Page 1 of 2 Sears majesty to hedge-fund dust
By Julian Delasantellis
Sometimes attributed to British psychologist Oliver James, a variety of
psychological and physical maladies found only in prosperous societies has been
given a quasi-clinical appellation, "affluenza".
One of the manifestations of affluenza is called "restless leg syndrome", a
painful nighttime disorder of the lower extremities, generally suffered by
those who do not do much physical activity or exertion during the day - such as
the typical office worker who drives to work, parks in his assigned parking
space near the building door, does eight hours of sedentary physical inactivity
behind a desk, then goes home the same way.
The American pharmacological industry, always quick to develop and market
remedies for previously unknown health disorders to people who have generous
prescription drug coverage, has come up with a medication for restless leg
syndrome. This drug is advertised aggressively on TV shows and networks
programmed for women, since the industry knows that the fairer sex is more
likely than those strong and silent "suck up your gut" American men, with any
medical condition seemingly less serious than multiple bullet wounds, to seek
medical help from doctors.
As this is a medication only available by a doctor's prescription in the US,
government regulations mandate that any advertisements for it also notify the
prospective user of any possible side effects. For this medication, these are
"an unusual urge to gamble or increased sexual urges and/or behaviors".
A medication that has increased urges to gamble as a side effect? So that's who
has been buying the stock of Sears these past few years.
As the United States spread west to the Pacific coast on its manifest destiny
after the Civil War, it may have been the Colt six-shooter pistol and
Winchester rifle that conquered the frontier, but it was the general store that
civilized it. It was there where one could purchase some of the artifacts of
the civilized East Coast, such as perhaps fancy linens and housewares, that Mrs
Frontiersman could use to soften the edges of their rugged pioneer lifestyle,
that would make their rough and ready log cabins their homes.
Even the smallest of Western towns eventually got their own general store.
However, with so many small Western towns popping into existence in the late
19th century, prospective general store entrepreneurs knew they didn't have to
open a store in a town that already had one, where they would be forced to
compete with already established businesses. All they had to do is travel down
the trail or rail line a ways to find a new town without an already existent
general store. Thus, after a while, until the small frontier outposts grew into
larger towns, the general stores were able to act as local monopolies, charging
monopoly prices, surely, a deformation of the intended proper workings of free
markets.
In 1888, Richard W Sears, who up to that time had been in the business of using
railway station agents as wholesale distributors for his pocket watches and
timepieces, came upon the idea of selling his wares directly to the public
through printed mailers; this concept proved so successful that he followed it
up with a catalog of general merchandise. By 1894, this Sears Catalog had
grown to 322 pages. Sears used the new technology of the railroads to
circumvent the established distribution networks of the general stores, in much
the same way that, 100 years later, e-retailers such as Amazon.com and others
used the Internet to bypass the dominant retail distribution networks of the
past few years.
Sears, along with his partner Alvah Roebuck, soon developed a reputation for
quality merchandise at reasonable prices, so, as the frontier closed early in
the 20th century and previously small isolated outposts grew into real
population centers, it was natural for Sears, Roebuck to shift its focus from
mail order to actual retail stores. In 1925, Sears opened its first retail
outlet, on the first floor of its Chicago mail order distribution center. The
concept was an instant success; by the end of the Roaring Twenties the company
was opening a new retail outlet in an American city every two days, a pace that
barely slowed with the onset of the Great Depression in the 1930s.
It would be after World War II that the Golden Age of Sears would be seen.
Looking ahead and projecting the tremendous outpouring of American population
from the cities to the still nascent suburbs, the company started an ambitious
expansion plan that placed hundreds of new Sears stores right alongside the new
Interstate highways that would become the transit conduit of urban America to
its new frontiers out on the golden suburban periphery. It also branched out
beyond America's borders, bringing its vision of American prosperity and the
good life to Canada, Mexico, Central and South America, and even opened a few
stores in Western Europe.
These were the halcyon days of homogenized American suburban middle-class
conformity, when most of the country lived in the same type of Levittown
housing development, watched the same TV programs, ate the same TV dinners,
drove the same cars, wore the same drip dry grey flannel clothes, and did much
of its shopping at Sears. For decades, Sears was the number one retailer in the
United States, and in 1974, when the Sears Tower in Chicago was completed and
began its 22-year reign as the world's tallest building (a status that in 1996
fell to Kuala Lumpur's Petronas Towers), it reflected the power of the
company's hubris as bestriding the immense American retail market like a
colossus.
But, as the children of the baby boom grew and moved out of their, in Malvina
Reynolds' phrase, "ticky tacky little boxes" (all with Sears' Kenmore line of
appliances) into homes with families of their own, Sears seemed to lose its
step. The single great homogenized middle class of the first decades of the
postwar era was atomizing into smaller subsets that demanded more personalized
consumer choices.
The "me" generation of the 1970s, a population group that once expressed its
individuality through Eastern religions and recreational drug use, had
conformed its conduct to traditional American social norms to such an extent
that it would now do so mainly through its consumer products choices.
Instead of a nation that clothed itself in the manner that Sears' buyers
thought appropriate, the middle-class component that shopped according to price
put their money first at Kmart, later at Wal-Mart; those that were willing to
pay up for more trendy fashions did so at more upscale clothiers Macy's and
Nordstrom's. Similar market segmentations occurred with the company's
once-lucrative appliance businesses, with price-conscious shoppers flocking to
the new "category killers" of Home Depot and Best Buy, while those willing to
pay up for a more upscale cachet than what Sears was offering with its Kenmore
line found their own outlets.
By 1991 Wal-Mart replaced Sears as America's leading retailer and has never
looked back since. Sears, its stores consistently seen as stodgy and old
fashioned, its "all for one and one for all" marketing philosophy seen as out
of step with the times, lacking in that now all-important amorphous marketing
quality known as "pop", settled into a graceful, steady decline.
That was the condition of the company in 2004, when it had the misfortune to
catch the attention of modern turbo-finance capitalism.
Some people, when they see some poor unfortunate lying on the ground, help the
person to their feet. Not modern turbo-finance; it saw Sears lying in the
gutter, decided like a vampire that there was no reason why the very lifeblood
should not be drained from it.
That year, 2004, was when one Edward S "Eddie" Lampert, a 42-year-old former
Goldman Sachs bond trader, showed stodgy old Sears the way the world now really
works. Through his ESL hedge fund, Lampert had established a 53% majority
controlling interest in Kmart, which, in the futile attempt of trying to
compete with the larger and more efficient Wal-Mart to offer the lowest prices
in town, had bankrupted itself. Lampert closed stores and slashed jobs,
restoring the company to operating profitability.
By 2004, Kmart's regular stream of income, generated by people making their
regular purchases of cat food and deodorant, had accumulated itself into a $3
billion war chest. Lampert had no intention of plowing this sum back into the
company, to modernize its dowdy stores, or, more importantly, its creaky supply
and distribution system, in order for it to compete more effectively with
Wal-Mart. He had far bigger and grander ideas. He was going to use Kmart's cash
stream to finance his rise to become the capitalist world's next super
billionaire, a younger, and richer version of Warren Buffett.
By early 2005, Lampert was ready for his next big step towards the stars. An
$11 billion buyout deal for Sears by Lampert's Kmart was how the media
interpreted a complex deal that was announced on November 17 of the previous
year. What was really going on here was that Lampert's ESL hedge fund was
folding both Sears and Kmart into a single corporate entity, to be called Sears
Holdings.
Overnight, Lampert became one of the titans of American retailing, ironic, for
then and since, he has demonstrated little or no interest in the successful
retail operations of his enterprise.
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