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  • Warren Shoulberg

Holding Sears Holding

Warren ShoulbergWarren Shoulberg PUblisher/Editorial Director
OK, ENOUGH'S ENOUGH. After yet another round of news stories and commentary about what's wrong at Sears and how the end is coming and, hey, why can't they be the way they used to be, or at least the way others think they should be: After all of that, I can't take it anymore.
     What part of cash flow management don't you all get?
     While just about everyone laments about the coming demise of Sears Holding as a viable retailer, what they all seem to fail to realize is that Sears and Kmart stopped being viable retailers years ago. The corporate strategy is not about being retailers. It's about managing cash flow and draining said flow out of that corporate body. It's not about making money retailing. It's about making money managing money.
     And that's it.
     Not spending enough money on capital investment in the stores? Why should you when the objective is to save money which you can then throw off to shareholders? Especially when the main shareholder is Fast Eddie Lampert, who stands to gain the most from all the special dividends, stock buybacks and other assorted financial smoke and mirrors going on there.
     Opening up distribution of the cornerstone brands like Craftsman and DieHard to competing retailers, seemingly taking away your point of differentiation? Of course, because you can then get licensing royalty checks on a regular basis from stores that actually have customers buying things. Besides, Sears has already moved ownership of those flagship brands into a third party entity called KCD (Kenmore, Craftsman, DieHard - get it?) which collects a royalty from Sears ultimately payable back to Lampert's ESL Investments for the privilege of using those names. It's all rather convoluted, but suffice it to say, there's cash being sucked out of this thing in a process that would embarrass Trump.
     Buy back your stock, reducing the float and pumping up the share price? Sure, because the main beneficiary of the stock buybacks is none other than Lampert, the largest shareholder. He wins coming and going.
     Rent out space to competing retailers inside your four walls, further reducing your merchandising presence? Of course, because that's a monthly rent check you can collect, and checks are as good as cash in Lampertland.
     Barely keeping up a merchandising front to the general public? Yup, you do need to keep the body alive so you can keep draining out cash. So if you throw a merchandising bone out there every now and then - iPads for salespeople, layaway plans, some B-level celebrity brand - it's enough to keep some warm bodies coming through the door.
     So what if the top and bottom lines are declining? Doesn't matter. So what if the stock price continues to deteriorate? Doesn't matter. So what if the stores look like crap? Doesn't matter.
     What matters is that there's cash to be flowed.
     Eddie Lampert is smarter than all of us put together, as evidenced by the continued failure of most people who know better to...well, know better. His ability to make money is only matched by his ability to make most analysts and business journalists look eminently stupid.
     The only ones not being fooled are shoppers: They gave up on these stores years ago.

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