By  on June 22, 2005

NEW YORK — Edward Lampert has barely begun executing his plans for Sears Holdings Corp. — the result of the $11 billion merger he orchestrated between Sears, Roebuck & Co. and Kmart Holding Corp. — and already some naysayers have risen to poke holes in his strategies.

To be sure, the chairman of Sears Holdings is known more for his artful deal-making than retail experience, which caused many experts to wonder whether the merger, which closed in March, was above all a real estate deal. And some analysts see signs that Lampert may not be focused on building a powerhouse retail chain.

"The minimum information coming out of the company indicates that management is more interested in generating cash flow than in redefining the retail landscape and emerging as a competitive threat to existing retailers such as Wal-Mart, Target and J.C. Penney," said Christine Augustine, a retail analyst at Bear Stearns, who published a research note on the firm on Thursday. "Sears Holdings has yet to announce a retail turnaround expert to head its management team and we haven't seen evidence of investment in systems and a distribution network to increase productivity ... to become competitive."

Sears Holdings chief executive officer, Alan Lacy, is not a turnaround expert nor does the company's board, which consists primarily of former Kmart members, have strong retail operational skills. Augustine also sees the company losing talent to other retailers, which are taking advantage of its condition.

Augustine also cited these problems:

  • The operating performance of Sears Holdings trails its rivals.
  • Chronic out-of-stocks at Kmart and a lack of an investment in distribution and network and supply-chain technology.
  • Inadequate inventory management, merchandise planning and allocation systems at Sears.
Nonetheless, Augustine initiated coverage with an outperform rating and a 2005 year-end target price of $169. On Tuesday, Sears Holdings closed at $153.75, down $1.68 in Nasdaq trading. "Our thesis is based on valuing Sears Holdings as a portfolio of assets and a cash generator instead of a fundamental retailer," she wrote.

A Sears spokeswoman said the company doesn't comment on analyst reports. But at a news conference in March, Lampert said the goal is to bring the best of Kmart to Sears and vice versa. There are also plans to convert some existing Kmart stores to Sears Grand stores.

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