this blind spot in journalists that make them ignore the problem that’s right in front of them. But in accepting these narratives we miss some signs that should tell anyone that something isn’t right.
Kmart was in financial trouble for at least a decade before the 2005 merger. It filed for bankruptcy in 2002 to try to right the ship. My guess is many journalists focused on that note. Kmart had been in trouble, new guy buys achain, isn’t able to save the chain. No one goes to Kmart (or Sears) anymore. They never invested in their stores so this is what you get.
But what we aren’t told is that under Lampert, stores weren’t updated. I can attest going into Kmarts around 2010 and you could tell these stores hadn’t been remodeled since the Clinton Administration.
What we also aren’t told is that under Lampert, we saw the slowest going-out-of-business sale. Most chains that aren’t doing well, tend to shut down all at once. But Kmart took over a decade to shut down their stores. It was death by a thousand paper cuts. Even after bankruptcy and restructuring, they did little to change anything…Transformco, the successor to Sears Holding, kept closing Sears and Kmarts. Yes, there were stories by the media, but again, there weren’t that one or two media outlets that tried to see if this was part of a larger plan. Ever since Lampert entered the picture after the merger, his only goal was to find enough money to give to shareholders and ultimately himself.
The symbol of the last 4 Kmarts is that tens of thousands of jobs at Sears and Kmart locations were lost not because of bad sales, but by deliberately taking money out of the company, using the company as an ATM.
The second reason is that to explain what is happening, you have to understand the world of private equity and hedge funds. Both of these financial vehicles are hard to understand. In a recent interview with Canadian lawyer Jan Weir, he explained that the general public has to be educated on these financial tools because they aren’t easily understood. One of the ways this can happen is through the media. They need to be able to explain what is a hedge fund or how private equity works. But you need journalists who are able to put these complex products and present them in a way the average person can understand. As far as I can tell, that’s not happening.
The final reasoning has to do with the journalists themselves. One of the common observations of the media these days is that most journalists came from blue-collar backgrounds. They had more in common with the average worker. Today, that is no longer the case. Many of the elite journalists are more highly educated and that means it’s harder for them to connect with the working class. In many cases, they might relate better to hedge fund managers like Eddie Lampert. That said the Enron scandal was also not as easy to understand and yet it resonated. But again, the journalists and the owners of Enron were from the same class even if they made vastly different sums. They could relate to the leaders for good or for ill. It is hard to relate to the guy who worked at your local Kmart auto store for 20 years.
There is one more reason that the media ignores or reframes stories like this. The process of taking money out of a business or piling up debt that the already cash-strapped business has to pay back is all legal. If what is going on not legally wrong, then the narrative is that there is no real story save a beloved chain store that didn’t keep up with the times- a puff piece.
I write this on March 1, and it was on that date 60 years ago that Kmart opened its first location outside Detroit. The media will focus on the good old days and what they think brought it to this point. It will be what I said earlier, a puff piece. But what happened to Kmart isn’t a human interest story, it’s a hard news story. If only the media could see that.