The Hedge Fund that Ate Sears

What’s a hedge fund? How did it “eat” Sears? Part Seven in the Series, "Who Killed Sears and Kmart?"

Originally appeared in Medium in January 2022.

My brother-in-law’s family lives in Mayville, North Dakota, a small town midway between Fargo and Grand Forks. Like a lot of towns in rural North Dakota, you have to drive a good way to get to a full-service discount store. For my brother-in-law’s family, it means driving 50–60 miles one way to Fargo or Grand Forks. Add that driving in the winter can be hazardous, you want to try to get your items in town if at all possible. At one time, Mayville had a small discount store chain called Alco. Alco was a small discount chain that reminded me of the old Kresge’s and Woolworth of decades past. In 2015, Alco went bankrupt and as a result, closed the store in Mayville. That was a problem for the town. There was a desperate need for a full-service discount store in the area. The city was able to get Shopko to come to town. Shopko was another discount store chain found in small towns throughout the Midwest. Mayville was able to have a full-line discount store. That changed when it was announced in late 2018 that the store would close. A few months later, the entire chain went out of business. Mayville was again without a full-service discount store.

Shortly thereafter, Shopko itself went bankrupt in early 2019 and by June was defunct. Small cities and towns throughout the Midwest were trying to figure out what to do with all the empty spaces that were once Shopko locations.

What gives? What caused a chain like Shopko to fail? Was it the usual culprit: Amazon?

Not really. The closing of the Mayville store and the eventual liquidation of Shopko was part of a larger problem affecting retail in America. But it’s not a problem that can be visibly seen. If it is seen, it isn’t easily understood. (Which might be how some of the actors want it.) But it has resulted in the loss of hundreds of thousands of jobs and left consumers with less and less choice.

To understand why Shopko and countless other retail chains met their demise, you have to go back to 2005. That was the year Shopko was sold to Sun Capital Partners for $1.1 billion. Sun is a private equity firm. A rundown from Axios shows what Sun Capital did that pushed the company into liquidation.

We take a break from religion to focus on hedge funds and private equity firms. Hedge funds and private equity firms have an outsized role in the American economy. Some of your favorite stores might have been owned by a hedge fund or private equity firm. Some of these stores still exist, but some don’t. Stores like Shopko, along with ToysRUs, Payless Shoe were all at some point owned by a hedge fund or private equity firm and most of these firms have gone out of business. Sears and Kmart, which are very close to being defunct, has been controlled by Eddie Lampert, a hedge fund manager that wasn’t interested in turning the two chains around, but interested in taking money out of the company.

Coincidence? Jan Weir doesn’t think so. Jan Weir is a Canadian litigation attorney in Toronto and he has followed how financial firms like hedge funds and private equity firms have inserted themselves in the economy and how they affect people from the choices we have in the marketplace or lack thereof to your pension fund. We had a great conversation about how these firms are able to do this, how the media and politics ignore what’s going on and what if anything can be done about it.

Here are some articles to help you understand what a hedge fund is all about:

How Hedge Fund Billionaires Loot Worker Pensions by Jan Weir

How Greedy Investors Looted Sears Into Bankruptcy by Jan Weir

How Hedge Funds Helped The 1% Profit From The Great Recession by Jan Weir

A hedge fund has targeted Kohl’s Corp. with an unsolicited $9 billion purchase offer- Milwaukee Journal-Sentinel

The Rewards of Poor Performance: CEO, Hedge Fund, and Private Equity Compensation by Dean Baker

The Value of Nothing: Capital versus Growth by Julius Krein

Who Killed Sears and Kmart? Podcast Episode

The Men Who Are Killing America’s Newspapers by McKay Coppins

Before you listen to the podcast, Jan gives a quick summary of what this interview is all about. It’s about 30 seconds and worth your time.

Here is the interview on YouTube.