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Non-Tech : Sears Holdings Corp.
SHLD 34.62+0.7%10:18 AM EDT

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From: Glenn Petersen1/28/2008 10:40:17 PM
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Smart move:

Sears’ Chairman Will Take a Step Back


Published: January 29, 2008

Edward S. Lampert has a new strategy for Sears: less Edward S. Lampert.

With Sears Holdings’ sales, profit and stock price plunging, its billionaire chairman on Monday removed himself from day-to-day oversight of the ailing retailer and pushed out the company’s chief executive.

It was a humbling admission from the powerful hedge fund manager that his hands-on style and three-year-old strategy for Sears and Kmart are not working.

Until now, the heads of several major departments, like marketing and merchandising, reported directly to Mr. Lampert, even though he has no background in retailing or advertising. But from now on, those department heads will report only to the chief executive, the company said.

The executive changes appeared to answer two criticisms: that the company lacks a management team with the retail experience to pull off a turnaround and that Mr. Lampert, 45, is a micromanager who is hampering, rather than helping, the business.

But analysts said that, unless Mr. Lampert begins injecting money into the company’s increasingly shabby stores, the shake-up is unlikely to fix what ails Sears Holdings, the combination of Kmart and Sears that Mr. Lampert orchestrated in 2005.

Burt Flickinger, a longtime retail consultant, said that even with such a infusion of money, “there will be at least two or three years of suffering before there is going to be any success.”

Analysts said the changes raised a new set of questions, like whether Mr. Lampert, whose hedge fund owns 48 percent of Sears Holdings stock, can really step back from a close control of the business; and who would sign up for the difficult job of running the embattled company as its new chief executive.

“Sears will have a very tough time filling this job,” said Bill Dreher, a retail analyst at Deutsche Bank Securities.

Sears Holdings has earned a reputation for starving its stores of money, anathema to experienced retailers. The company is in trouble. And Mr. Lampert has already clashed with — and tossed out — several executives.

Joining that parade will be Aylwin B. Lewis, the departing chief executive, a former fast-food executive who oversaw chains like Taco Bell and KFC. He will step down later this week.

Mr. Lewis had little background in traditional retailing and never earned the support of Wall Street analysts, who referred to him as “Mr. 1+1=2” because of a gaffe during the original conference call announcing the merger of Sears and Kmart in 2004. (During the call, Mr. Lewis tripped over the business cliché frequently used to describe the economies of scale achieved through a merger — “1+1=3” — instead saying “1+1=2.”)

At Mr. Lampert’s urging, Mr. Lewis oversaw several years of cost-cutting at Sears Holdings. Spending on new-store openings and renovations has fallen to less than 2 percent of sales, half that of rivals like Wal-Mart and Target.

As a result, scores of Sears and Kmart stores look ragged next to their competitors, alienating shoppers and eroding both chains’ sales and profits. Earnings for the crucial fourth quarter of 2007 are expected to drop by more than 50 percent, the company has said.

Over the last nine months, Sears Holdings’ stock price has tumbled, wiping out $14 billion in market value, and three big banks have downgraded the stock, advising investors to sell. Shares of Sears Holdings closed Monday at $100.28, up $1.28.

In a memo to employees, Mr. Lampert defended the company’s performance and cost-cutting, saying, “I remain confident in our ability to ultimately succeed, even if there are steps backward along the way.”

Monday’s executive changes come less than a week after Sears Holdings reorganized the company into five units to give executives “greater autonomy and accountability for their businesses,” Mr. Lampert said.

But Mr. Lampert has given little detail about how the new units would work, or who would run them. Mr. Dreher, of Deutsche Bank, called the plan “haphazard” and warned that without bigger budgets, the new divisions could make a turnaround more difficult.

The company said it had appointed W. Bruce Johnson, the executive vice president for supply chain and operations, as interim chief executive while Mr. Lampert conducts a search for a permanent successor.

Speculation over who might be considered for the job centered on James L. Donald, who was just ousted from his job as chief executive of Starbucks, and Vanessa Castagna, a former senior executive at J. C. Penney, who now works for a private equity firm.

The new chief executive will have to contend with Mr. Lampert, who is known for his prickly personality and a hands-on management style that is unusual for the chairman of a company.

Indeed, Mr. Lampert has struggled to recruit top retail talent. According to people with knowledge of the discussions, Mr. Lampert has reached out 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.

In his memo to employees, Mr. Lampert seemed to acknowledge that he needed to step aside and let experienced retailers run the company.

“I believe the reorganization will allow our leaders to be more productive and efficient,” he said, “and allow us to attract talented executives who are eager to take on the challenges of running their own businesses.”
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