The Merger

The Chairman At the time of the merger, investors were confident that Lampert could turn the two companies around. One analyst described him as “lightning fast, razor-sharp smart, very direct.” Many of those who worked for him described him as brilliant (although he could overestimate his abilities). The son of a lawyer, it was rumored that he read corporate reports and finance textbooks in high school, before going to Yale University. He hated focus groups and was sensitive to jargon such as “vendor.” His brands chief once used the word “consumer” in a presentation. Lampert interrupted, with a lecture on why he should have used the word “customer” instead. He often argued with experienced retailers, but he had good relationships with managers who had finance and technology backgrounds.

From 2008, Sears’ business unit heads had an annual personal videoconference with the chairman. They went to a conference room at the headquarters in Illinois, with some of Lampert’s senior aides, and waited while an assistant turned on the screen on the wall opposite the U-shaped table and Lampert appeared. Lampert ran these meetings from his homes in Greenwich, Connecticut; Aspen, Colorado; and subsequently Florida, earning him the nickname “The Wizard of Oz.” He visited the headquarters in person only twice a year, because he hated flying. While the unit head worked through the PowerPoint presentation, Lampert didn’t look up, but dealt with his emails, or studied a spreadsheet, until he heard something that he didn’t like—which would then lead to lengthy questioning.

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In 2012, he bought a family home in Miami Beach for $38 million and moved his hedge fund to Florida. Some industry analysts felt that Sears’ problems were exacerbated by Lampert’s “penny pinching” cost savings, which stifled investment in its stores. Instead of store improvements, Sears bought back stock and increased its online presence. In 2013, Lampert became chairman and chief executive, the company having gone through four other chief executives since the merger.

The Outcomes Instead of improving performance, the new model encouraged the divisions to turn against each other. Lampert evaluated the divisions, and calculated executives’ bonuses, using a measure called “business operating profit” (BOP). The result was that individual business units focused exclusively on their own profitability, rather than on the welfare of the company. For example, the clothing division cut labor to save money, knowing that floor salesmen in other units would have to pick up the slack. Nobody wanted to sacrifice business operating profits to increase shopping traffic. The business was ravaged by infighting as the divisions—behaving in the words of one executive like “warring tribes”—battled for resources. Executives brought laptops with screen protectors to meetings so that their colleagues couldn’t see what they were doing. There was no collaboration, no cooperation. The Sears and Kmart brands suffered. Employees gave the new organization model a new name: SORE.

The reorganization also meant that Sears had to hire and promote dozens of expensive chief financial officers and chief marketing officers. Many unit heads underpaid middle managers to compensate. As each division had its own board of directors, some presidents sat on five or six boards, which each met monthly. Top executives were constantly in meetings.

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