Saving Sears by Selling It a Piece at a Time?
Edward Lampert, 47% owner of Sears through his ESL Investments firm, has fooled quite a few people into believing that you can make a lot of money by killing a once great retailer slowly. He has followed a plan of “harvesting” (see pages 111-114 of The Alpha Factor), selling off pieces of Sears wherever he can and cutting capital investment so much that some stores have bare fluorescent bulbs showing.
This is the classic example of “harvesting” - taking value that was created over decades of wise strategic investment and quickly turning that value into cash to show what looks like short-term profit, while actually just converting balance sheet value into ephemeral value that disappears once it is stated.
Harvesting is like burning wood. Wood has great strategic value. It can be used to provide immediate needs satisfaction, but it can also provide the opportunity to create even greater value. It can even be used multiple times to provide even greater needs satisfaction and opportunity for creating greater value and wealth.
Wood can be used to build an office or factory that provides an opportunity to create jobs for people and profit that can help drive the economy. Wood can be used to build furniture that provides comfort, but can also provide a place to do other useful activities. Wood can also be re-used and recycled into other useful objects. At least until you burn it.
Once you burn wood, you get a brief flash of heat and light, and then it is gone. It has changed into something that has minimal value. That’s what Mr. Lampert is doing to Sears. He is creating a flask of heat and light that is gone almost a quickly as it appeared. Yet he has been held up as a financial ”genius.”
Please, save us from such financial geniuses, and let us find business leaders who want to create self-sustaining wealth, not just to harvest smoke from the embers of the efforts of real geniuses.
Sears could have been brought back from disaster, if anyone had bothered to try to understand what made it once the largest and most influential retailer in the world. It could have quit its blind rush to be like everyone else and go back instead to being a completely unique form of retailer that created products and had top manufacturers make them for them. Even after it had prostitued itself to become “Brand Central,” it could have stepped back and recaptured its unique position, because none of its competitors ever “got it.” They still don’t. No one else ever tried to do it the way Sears did, and that’s why none of them could touch Sears while it remained true to its uniqueness.
Save us from the geniuses who can only destroy to create value for themselves and a few others. Give us some real leaders who want to create something bold and great that will create ever increasing value long after those geniuses are gone.