Sears Decentralizes to Impede Nosedive
Sunday, January 20, 2008
Sears Holdings, the retailer controlled by investor Edward Lampert, plans to set up independent units to run each of its business lines as profit declines for the third straight quarter.
Each unit's performance will be overseen by a group of executive advisers, Sears spokesman Chris Brathwaite said yesterday in an e-mailed statement. He didn't give details on what each division would do. The company has Lands' End clothing stores, Craftsman tools, Kenmore appliances and DieHard batteries in addition to its Kmart and Sears chains.
The decision follows Sears's disclosure this week that fourth-quarter profit may drop by more than 50 percent after U.S. holiday sales fell at its namesake and Kmart retail chains. The biggest U.S. department store company has reported declining sales in stores open at least a year every quarter since Lampert combined Kmart and Sears Roebuck in March 2005.
Sears, whose stock declined 39 percent last year, will give its businesses "greater control, authority and autonomy," Brathwaite said in the statement.
Since putting the company together, Lampert has centralized functions, giving executives company-wide responsibility. John Walden, the chief customer officer, oversees client strategies for all of Sears Holdings. The marketing chief for the Sears chain reports to Maureen McGuire, Sears Holding's chief marketing officer.
The retailer, which blamed increased competition and "unfavorable economic conditions" for the drop in fourth-quarter profit, posted declines in the second and third quarters, including a 99 percent third-quarter profit decline.
Lampert has tried to lure customers by extending products over the whole organization, adding Lands' End clothing to Sears stores and Craftsman tools at Kmart. He boosted technology investments and introduced advertising campaigns this year for both chains while telling shareholders at the company's annual meeting in May that fixing retail was "a priority." Some analysts say he's underinvested in the stores for too long.
Lampert's ESL Investments bought Kmart debt during the discount chain's Chapter 11 bankruptcy proceedings and became its largest shareholder after the retailer's emergence from court protection in May 2003. Lampert engineered Kmart's $11 billion acquisition of Sears, Roebuck less than three years later to form Sears Holding. He is chairman of Sears, and his funds hold 48 percent of the company, according to Bloomberg data.
Sears gained 29 percent in the eight months after Lampert said in August 2006 that the company may make acquisitions outside the retail industry, sparking speculation that he would run Sears like a hedge fund. Persistent sales declines have weighed on the shares since April.
The reorganization was reported by the Wall Street Journal yesterday.