Post by Dominiko on May 15, 2011 0:45:16 GMT -5
Sears? Stop the subsidies, sell the stock, invest in Groupon
Troubled Sears wants state and local tax subsidies
Sears is threatening to move its headquarters out of Illinois. It’s been in Chicago since the 1880s. Now the company Chairman is threatening to move the headquarters to another state, in order to find lower operating costs and lower taxes.
Predictably “Officials Scrambling to Keep Sears in Illinois” is the Chicago Tribune headline. That is stupid. Let Sears go. Giving Sears subsidies would be tantamount to putting a 95 year old alcoholic, smoking paraplegic at the top of the heart/lung transplant list! When it comes to subsidies, triage is the most important thing to keep in mind. And honestly, Sears ain’t worth trying to save (even if subsidies could potentially do it!)
“Fast Eddie Lampert” was the hedge fund manager who created Sears Holdings by using his takeover of bankrupt KMart to acquire the former Sears in 2003. Although he was a financier and arbitrager, Mr. Lampert claimed he was a retailing genius. He promised to turn around the ailing Sears.
In his corner he had the “Mad Money” screaming investment advocate, Jim Cramer, endorsing him and the company because…… the two were once in college together. Mr. Cramer promised investors would do well, because he was sure Mr. Lampert was smart. Even if he didn’t have a plan for fixing the company.
Sears Holdings is in the whirlpool of failure, at the tail end of its lifecycle, with no future
Sears had once been a retailing goliath, the originator of home shopping with the famous Sears catalogue, and a pioneer in financing purchases. At one time you could obtain all your insurance, banking and brokerage needs at a Sears, while buying clothes, tools and appliances. An innovator, Sears for many years was part of the Dow Jones Industrial Average. But by 2004 the world had shifted, Home Depot displaced Sears on the DJIA, and the company’s profits and revenues sagged as competitors picked apart the product lines and locations.
Simultaneously KMart had been financially destroyed by the faster moving and more aggressive Wal-Mart. Wal-Mart’s costs were lower, and its prices lower. Even though KMart had pioneered discount retailing, it could not compete with the fast growing, supply chain innovating Wal-Mart. Nor on-line competitors with no brick-and-mortar overhead. When its bonds were worth pennies, Mr. Lampert bought them and took over the money-losing company.
By combining two losers, Mr. Lampert promised he would make a winner. How, nobody knew. There was no plan to change either chain. Just a claim that both were “great brands” that had within them other “great brands” like Martha Stewart (started before she was convicted and sent to jail), Craftsman, Kenmore and Die-Hard (better known as a movie title by people under 40.) And there was a lot of real estate. Somehow, all those assets simply had to be worth more than the market value. At least that’s what Mr. Lampert said, and people were ready to believe. And if they had doubts, they should listen to Jim Cramer rant to buy the stock during his daily Howard Beale impersonation.
Only they all were wrong. Assets do become obsolete, and doing more of the same better, faster, cheaper is not a path to success when markets shift.
Retailing had shifted. Smarter competitors were everywhere. Wal-Mart, Target, Dollar General, Home Depot, Best Buy, Kohl’s, JCPenney, Harbor Freight Tools, Amazon.com and a plethora of other competitors had changed the retail market forever. Likewise, manufacturers in apparel, appliances and tools had brought forward better products at better prices. And financing was now readily available from credit card companies.
Surely the real estate would be worth a fortune everyone thought. After all, there was so much of it. There could never be too much retail space. And real estate never went down in value. At least, that’s what Sears proponents said.
But they were wrong. Real estate was at historic highs compared to income, and ability to pay. Real estate was about to crater. And hardest hit in the commercial market was retail space, as the “great recession” depressed home values, killed personal credit lines, and wiped out disposable income. Additionally, consumers increasingly were buying on-line instead of trudging off to stores, fueling growth at Amazon and its peers rather than Sears – which had no on-line presence.
A great past is meaningless when investing. Market shifts change the winners, and turn old winners into losers.
Those who were optimistic for Sears were looking backward. What had once been valuable they felt surely must be valuable again. But those looking forward could see that market shifts had rendered both KMart and Sears obsolete. They were uncompetitive in an increasingly more competitive marketplace. As competitors kept working harder, doing more, changing the marketplace Sears was not really in the game.
