Sears Holdings CEO Eddie Lampert admits his retail empire isn't what he imagined it would become when he brought Sears and Kmart together 13 years ago.
He had his eyes set then on being "the next Warren Buffett," and Sears Holdings was supposed to be his Berkshire Hathaway, says one former top Sears executive. But Lampert's strategy from the start was slashing costs to grow the bottom line, even if that meant not investing in Sears' stores, the person explained to CNBC.
Sears and Kmart were already lacking so many resources, namely investment capital to fend off online upstarts like Amazon, and an experienced bench of retail executives, so these early cuts took an enormous toll.
Shares hit an all-time high of $195.18 each in April 2007 but now trade under $4. The retailer's sales in the latest quarter tumbled by a double-digit percentage rate, and cash is drying up with substantial debts looming.
Relationships with suppliers have since unraveled — there were a handful of vendor disputes and a century-old partnership with Whirlpool was terminated last year. Real estate landlords are anxious about Sears' stores going dark. Speculation about the company filing for bankruptcy remains widespread.
That chatter has grown loud once again after Lampert's hedge fund made an offer last month to buy up some assets that had already been on the chopping block.
The deal would be another way to infuse cash into the business, but some observers see it as a sign that the company has grown even more distressed. It comes at a critical time in the retail calendar when stores start making holiday orders. With a recent wave of bankruptcies, including liquidations of Toys R Us and Bon-Ton, vendors have been increasingly wary of taking on too much risk by extending credit.
Lampert's proposal, which is being evaluated by an independent committee of the board, has been met with questions about what would be left of Sears — would the business still be viable. The CEO insists he's not giving up on the company.
"In a perfect world — this would shrink, this would grow, and the grow would offset the shrink," Lampert told CNBC in a rare one-on-one interview following Sears' annual shareholder meeting in early May.
The hedge fund manager has poured more than $1 billion into Sears to keep it afloat. He owns nearly 50 percent of the retailer's stock today, company filings show. And he's a major stakeholder in other affiliated businesses including Lands' End, Sears Hometown and Outlet Stores and real estate investment trust Seritage.
The offer from Lampert's hedge fund, ESL Investments, includes plans to buy the Kenmore appliance brand, part of Sears' Home Services business and potentially additional real estate. The transaction would leave Sears Holdings with its Auto Centers, the DieHard brand, Innovel (a logistics business) and its Shop Your Way membership platform.
With respect to Sears' Home Improvement and PartsDirect businesses, ESL has said it values those assets together at $500 million and would pay Sears, which has a market capitalization of less than $400 million today, for them in cash. The firm hasn't offered any other asset appraisals to date, while a special committee is in the midst of evaluating the bid.
Lampert declined to discuss the offer in his interview with CNBC.
Even under a new owner, Lampert has said the goal would be for Kenmore and Parts Direct to still work with Sears in some capacity. The proposal was arranged as a "go shop" process, meaning Sears still has the ability to seek better offers, but these assets have been on the block for years without any success. There's also the possibility that everything will be rejected by Sears' independent committee — sending Lampert back to the drawing board.
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Sears Is Fighting For Its Life | CNBC