Who Killed Sears and Kmart? A Coda
Musings on the sacking of two well-known chains.
This originally appeared in Medium in April 2022.
The following is a series of stories on the downfall of Sears and Kmart. To read past stories and listen to podcasts, please go here and here.
This is a coda for those of you following the “Who Killed Sears and Kmart?” series. Instead of an essay, this is more a glorified listicle focusing on thoughts left out or things that I wanted to delve into more. So here we go.
Media Blindness. I’ve said throughout the series that the media hasn’t really followed the story of what caused the downfall of Sears and Kmart. That doesn’t mean it was ignored, there were reporters and columnists here and there that would talk about what was going on. But on the whole, the lede was either buried or ignored entirely. Why?
My guess? It’s about the economic background of the media. Sears and Kmart were two chains that served the working and middle classes. I should know: I grew up working-class and growing up in the 70s and 80s, these two stores were places for the middle class to buy items at a good price. Journalists at some of the large media firms like the New York Times or NPR or CNN are not working-class. Reporters at big firms are highly educated and highly paid. That means they aren’t focusing on the chain focused on the middle class when you aren’t middle class. Batya Ungar-Sargon explains:
American journalists used to be blue-collar tradesmen, outsiders demanding justice from the powerful on behalf of the little guy. But over the course of the 20th century, journalism underwent a status revolution, taking a working-class trade and catapulting it into the celebrity stratosphere. What was once a source of upward mobility for high school grads has morphed into an elite profession for the highly educated. In the 1930s, just three in 10 journalists had finished college; by 2015, just 8 percent hadn’t been to college. The majority have graduate degrees. And though the starting salary is low, mid-career journalists make significantly more than the average American, to say nothing of stars like Chris Cuomo.
“Yesteryear’s ragtag muckrakers, who tirelessly championed the little guy against powerful insiders, have become insiders themselves,” wrote three social scientists surveying America’s journalists back in 1980. “Newsmen had long cherished the vantage point of the outsiders who keep the insiders straight. But now, leading journalists are courted by politicians, studied by scholars, and known to millions through their bylines and televised images.”
If America’s journalists once spoke truth to power, today America’s journalists are the powerful, a tightly knit caste both highly educated and affluent.
If the sacking of Sears and Kmart happened in the 1980s, would journalists be more curious? More aggressive? I don’t know. But I do know that most journalists didn’t really investigate this story.
However, if we went North of the Border in Canada, we might see a different story. Below is a report from the Canadian Broadcasting Corporation (CBC) about the closure of Sears Canada in 2018. Sears Canada was a subsidiary of Sears Holdings. In 20 minutes, the CBC did a good job of describing what Lampert and the board did and how the downfall of Sears Canada affected pensioners.
With few exceptions, the American media didn’t focus on the workers. Why?
Hedge Funds. I think one reason this wasn’t covered as much was because it was hard to talk about how hedge funds or private equity works. In the runup to the 2008 financial crash, it was hard for the average person, let alone a journalist, to understand concepts like credit default swaps. Financial tools are in many cases hard to understand and I have to wonder if that is by design. Most reporters don’t have the time to look into how these financial vehicles work, so it doesn’t get reported. But I think to really get a handle on how a hedge fund works you have to spend time meeting with people and trying to get a handle on how this works and then try to share this with the wider public in plain language. It’s a challenge, but I think it’s also the duty of a journalist to be the interpreter to the wider public. Some reporters and columnists were able to do the heavy lifting and tell the story.
I believe it is that opaqueness that made it hard for many people to see how Eddie Lampert was mismanaging the company. That leads me to the next topic…
The Invisibility of Eddie Lampert. In the spring of 1999, I went to a Kmart store in St. Paul to buy an air conditioner. I paid for it and brought it to my apartment hoping to start enjoying the refrigerated coolness. I plugged it in and…nothing. It didn’t do anything at all. Frustrated, I trudged back to Kmart to return the item. Ironically, I did get a working air conditioner that I thoroughly enjoyed for years…at Sears.
