The Decline of Sears...What Happened?

[Music] well Sears has filed for bankruptcy surprising right he'll be closing 142 more stores that's on top of a ton of stores they've already closed recently and some that were already set to close but they're not going away completely yet I've had many many people bring this to my attention and request that I make a video about it even long before the bankruptcy I was getting a bunch of requests well the time has come and I hope you won't be too disappointed to learn that I don't care I genuinely do not care about Sears now let me qualify that of course I feel for all the people losing their jobs and the stakeholders losing money and all the people and companies affected that did business with Sears this is really bad news for a lot of people and I'm sad about that and I care in a business sense it's a really interesting case study that's truly one-of-a-kind so that's where I draw my passion to make this video but as a consumer I am indifferent about the idea of them potentially dying I mean zero personal attachment I say that because I don't shop there but I didn't shop at Toys R Us either and I was sad to see them go here's a metaphor I'm sure you've never heard before Sears is eldest no which is Russell Brand's character from Forgetting Sarah Marshall but what I'm talking about is the far less popular follow up get him to the Greek honey off-chance you've missed it let me fill you in eldest was once one of the greatest musicians on earth he spoke to a generation every song he made was a number-one hit you get the picture but somewhere along the way he lost it he became more concerned with the money and the fame and the actual song started putting out garbage albums got involved with drugs and lost his connection with the fans that's exactly what happened to Sears not the drug part but the connection part the reason I don't care about Sears is because I've only been around for the garbage albums they never spoke to my generation it's the past generations that care about them it almost appears that the older you are the more Sears meant to you and Sears was big they've been commonly called the Amazon of their time it'd be weird seeing headlines Amazon filed for bankruptcy so before we focus on all these terrible albums they've been releasing for the past 20 or 30 or 40 years let's look at what made Sears so great Sears was started by a guy named Sears Richard Sears he initially started a business selling watches despite knowing very little about watches he was more of a Salesman so very early on he was forced to hire someone who knew about watches and that guy was named Alva Roebuck this was in the 1880s by the way so even if they don't make it through this bankruptcy they've had a pretty long run a year later they started this mail-order catalog and boy was it a hit within a couple years it went from 80 pages filled with watches and jewelry to 320 pages filled with bicycles and sewing machines and seemingly everything in 1893 they changed their name to Sears Roebuck and Company but actually in Heider Sears nor Roebuck stayed with the company for as long as you might think only two years later Roebuck sold his ownership which was not the smartest decision because 11 years after that they rose a lot of money by becoming publicly owned from there Richard Sears resigned as president after two years retired altogether two years after that and died one year after that at age 50 but obviously the company lived on and continued to be successful the concept of the catalogues was I'm sure the biggest contributor to that success but some other factors their money-back guarantee offering credit to customers a strong supply chain and just selling a wide variety all things that were either uncommon or unheard of at the time the whole idea behind that catalog was to reach people in more isolated farming areas that weren't able to easily travel to the city and buy things but then the car had started becoming popular and urban areas were becoming more accessible Sears viewed this as a reason to start shifting their focus to physical locations in 1925 they opened their first store and boy was it a hit their retail location started expanding rapidly and within six years were generating more sales than their catalog from this point they were taking shape into the company that we're all familiar with and over the next 50 years they became huge they turned into the number one retailer in the United States and it wasn't even close in the first half of the 1970s they built the Sears Tower it was in Chicago and it was the tallest building in the world at the time but that's when things started to take a turn the decline that Sears has experienced that's led to its current bankruptcy stems back over 40 years by this time the other retailers were providing more competition than ever before large department stores like Kmart and Walmart were fairly new and growing steadily the answer for Sears was to buy a bunch of other companies and then get rid of a bunch of companies and then go strong into the credit card business in the 1980s they started Discover card and then spun it off a few years later in the 1990s they put a huge emphasis on their own Sears credit card and then sold it in 2003 also in the 80s they bought Coldwell Banker company the country's largest real estate brokerage but then sold it in the 90s it was a lot of this they also got rid of the Sears Tower in 2003 but during all of these moves Walmart and everyone else was gaining ground on them I like this article from the New York Times from 1991 profiling the decline of Sears and the rise of Walmart a question whether Sears or Walmart was the number one retailer and it was practically neck and neck but Sears still had a small lead I was born four months after this article was printed by the way so they were clearly already well on their way down by the time I came around it was only two years later when Walmart took that number-one spot in the same year that Sears stopped offering their catalog by 2003 they were number four from the mid 70s to the mid 2000s things were declining it was a crazy time with a lot of things happening but to keep it simple I think we can say this Walmart and the other retailers started finding their own ways to compete with Sears and in response instead of trying to strengthen their stores and stay competitive they instead chose to diversify and make some strange acquisitions then sell those acquisitions then buy other things some of these moves really worked but it really not seem to be the best strategy for the company that brings me to the modern era of Sears which is just a colossal mess I don't really know how else to describe it and this is where I have to talk about Eddie Lampert let me tell you about Eddie he's a Wall Street investor type famous for his hedge fund ESL investments basically he and a few other billionaires pull their money together and Eddie invested in the early 2000s he had a lot of success with autozone and in 2003 he invested big into Kmart who had just filed for bankruptcy and actually made a couple of moves that look promising in late 2004 he decided to buy Sears and merge it with Kmart which was also considered to be a promising