After the sixth consecutive year of losses and several rounds of store closings, Sears Holdings Chairman and CEO Edward Lampert says he’s still committed to reversing the department store chain’s slide by turning Sears into a 21st-century merchant focused on catering to its best customers.
In an interview Tuesday, Lampert acknowledged Sears’ struggles and admitted that the turnaround is taking longer than expected. But he also complained about media coverage speculating on a possible bankruptcy, saying it is undermining the company’s efforts and has made it tougher for Sears and Kmart to work with suppliers.
Investors are leery too. In the past year, shares have fallen 23 percent and closed Tuesday at $10.52 a share.
Lampert, who rarely talks publicly about his plans to turn around Sears and Kmart, will have the chance to make his case with shareholders Wednesday at the company’s annual meeting at its Hoffman Estates headquarters. The following interview has been edited for length and clarity.
Q: Sears has been talking about a turnaround for years now, and saying it hasn’t done enough to adapt to changes in retailing since the 1990s. If it didn’t happen then, before e-commerce, before so many mall-based retailers were struggling, how are you going to make it happen now?
A: Preparing the company for this day and age is something we’ve been working on for the last dozen years. The challenge for us internally as well as externally is to be able to demonstrate to the world that what we’ve built is something that can stand up against the best competition that’s out there.
Q: There’s going to be a point at which time isn’t on your side any more, and a lot of people would say we’re at that point. From the outside, it’s hard to see evidence it’s working. What are we missing?
A: I’m not sure it’s a question of what’s being missed. If you’re looking to the left and things are happening to the right, you’re missing things because you’re not looking to the right, not because it’s not happening. Costco came out last year with a new card and everyone was talking about it and writing about it. When we come out with our card, people only talk about closing stores. It is true that on the left, we’re closing stores. We’re not making money. On the right is where we’re going. A lot of these things are happening and they’re happening in plain sight.
The recession in 2008 to 2009, coupled with the changing behaviors, has changed the game not (just) for us but for everybody. We felt the impact earlier because we started in a weaker position, but we also moved earlier.
I feel like we’re ahead of J.C. Penney, we’re ahead of Macy’s, we’re ahead of Target, in some aspects of where the world is going. Some of them have greater financial resources than us or certain advantages in certain categories. Clearly we have our challenges. Every time people use the word bankruptcy, somebody who reads that doesn’t get past that word. It makes it very unfair for us, and it’s a very uneven playing field for us.
Q: Why not file for bankruptcy protection?
A: There are a lot of human costs to doing it. I don’t know the details of each of the pension plans, but typically plans have some form of reservation or restricted benefits. We’ve honored all of our obligations to our retirees and pension beneficiaries. It’s been very, very hard to afford.
The choice that I’ve made, the choice of the company and board to honor those obligations, it’s something we took very seriously but it’s come at a tremendous cost.
It doesn’t help that you have to put $4.5 billion in a pension plan when you’re trying to deal with an industry that’s undergoing tremendous transformation and has a very large footprint you need to maintain and update as well.
Q: We’ve also not seen growth on the top line. At the annual meeting last year, you said the Shop Your Way membership rewards program had fallen short on execution. Are you seeing signs that’s changing?
A: We’ve not only integrated the (Sears) credit card with Shop Your Way in a deeper way, we dramatically improved the value proposition on the credit card. (New partnerships with other companies that give members ways to earn and redeem rewards) have the opportunity and the promise to change your relationship with Sears and Kmart. You may shop Sears and Kmart 10 to 12 times a year. But if you’re using your credit card every day, and we continue to build out other partnerships, that’s where the company’s going.
I could argue that this transition phase is taking a lot longer than it should and that may be a fair argument. If we were making a meaningful amount of money it would enable us to move much faster in our transformation. But we’ve made a lot of decisions we would rather not so we can make those pension payments, so we can make vendors more comfortable when they’re questioning, ‘Are you going to be able to pay or not pay,’ and why are they questioning it? Because there are a lot of articles that are speculating, and there are elements of truth, but they’re certainly designed to scare people.
Q: Are you having trouble getting the products you need, getting companies to do business at terms you can deal with?
A: What I would tell you is if you found out your next-door neighbor lost his job and had their house for sale and was falling on hard times, and they ask you to borrow $10, how many questions would you ask them about their ability to repay you? If they ask for $50,000, that would be very different. We’ve reduced risk by eliminating a lot of our pension liability, reducing the size of our bank facility, we reduced the risk by closing stores and reducing the size of the company.
We’re fighting like hell to change the way people do business with us. And my view is, we’re the customer. If you’re a vendor, and want to do business with us, then you have to treat us like a customer, you don’t treat us like a pariah.
I’ll take an even playing field, I’ll take an uneven playing field, but what I won’t do is basically not even let us on the playing field or let the game be fixed by people exploiting a certain amount of uncertainty.
Q: Does Sears still have time?
A: We have as much time as our vendors and our lenders and our shareholders are willing to give us. It’s up to us to basically demonstrate to people that we can drive results to get people behind us. We’re trying to be proactive with our vendors, we’re trying to be proactive with our members, with our employees, associates, etc., to explain that the reality is a lot better than the perception. The reality needs to be better than it is for us to really demonstrate to people that the transition is starting to take hold.
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