The merger only made the likelihood of failure greater, because it made the scale of change even greater. Two locked-in success formulas, both out of date, needed dramatic overhauls if Sears Holdings was to succeed. But the focus for Mr. Lampert was strictly on cost cutting.
The results since 2003 have been abysmal. Sales per store, a key retail benchmark, have declined every quarter since Mr. Lampert took over. Mr. Lampert led the charge for cost reductions, and his management team became machete-wielding slashers. Jobs were cut from overhead and at stores, product lines were cut, and stores were closed every quarter in an effort to preserve dwindling cash flow.
As revenue declined, Mr. Lampert focused on earnings. He famously said in an annual meeting that his smaller company, had the same earnings as previously, and it was analogous to a plane descending from 30,000 feet to 15,000 feet. Investors should feel good about the situation – I guess because the plane had not yet crashed. But with every quarter Sears became smaller, and smaller. Mr. Lampert was not saving his way to prosperity. To the contrary, he was using up precious resources without converting Sears into a viable competitor – using the cash to defend & extend past practices rather than change.
Recently Crains Chicago Business headlined that even the (in)famous chairman was admitting his past failure “Sears Chief Lampert: We Ought to be Doing a Lot Better.” But, unfortunately, there is still no plan to make Sears a relevant competitor. The focus remains on selling mowers and washers as recently described in “New Sears’ CEO Optimism Contrasts with Sinking Stock Price.” The market has shifted, but Sears leadership remains dogmatic.
Sears is no longer competitively relevant, or viable.
Sears once built, and owned, America’s tallest structure. But long ago Sears left the Sears Tower; it’s now named the Willis Tower. Sears headquarters are in suburban Hoffman Estates, and are half empty. Due to cuts and efforts to get more out of less, such as the turnover of apparel merchandisers when transferring that function to California, the jobs keep going away. A focus on cost cutting rather than growth does that. Makes you smaller, and less viable.
After years of trying to defend the traditional Sears/Kmart businesses, well….. who cares? Do you even know where the closest Sears or Kmart store is to your home? Do you know what they sell? Do you know the comparative prices? Do you know what products they carry? Do you know if they have any unique products, or value proposition? Do you know anyone who works at Sears? Or shops there? If the store nearest you closed, would you miss it amidst the Home Depot, Kohl’s or Best Buy competitors? Have you ever tried to buy from Sears on-line? If all Sears stores closed – every single location – would you care?
And now Illinois is considering giving this company subsidies to retain the headquarters?
Invest in things that grow – whether its your cash flow, your pension, or your tax dollars
Here’s an alternative idea. Using whatever logic the state leaders can develop, using whatever dream scenario and whatever desperation economics they have in mind to save a handful of jobs, figure out what the Sears subsidy might be. Then invest it in Groupon. Groupon is currently the most famous technology start-up in Illinois. Over the next 10 years the Groupon investment just might create a few thousand jobs, and return a nice bit of loot to the state treasury. The Sears money will be gone, and Sears is going to disappear anyway. Really, if you want to give a subsidy, if you want to “double down,” why not bet on a winner?
The investment doesn’t have to be Groupon. The point is that state residents will be much better off if the money goes into a business that is growing. The money needs to invest in the direction of long term trends, not in outdated, obsolete historic assets. Beg Amazon, Google or Apple to open a center in Illinois – give them a building for free if you want to create some jobs. At least those will be jobs that won’t quickly disappear to competitors. Or invest the money in venture funds that can invest in new biotech or other companies that might become the next Groupon. Heck, invest in senior design projects from engineering students at the University of Illinois in Chicago or Urbana/Champaign. Invest in something that has a chance of growing!
Sentimentality isn’t bad. We all deserve the right to “remember the good old days.” But don’t invest your retirement fund, or state tax receipts, in sentimentality. That’s how you end up like Detroit. States too often think only “how can I preserve this business in my community” without realizing that competitors are far more important to the future than any subsidy. If tax dollars are to be spent on business subsidies they should be invested in things that will grow – or at least have a chance to do so. So you can be more like silicon valley.
Smart investors put their money in businesses that take advantage of market shifts, and leverage big trends to grow. They ignore sentimentality. So Illinois, and investors, need to let go of Sears. You’ll feel a lot better when you start focusing on future growth.
