How Eddie Lampert Could Have Saved Sears And Learning From His Failure

Sears
Photo Credit: Sears

The bankruptcy of Sears is a sad day for its employees, customers, investors—for all of American business. It didn’t have to end this way. A great CEO could have saved this once-great company. Unfortunately, Eddie Lampert was not a great CEO.

For me, the news has personal resonance. I know a bit about Sears. In a past life, I worked for Monitor, Michael Porter’s strategy consulting firm. Sears was one of my clients, and I spent many months inside their stores across America, listening, detailing and getting a deep understanding of the business—both good and bad—as well as its importance to communities across the country.

Sadly, I can’t say a lot of advice we gave them back then penetrated their change-adverse culture. Lampert didn’t seem to make a dent either, even though he says he knew what ailed Sears.

Lampert is obviously a smart guy and a successful investor. He correctly recognized that Sears had some valuable assets that other investors didn’t see when he acquired the company in 2005 via a merger with Kmart—including valuable real estate, valuable brands (including Kenmore, Craftsman and Die Hard) and he says he understood that retail was changing with the rise of Amazon and e-commerce.

The problem is that he ignored the fundamental rule of being an effective CEO: Execution is everything.

To hear Eddie Lampert tell it, he understood the need to transform the business into an e-commerce powerhouse—and that was a key investment thesis of his. Yet somehow it just didn’t materialize.

Sorry, but in business, you don’t get partial credit for a good idea poorly implemented. As the saying goes: “A mediocre strategy well executed is better than a great strategy poorly executed”.

Unlike Doug McMillon at Walmart, who realized the retailer didn’t have the capabilities to transform their e-commerce business from the inside and acquired Jet.com for the talent and processes they needed, Lampert just didn’t make the change. He never reshaped the culture—or bypassed it—to do what he needed to do. He never made the decisive offensive play he needed to buy Sears a place in the future.

Instead, Lampert sold off Sears’ crown jewels piece by piece, while driving away the company’s remaining loyal customers with aging stores, mediocre merchandise and non-competitive prices. That put Sears into a slow death spiral.  So now there is no future.

There were options, though. Here are a few things he should have done:

–        Clean up the balance sheet.  Sears was not a good candidate for a leveraged buyout. Instead of putting a lot of debt on this declining business, he should have renegotiated with lenders earlier to allow Sears to put some of the proceeds from selling crown jewels into investments in the business vs. using all the proceeds to pay off debt and to pay out dividends.

–        Assemble the right management team quickly. Lampert allowed change resistant middle managers to thwart innovation and needed change. As Jim Collins says “Get the right people on the business, and the wrong people off.” Quickly. The urgency to do this increases exponentially when it’s a turnaround.

–        Move faster. On everything. Time is not on your side when a company is losing altitude.

–        Create a culture of innovation. Its original DNA was built upon innovation, but success fueled scoliosis. Their founder created the modern catalog industry (which could have been a great legacy for an e-commerce innovator) over 100 years ago. Then they recognized the rise of suburbia and the mall after WWII. The problem: they codified their processes from that time vs. codifying their innovative culture. Sears has been a slow, bureaucratic, insulated company for decades as a result.

–          Reward vs. milk your most loyal customers. Unlike Amazon, who rewards its best customers with Prime services and benefits, Lampert’s Sears raised prices while reducing inventories and allowing stores and service to deteriorate.

The last, and perhaps most important thing Lampert could have done is one of the hardest for any CEO: Know when it’s time to move out of the way. When Lambert realized he wasn’t getting the traction to execute the needed changes, he should have stepped to the side, become Chairman, and recruited a talented CEO who could execute a winning plan. That would have shown leadership. And that might have saved Sears.

Read more: 7 Ways Retailer CEOs Can Avoid Being The Next Sears

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