Everyone’s favourite refrigerator store, Sears, declared Chapter 11 bankruptcy on Monday. This wasn’t a big surprise. Sears has closed over a thousands stores in the last decade, and the company plans to close 142 of the 700 stores that still remain in its attempt to chip away at the $US5.6 ($8) billion in debt plaguing the iconic retailer. There are a lot of reasons why Sears has ended up in this impossible situation. America being a wonderful place isn’t one of them.
To understand the long, labored downfall of Sears, you really just need a loose grasp on 20th-century American history. Although it was founded in 1886, when Richard Warren Sears started his mail-order watch business, the company really took off after its initial public offering (IPO) in 1906. Over the course of the next hundred years, Sears would send millions of catalogues around the country, giving rural residents the ability to buy practically anything in the world. It even sold entire houses to people. You could pick a design in the catalogue, send a check, and a build-it-yourself kit with precut lumber and all of the necessary hardware would arrive in a rail car. It built department stores all across the United States in the early half of the century and then built them in shopping malls, following people as they moved out of cities and into the suburbs.
But beginning in the early days of the web, Sears started to suffer. It stopped sending out catalogues in 1993, and a decade later, Kmart’s parent company bought Sears Roebuck & Co. for $US11 ($15) billion. Today, a hedge fund billionaire named Edward Lampert is the chairman of Sears Holdings and one of the company’s largest shareholders. Lampert was also the company’s chief executive but resigned that role after the bankruptcy announcement.
It’s hard to understate Lampert’s control over Sears. He personally owns 31 per cent of Sears Holdings, and his hedge fund, ESL Investments, owns another 19 per cent. While he was CEO, Lambert did his best to chop up the company up and sell its most valuable properties to other companies, many of which he owned a stake in. Meanwhile, stores are closing, and Sears workers are losing their jobs. It looks like Lampert is making himself richer in the fire sale, though. His influential friends are involved, too. Treasury secretary Steven Mnuchin, whose spent hundreds of thousands of taxpayer dollars using government aircraft for personal travel, served on Sears Holdings’ board for 11 years before joining the Trump administration in 2016. He was also Lampert’s roommate at Yale.
“Sears Roebuck when I was growing up was a big deal,” President Trump said when asked about the bankruptcy on Monday, which he called a “very, very sad” moment. Trump added that Sears was “obviously improperly run for many years.”
If you think about it, the Sears of a century ago and the Sears of now represent two divergent versions of the American dream. It’s easy to think about the Sears of our grandparents’ generation as a symbol of the industriousness and ingenuity that built the nation. The Sears House Kit is a perfect example. From 1908 to 1940, Sears sold as many as 75,000 of these homes. Customers could pick from 447 different designs, anything from a Craftsman style to a Cape Cod. It was like IKEA furniture on a much grander scale. At the time the bulk of these kits were sold, many of the new homeowners were getting electricity and indoor plumbing for the first time. And they were doing it all themselves. After the house got built, of course, Sears would gladly sell folks furniture and anything else they’d need to fill it up. Anything was a catalogue order away.
Sears stopped selling house kits after the end of the Great Depression. Tract housing was cheaper to build, and in the decades after World War II, millions of Americans fled to these cookie-cutter homes in suburbs across the country. As its retail sales surpassed catalogue sales, Sears became a fixture in malls, and the company developed now iconic brands like Kenmore, Craftsman, DieHard, and Lands’ End. (Fun fact: The online service Prodigy was a joint venture between Sears, IBM, and CBS, so it’s weird that Sears has struggled to find success with online retail. It was one of the first companies to get involved in online!) These are the brands that Lampert has been selling off for the past few years, and aside from real estate, they represent some of the most valuable assets of Sears Holdings. So instead of selling people homes they could build themselves, Sears is now selling brands and empty stores.
Lands’ End was the first to go. Having filled the Sears Holdings board with wealthy investors, Lampert spun off the clothing brand in 2013, and his hedge fund took a significant stake in the new company. Lands End stock opened at $US15 ($21) a share on Monday, while Sears stock opened at 35 cents ($0.49) per share. In 2015, Sears Holdings sold $US2.7 ($4) billion worth of real estate to Seritage Growth Properties, a company formed to repurpose old Sears and Kmart stores. (There are actually two such companies.) Lampert owns a huge stake in Seritage, so he stands to profit from the second lives of these old retail spaces. Sears Holdings also sold Craftsman for $US900 ($1,266) million in 2017, and next, Lampert hopes to buy the Kenmore brand from the company for $US400 ($563) million.
It’s not so much that, under Lampert’s leadership, Sears is selling its brands and old stores to stay afloat. It looks like Lampert is selling Sears assets to himself, and setting up new companies to consolidate wealth and power. This is the second American dream. In the absence of traditional methods of success—say, building a company that sells things to people who want to buy them—you can create your own wealth in this country with some well connected friends and a lot of financial savvy.
“This is a play to wring the last drop of value from Sears until there is nothing left,” said Mark Cohen, former chief executive of Sears in Canada, told the New York Times a couple months ago, when Lampert made his offer to buy Kenmore. “And it’s working.”
But what else would we expect. Sears failed to keep up with the changing retail landscape, and along came Amazon, which many say is the Sears of the 21st century. You can actually buy house kits on Amazon now. With a guy like Lampert at the helm, Sears never had a chance. Instead of swooping in to save the company and return some of its former glory, it seems like current leadership really just wants bust up the empire and sell the best parts back to themselves, which seems sort of crooked.
Then again, the best parts of the American experience have always been double-edged. With this country’s ingenuity comes cycles of innovation, periods of booms and busts. There are times when progress benefits huge portions of the population and leaves others behind. There are moments when titans of industry create wealth instead of jobs. This is one of those moments, and for once, President Trump is right. It is very, very sad.