Who Ever Thought Liquidation Could Be So Exhausting?
Sears is officially dead — kind of, but not really. This version of Sears is dead much like our previous iteration of General Motors is dead, only messier. GM is actually a pretty good jumping off point for an explanation into the insanity that is the Sears bankruptcy of 2018/19. I’m honestly getting pretty tired of the whole will they or won’t they saga that’s been playing out since October 2017, but I’ve also got a blog to write and this is nothing if not fascinating.
More interesting than the theories of armchair analysts about what brought down Sears and the plethora of alternate histories of what they could have been — is it’s eventual similarity to General Motors — or Motors Liquidation Company, because that’s it’s actual name.
First off, not adapting to the internet as a sales channel and poor management killed Sears, lets just call it what it is. Eddie Lampert decided it was best to merge Sears and Kmart and then immediately stop investing in their stores and infrastructure. This reduced costs in the short term and made their stores unenjoyable to be inside of in the long term.
More importantly is what happened to GM during the great recession and how it breaks down the two types of CEOs there are in the world. On the one hand you have leaders that know what they’re doing to some extent. On the other you have spreadsheet CEO’s, these are leaders like Eddie Lampert and Rick Wagoner. These leaders are characterized by their ability to view a company through the lens of an expense and revenue column. Shortly after taking power they (almost blindly) reduce costs in the expenses column by trimming down, employee costs, hiring/recruiting costs, maintenance, R&D, and things of that nature.
Large corporations are large moving and that goes for both good and bad decision making. When the previously mentioned expenses are cut out or reduced the effects aren’t felt right away. This leads to a stellar quarter or two where net revenue grows. Revenue grows because in the case of both GM/MLC and Sears the products they sell are paid for in advance. GM produces cars months in advance and pays for the upfront cost of tooling long before cars are seen in the dealership. Similarly for Sears they (when they aren’t busy being bankrupt) are afforded months and sometimes a full year to pay back their vendors. This means you can basically torch the company while making more money before anyone realizes you set the house on fire.
This management style, while silly, can be successful — but it’s hungry. If you make money by stripping costs rather than pushing sales growth you eventually run into a problem. What are you going to cut after everyone working for you is already miserable? Clearly you’ll need to find more costs to strip, so you buy or merge with another company. You take their expenses and you slash them to ribbons. The revenue from the new company pushes your overall revenue higher and because you just slashed their costs to bits you have less to drag you down.
GM and Sears are the perfect case studies for this style of management. As of Wednesday, January 9th we don’t know if Lampert’s rescue bid for Sears will be accepted. What is clear is that there is no plan, direction, or explanation coming from Lampert as to how he plans on rebuilding the brand if his bid succeeds. More importantly, Sears will be right back in bankruptcy court in six months to a year if Lamperts bid is accepted.
While Sears may avoid liquidation this time they will most likely be acquired or liquidated in the not so distant future. Which brings us back to Motors Liquidation Company. When GM was saved in 2009 it’s assets were auctioned off, the only bidder was a company that would later be renamed General Motors Company while the original business was renamed Motors Liquidation Company. MLC was a trust that held the debt and liabilities of the company that went bankrupt while the newly created GM (also owned by new people) walked away as if nothing had happened.
In the event his bid fails Lampert has a plan B. He’ll bid to purchase the IP, name, partial inventory, and 400 or so of the stores owned by the liquidating company. Sears will be liquidated and in its place will be Sears Company.
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