Source: blogs.forbes.com/adamhartung/2011/05/11/sears-stop-the-subsidies-sell-the-stock-invest-in-groupon/?partner=yahootix
Troubled Sears wants state and local tax subsidies
Sears is threatening to move its headquarters out of Illinois. It’s been in Chicago since the 1880s. Now the company Chairman is threatening to move the headquarters to another state, in order to find lower operating costs and lower taxes.
Predictably “Officials Scrambling to Keep Sears in Illinois” is the Chicago Tribune headline. That is stupid. Let Sears go. Giving Sears subsidies would be tantamount to putting a 95 year old alcoholic, smoking paraplegic at the top of the heart/lung transplant list! When it comes to subsidies, triage is the most important thing to keep in mind. And honestly, Sears ain’t worth trying to save (even if subsidies could potentially do it!)
“Fast Eddie Lampert” was the hedge fund manager who created Sears Holdings by using his takeover of bankrupt KMart to acquire the former Sears in 2003. Although he was a financier and arbitrager, Mr. Lampert claimed he was a retailing genius. He promised to turn around the ailing Sears.
In his corner he had the “Mad Money” screaming investment advocate, Jim Cramer, endorsing him and the company because…… the two were once in college together. Mr. Cramer promised investors would do well, because he was sure Mr. Lampert was smart. Even if he didn’t have a plan for fixing the company.
Sears Holdings is in the whirlpool of failure, at the tail end of its lifecycle, with no future
Sears had once been a retailing goliath, the originator of home shopping with the famous Sears catalogue, and a pioneer in financing purchases. At one time you could obtain all your insurance, banking and brokerage needs at a Sears, while buying clothes, tools and appliances. An innovator, Sears for many years was part of the Dow Jones Industrial Average. But by 2004 the world had shifted, Home Depot displaced Sears on the DJIA, and the company’s profits and revenues sagged as competitors picked apart the product lines and locations.
Simultaneously KMart had been financially destroyed by the faster moving and more aggressive Wal-Mart. Wal-Mart’s costs were lower, and its prices lower. Even though KMart had pioneered discount retailing, it could not compete with the fast growing, supply chain innovating Wal-Mart. Nor on-line competitors with no brick-and-mortar overhead. When its bonds were worth pennies, Mr. Lampert bought them and took over the money-losing company.
By combining two losers, Mr. Lampert promised he would make a winner. How, nobody knew. There was no plan to change either chain. Just a claim that both were “great brands” that had within them other “great brands” like Martha Stewart (started before she was convicted and sent to jail), Craftsman, Kenmore and Die-Hard (better known as a movie title by people under 40.) And there was a lot of real estate. Somehow, all those assets simply had to be worth more than the market value. At least that’s what Mr. Lampert said, and people were ready to believe. And if they had doubts, they should listen to Jim Cramer rant to buy the stock during his daily Howard Beale impersonation.
Only they all were wrong. Assets do become obsolete, and doing more of the same better, faster, cheaper is not a path to success when markets shift.
Retailing had shifted. Smarter competitors were everywhere. Wal-Mart, Target, Dollar General, Home Depot, Best Buy, Kohl’s, JCPenney, Harbor Freight Tools, Amazon.com and a plethora of other competitors had changed the retail market forever. Likewise, manufacturers in apparel, appliances and tools had brought forward better products at better prices. And financing was now readily available from credit card companies.
Surely the real estate would be worth a fortune everyone thought. After all, there was so much of it. There could never be too much retail space. And real estate never went down in value. At least, that’s what Sears proponents said.
But they were wrong. Real estate was at historic highs compared to income, and ability to pay. Real estate was about to crater. And hardest hit in the commercial market was retail space, as the “great recession” depressed home values, killed personal credit lines, and wiped out disposable income. Additionally, consumers increasingly were buying on-line instead of trudging off to stores, fueling growth at Amazon and its peers rather than Sears – which had no on-line presence.
A great past is meaningless when investing. Market shifts change the winners, and turn old winners into losers.
Those who were optimistic for Sears were looking backward. What had once been valuable they felt surely must be valuable again. But those looking forward could see that market shifts had rendered both KMart and Sears obsolete. They were uncompetitive in an increasingly more competitive marketplace. As competitors kept working harder, doing more, changing the marketplace Sears was not really in the game.