I’m sharing this to acknowledge that Kmart and probably to some extent, Sears were in trouble long before their 2005 merger. One can’t ignore those facts. That said, some observers act as if the actions that did Kmart or Sears in happened in 1978 or 1992. If they acknowledge former CEO Lampert at all it’s that the two chains were already dying when he came along. Unbeknownst to many, ignoring Lampert’s prime role in the demise of Sears and Kmart inadvertently tends to absolve him of any sins he committed. I don’t know how many times I’ve seen people say that the “real” people to blame were some CEO from the late 70s. But as I acknowledged in a recent post, it was under Lampert that tens of thousands of employees lost their jobs and the stock for then Sears Holdings went from over $130 to $.37.
Both stores made some bad decisions in the decades leading up to the 2005 merger. Journalist Warren Shoulberg says as much in a 2021interview. But you have to look at what happened under Lampert. I’ve said this before, Sears and Kmart might have gone out of business had Lampert never been in power. But he was in power and Sears and Kmart suffered. Here is how Jeff Spross described it in the Week in 2018:
Lampert slashed capital investments to try and create a more efficient company. He retooled Sears’ structure, so that almost three dozen different business departments — like shoes, home furnishings, or menswear — were each siloed, with their own management team and even their own board. It was a model taken from the hedge fund world, meant to encourage healthy competition inside the company and thus power a better overall business.
Sears invested less than 1 percent of revenue in its own capital needs from 2006 to 2017, compared to 4 percent by Target and Macy’s. Many Sears stores were left in rundown shape. And without attractive in-store experiences, the company couldn’t springboard customers to its website. Meanwhile, the idea of siloing different departments into competing mini-companies may have worked in finance, where teams are just competing to create investment portfolios. But within the concrete goods-and-services world of Sears, it created a “lord of the flies” atmosphere where sales staff in the same store would refuse to help one another, or fight over ad and shelving space.
He might have f’ed up the business, but there was one thing he did do “right:”
Now, one thing Lampert and ESL were able to engineer, at least for a while, was a massive return to shareholders — and Lampert owns nearly a third of all those shares himself. (ESL Investments owns another 19 percent.) Sears’ profits boomed after the merger, before finally starting to fall around the time Lampert became CEO. The company plowed $6 billion into stock buybacks from 2005 to 2012, temporarily goosing the company’s stock price.
You can talk about how Walmart or Amazon ate Sears’ lunch, but that was never the whole story by a long shot. It was all Lampert’s doing, but for some reason, from journalists to the person on the street, there wasn’t a desire to hold him accountable.
The Bystander Effect. I’ve been wondering for years: why didn't anyone try to stop him? Why didn’t investors run him out of town? Why did someone in the boardroom leak info to the press? Did no one see what he was doing?
I don’t have a good answer for this except if shareholders were making good returns during those years, maybe they didn’t want to kill the goose that laid the golden egg?
My only guess is self-interest. People benefited from the great returns. It didn’t matter to them that this might have come from cost-cutting measures.
If you ever have the chance, check out the 1991 movie Other People’s Money starring Danny DeVita and Gergory Peck. The movie revolves around the owner of a company played by Peck and a finance hotshot that wants to buy the company. There is a scene towards the end of the movie where both men make speeches to those gathered. Peck is up first. He makes the point that DeVito is not a creator. He has never made anything physical and has no idea how to run the company. He tells the shareholders to hold on, that things will turn around. He sees the company as something that benefits shareholders, employees and the town where the company is based. DeVito then speaks. He talks of the employees as vultures that will eat up the value of their shares. He ends by telling them he cares about their investments and will do what he can to make sure they get good returns.
Peck sees the company as more than just a company, but as an institution that benefits the community. The shareholders matter, but they aren’t his number one concern. For DeVito the people that matter are the shareholders. He caters to them and tell them that they are what matters and not leeches like the employees. In the end the shareholders votes to sell the company to DeVito. What won them was that he spoke to their self-interest and made their highest value.
I think that’s what happened at Sears. There were a lot of people who didn’t care about the company, they just wanted to make a good return on their investment. Why complain about the low investment in stores when you are getting such bang for your back in returns?
In short, no one said anything because of greed. People wanted to make lots of money and why spoil it by pointing out how the money was being made?
