Lambert Indicates New Direction for Sears, CEO Out

Edward Lambert the hedge fund chieftain, who at one time was considered by many as the next Warren Buffett, appears to have finally acknowledged his major investment in Sears SHLD (NASDAQ) has failed to work out as planned. Earlier today, the company announced that Alwyn B. Lewis the president and CEO of Sears Holdings would step down at the end of the fiscal year. Lewis will be succeeded by W. Bruce Johnson, an executive vice president of supply chain and operations. Johnson will take the position on an interim basis.

Sears under Lambert's tutelage and under the direction of his hand-picked CEO, Alwyn B. Lewis, has been performing very poorly as reflected in the stock and in sales. Lewis whose background was primarily in the restaurant business prior to working for Lambert was originally appointed by Lambert in 2004 to run Kmart. The appointment came after Lambert already managed to turn Kmart around. Lambert shortly after he appointed Lewis then went on to merge Sears and Kmart. At the time of the initial merger many analysts thought Lambert would be able to perform a similar miracle to Sears as he initially performed with Kmart. Retail analysts, however, were far more skeptical of Lambert's abilities to turn Sears around. With the merger Lambert then appointed Lewis to head up Sears. While there were periods during the merger that performance appeared to be moving somewhat in the right direction overall it has so far been a retailing failure. According to a piece by Louisa Nesbitt and Heather Burke in an earlier Bloomberg story, Howard Davidowitz, chairman of David Davidowitz Associates, the retailing specialist/consultant said,

"The company has been in free-fall''. They have not met one number since Aylwin Lewis has been there. They've had monster losses in market share, so how could you be surprised?''

Last week Lambert faced reality and announced plans to undergo an organizational restructuring. According to the company press release:

The new structure is built on five types of business units that enable each organization to focus on their core categories and capabilities: operating businesses, support, brands, online and real estate. The operating business units will consist of the company's current lines of business such as home appliances, electronics, and apparel. The support units will include the functions that provide operational and administrative support to the operating businesses including marketing, store operations, customer strategy and finance. The brand units will be responsible for growing the value of Sears Holdings brand portfolio. The real estate business unit and an online business unit will focus on increasing the sales productivity of the company's physical and virtual real estate.

Each business unit will have a designated leader and an advisory group comprised of senior Sears Holdings executives who will provide direction and oversee the business unit's performance. The leadership of each unit will have a separate, internal profit and loss statement to allow greater focus on managing the profitability of the unit, and rapid decision making to capitalize on opportunities and mitigate risks.

According to a piece by Michael Barbaro in the New York Times,

Lewis, the departing chief executive, oversaw several years of cost-cutting at Sears, the combination of Sears and Kmart that started in 2005.

Spending on new-store openings and renovations fell to less than 2 percent as a percentage of sales, less than half that of Wal-Mart and Target. As a result, many Sears and Kmart stores have fallen into disrepair, alienating shoppers and eroding both chains’ sales and profits.

Earnings for the crucial fourth quarter are expected to drop by more than 50 percent, the company has said. Over the last nine months, its stock price has plunged, wiping out $14 billion in market value.

Lambert is trying to convince the market and everyone else that he is serious about turning the company around but too much time has passed already and it is likely Sears will have a hard time finding a top retail executive to take this difficult task on. Barbaro in his Times article said,

... Lampert has struggled to recruit top retail talent to Sears Holdings over the last three years. According to people with knowledge of the discussions, Mr. Lampert has put out feelers to several top retail executives, including Millard S. Drexler, the former Gap chief executive, and Allen I. Questrom, the man behind the J. C. Penney turnaround. But neither has agreed to join the company.

We will just have to wait and see who Lambert manages to get to take on the task. Stay tuned now for what Johnson and Lambert have in mind for the short term.

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