move at the time the idea behind it was maybe the two struggling chains can help each other and plus Eddie sure seemed to know what he was doing many people thought that this might be the big thing that can save them both let me show you how it went all of these numbers represent Kmart and Sears combined this is the revenue for each of the thirteen years since the merger it's amazingly lower each year you would think that there'd be one or two years in there with slight growth but no every year is lower than the last there's their income for that same range it at least started out positive but then they've been losing money for the past seven years here's a graph that shows their number of locations their peak was in 2011 with 4,000 and by the end of 2017 they were down to 1,000 that number has since dropped to 687 and is also at least 142 more set to close soon this one may be the best visual of their decline comparable store sales it shows how much each store is selling compared to the previous year 13 straight years of negative comparable store sales that's crazy in 2017 despite closing hundreds of stores they're selling 13.5 percent less in each store on average all of these numbers are insane look at this in 2017 they had more liabilities than they had assets that means even if they sold everything they owned they wouldn't even come close to paying off all their debts think of it like this you just bought a seven billion dollar house and you owe the bank eleven billion dollars that means negative equity which again is insane every part of their financial statements is crazy they're paying hundreds of millions of dollars in interest each year there's massive obligations involving pension benefits and their problems go way beyond that I can talk for the next ten minutes about how bad these statements look remember even after decades of struggles right before Eddie took over they were the number four biggest retailer in 2003 today they're number 31 and that's when you combine Kmart and Sears together I'll go out on a limb and say that Eddie Lampert was not able to turn things around but the question is was it his fault I can see why you might defend him he took on two different struggling companies the odds were against him from the beginning during this time he not only had to deal with the economic recession but strong competition from all the online retailers and even despite all this and having some of the worst financial statements you'll ever see he kept the company going that was some defense for him now let me tell you the other side this is one of the strangest arrangements I've ever seen listen to this Eddie Lampert is the chairman of Sears and from 2013 up until the recent bankruptcy he was the CEO he's also the chairman and CEO of his hedge fund ESL investments who owns about half of Sears and has provided many loans to Sears which is weird for a public company a good portion of that interest expense that Sears is paying every year goes to ESL a lot of that debt that Sears has was money lent to them by ESL so when they're filing for bankruptcy its ESL that's looking to recover the money that they're owed do you see how this is strange they're on both ends of the bankruptcy now let me take this one step further Sarah touch Growth Properties this is a real estate investment trust spun off by Sears that's over 40% owned by ESL we're really getting into it here but effectively what happened is Sears sold 235 stores to them for 2.7 billion dollars instantly started renting those stores from them it was good for Sears because it brought in 2.7 billion dollars of much-needed money but then the issue became whether or not that was a fair price for all that property since Eddie Lampert is basically selling it to himself he could be motivated to sell it at a low price there was even a big lawsuit involving all this that ended in a 40 million dollar settlement now if you didn't follow all that real estate stuff just forget about it here's the point Eddie Lampert has been widely accused of acting in the interest of his hedge fund rather than Sears he's been selling things like crazy aside from all that real estate Sears Canada Lands End and Orchard Supply were all spun off into their own companies in addition to that they sold the brand craftsman to Stanley Black & Decker they've allowed Kenmore appliances to be sold elsewhere he's actually offered to buy Kenmore himself for 400 million the takeaway is Sears needs money badly and instead of trying to find ways to increase sales in the stores he's selling their assets assets that could be used to generate money and it also seems that his hedge fund seems to benefit from these sales in some way to be honest I don't understand what he's trying to do why would he intentionally be trying to harm the company when he owns it at this stage it's really unclear whether his hedge fund ESL investments generated returns or losses he might just be really bad at running a retail business I mean really bad there's other examples I can cite of seemingly poor management but it really just doesn't seem to be working from what I've read he doesn't seem to be willing to listen to the advice of others maybe he has too much pride to admit that his plan failed or maybe he's smarter than any of us and somehow this is all part of the plan and Sears is going to be just fine I'm not leaning on that option but it's possible it all comes back to eldest no they've lost touch with their fans or in this case their customers from my point of view they just don't seem to care I don't know why but Eddie Lampert doesn't seem to care what happens to Sears or Kmart for that when you go to either one the store isn't updated the employees aren't known to be particularly pleasant no offense there's poor selections high prices long waits and I can see why but as a customer if I get the impression that Sears doesn't care about me why should I care about them let me know in the comments do you agree with that statement was Eddie Lampert responsible for this bankruptcy or was it unavoidable before he was even involved it's been a long 40-plus year decline with an embarrassing final decade you'd have to be 50 or 60 years old to be able to truly respect what Sears once was so if there's anyone watching that fits that description I'd love to hear what made them so great and please share any other thoughts you have about Sears I'd like to hear what you have to say thank you for watching [Music]

Channel: Company Man

Views: 1,068,241

Rating: 4.8828568 out of 5

Keywords: Sears, Bankruptcy, Kmart, Bankrupt

Id: Qws713t3HBY

Length: 14min 9sec (849 seconds)

Published: Fri Oct 19 2018

Reddit Comments

[u/MaxCorbetti]

TL;DR: The current CEO, after taking over in the 2000s, turned it into a vulture capital venture; slowly bleeding it dry and selling its assets, to the benefit of his own hedge fund company. Even to the point of profiting off its bankruptcy.

[u/TheWolfAndRaven]

One part they stopped making good products, one part they were over charging the shit out of their customers, one part the CEO is clearly pilfering the company for his own long term financial gains.

[u/lowlycontainer1]

I walked into my local Sears just yesterday. It was a fucking ghost town.