Who Will Be Held Responsible? How do we stop it from happening again? After seeing all of the wreckage left by hedge funds and private equity, is there any way of stopping this?
I am not a fan of Elizabeth Warren, but she has put forward a bill that would make private equity more cumbersome than they currently are. Eileen Appelbaum, senior economist at the left-leaning Center for Economic and Policy Research believed it could make a big difference. “What this does is it rules out the most excessive behavior of private equity that really disadvantages the companies they buy, the workers who work there, and the creditors, the people who loaned the money to buy the company,”she said in a Vox article in 2019. One salient point of this proposed legislation is to make private equity responsible for debt. “Putting private equity firms on the hook for the debts of companies they buy, making them responsible for the downside of their investments so that they only make money if the companies they control flourish,” she wrote in a Medium article describing the bill. Warren introduced her bill in 2019 and it went nowhere. It was introduced again in the current session. It probably won’t go anywhere again. I don’t know if this is the perfect bill, but one problem with it is who is supporting it: mostly the most progressive people. For this to go anywhere it has to get the attention of more people across the political spectrum. A case would need to be made on how this affects everyone regardless of political viewpoint. But in these days of political polarization, I don’t think you can get wide support for anything.
When it comes to hedge funds, Canadian lawyer Jan Weir believes in reviving parts of the old Glass-Stegall act that might tame Hedge Funds.
Missed Opportunities. I wish I was able to interview more people. I tried talking to some journalists, but no one ever returned my emails. I wish I had talked to employees at the stores to find out what it was like to work there after 2005. I wished I had talked to retirees and see how their pensions fared after the 2018 bankruptcy.
I’d like to know more about what happened to the many former locations. I know some were redeveloped, but not all of them. Are many of them sitting dormant?
I would have loved to learn more about how finance is not the same as business and how it seems American business is more focused on making money instead of providing a good service or product AND making a profit.
Longshot hopes. I still have this hope that someone will buy the intellectual property of Sears and Kmart and start over. But that’s just a crazy middle-aged man’s dream. Carlos Slim was able to make Sears in Mexico a success and Kmart in Australia is a success. I just wish there were entrepreneurs in American business again instead of people who just want to make money in any way possible. I wish the buying public would demand change instead of seeking the cheapest item.
Hell, I wish Carlos Slim would buy what’s left of Sears and rebuild the two chains.
I hope journalists will pay more attention. I hope former workers will ask questions and keep fighting back. I hope Eddie Lampert and others aren’t able to just walk away without facing the consequences of being bad stewards.
What happened to Sears and Kmart is a travesty and Eddie Lampert will probably walk away unscathed. That’s not right.
My motivations. This has been my obsession for years, which might make people think that I’m some socialist that talks all the time about late-stage capitalism. That is far from the truth. I believe capitalism can be a force for good in our nation and world. While you can’t excuse China’s authoritarian government, I do think their turn to a market economy lifted millions out of poverty. But I’m also a Christian who believes in original sin. I believe people are sinful and can be greedy. In the spirit of Teddy Roosevelt, I want an economy where the common guy can get a fair deal. “My business,” Roosevelt said, “is to see fair play among all men — capitalists or wage-workers. All I want to do is see that every man has a fair deal. No more, no less.” That can only happen when capitalism is working to benefit wider society and not only a few.
What happened at Sears is capitalism gone wrong. It wasn’t in the least bit entrepreneurial. It didn’t benefit the workers who spent decades with the company. It only benefited the well-connected. What happened was a travesty and someone must be held accountable. I don’t think these articles will do that, but they might inform a few more people who will get more curious and spread the news.
The fate of Sears and Kmart wasn’t sealed. They weren’t destined to go out of business. It’s more than likely that with another owner, one who wasn’t involved in hedge funds or private equity, the two chains might, might have been turned around or at least continue to be somewhat relevant. We won’t know that because the management decided the outcome long ago.
This is the coda of this series, but I won’t say this is the very last time I will talk about the subject. I hope this was enlightening and I hope it spurs people to find ways to stop businesspeople like Lampert from sacking a company.