The merger only made the likelihood of failure greater, because it made the scale of change even greater. Two locked-in success formulas, both out of date, needed dramatic overhauls if Sears Holdings was to succeed. But the focus for Mr. Lampert was strictly on cost cutting.
The results since 2003 have been abysmal. Sales per store, a key retail benchmark, have declined every quarter since Mr. Lampert took over. Mr. Lampert led the charge for cost reductions, and his management team became machete-wielding slashers. Jobs were cut from overhead and at stores, product lines were cut, and stores were closed every quarter in an effort to preserve dwindling cash flow.
As revenue declined, Mr. Lampert focused on earnings. He famously said in an annual meeting that his smaller company, had the same earnings as previously, and it was analogous to a plane descending from 30,000 feet to 15,000 feet. Investors should feel good about the situation – I guess because the plane had not yet crashed. But with every quarter Sears became smaller, and smaller. Mr. Lampert was not saving his way to prosperity. To the contrary, he was using up precious resources without converting Sears into a viable competitor – using the cash to defend & extend past practices rather than change.
Recently Crains Chicago Business headlined that even the (in)famous chairman was admitting his past failure “Sears Chief Lampert: We Ought to be Doing a Lot Better.” But, unfortunately, there is still no plan to make Sears a relevant competitor. The focus remains on selling mowers and washers as recently described in “New Sears’ CEO Optimism Contrasts with Sinking Stock Price.” The market has shifted, but Sears leadership remains dogmatic.
Sears is no longer competitively relevant, or viable.
Sears once built, and owned, America’s tallest structure. But long ago Sears left the Sears Tower; it’s now named the Willis Tower. Sears headquarters are in suburban Hoffman Estates, and are half empty. Due to cuts and efforts to get more out of less, such as the turnover of apparel merchandisers when transferring that function to California, the jobs keep going away. A focus on cost cutting rather than growth does that. Makes you smaller, and less viable.
After years of trying to defend the traditional Sears/Kmart businesses, well….. who cares? Do you even know where the closest Sears or Kmart store is to your home? Do you know what they sell? Do you know the comparative prices? Do you know what products they carry? Do you know if they have any unique products, or value proposition? Do you know anyone who works at Sears? Or shops there? If the store nearest you closed, would you miss it amidst the Home Depot, Kohl’s or Best Buy competitors? Have you ever tried to buy from Sears on-line? If all Sears stores closed – every single location – would you care?
And now Illinois is considering giving this company subsidies to retain the headquarters?
Invest in things that grow – whether its your cash flow, your pension, or your tax dollars
Here’s an alternative idea. Using whatever logic the state leaders can develop, using whatever dream scenario and whatever desperation economics they have in mind to save a handful of jobs, figure out what the Sears subsidy might be. Then invest it in Groupon. Groupon is currently the most famous technology start-up in Illinois. Over the next 10 years the Groupon investment just might create a few thousand jobs, and return a nice bit of loot to the state treasury. The Sears money will be gone, and Sears is going to disappear anyway. Really, if you want to give a subsidy, if you want to “double down,” why not bet on a winner?
The investment doesn’t have to be Groupon. The point is that state residents will be much better off if the money goes into a business that is growing. The money needs to invest in the direction of long term trends, not in outdated, obsolete historic assets. Beg Amazon, Google or Apple to open a center in Illinois – give them a building for free if you want to create some jobs. At least those will be jobs that won’t quickly disappear to competitors. Or invest the money in venture funds that can invest in new biotech or other companies that might become the next Groupon. Heck, invest in senior design projects from engineering students at the University of Illinois in Chicago or Urbana/Champaign. Invest in something that has a chance of growing!
Sentimentality isn’t bad. We all deserve the right to “remember the good old days.” But don’t invest your retirement fund, or state tax receipts, in sentimentality. That’s how you end up like Detroit. States too often think only “how can I preserve this business in my community” without realizing that competitors are far more important to the future than any subsidy. If tax dollars are to be spent on business subsidies they should be invested in things that will grow – or at least have a chance to do so. So you can be more like silicon valley.
Smart investors put their money in businesses that take advantage of market shifts, and leverage big trends to grow. They ignore sentimentality. So Illinois, and investors, need to let go of Sears. You’ll feel a lot better when you start focusing on future growth.
Source: blogs.forbes.com/adamhartung/2011/05/11/sears-stop-the-subsidies-sell-the-stock-invest-in-groupon/?partner=yahootix