Edward Lampert sears holdings bruce berkowitz fairholme capital

HOFFMAN ESTATES, Ill. — Reports of the death of Sears Holdings and its subsidiaries Sears and Kmart have been greatly exaggerated, said chairman and chief executive officer Edward Lampert at the company’s annual meeting Wednesday at Sears headquarters here.

While recent headlines have foretold the company’s demise, Lampert displayed headlines going back to the late Aughts making similar predictions. “You look at these headlines, and you might think they were from a month ago,” he said. “Here we are in 2017. But it has a very big impact on our associate base, on our executives, on people we are trying to recruit, on our vendors. Our vendors use these kinds of opportunities to negotiate for better terms. Our competitors try to use this to gain advantage.”

Sears Holdings lost $2.2 billion in 2016 and more than $5 billion over the last three years, while the number of Sears and Kmart stores dropped from more than 3,800 to 1,430 over the past decade.

But Lampert sounded decidedly upbeat, acknowledging that while the bottom-line financial results might lead people to believe otherwise, the strategy Sears Holdings has put in place — including initiatives to grow online sales, reinvent stores, continue to build out its Shop Your Way membership program, sell some real estate assets and lease out parts of other stores — will work over the long run.

“We know our financial results don’t provide a demonstration that what we’re doing is working,” he said. “There are a lot of elements that are working, and a lot of elements that need improving. I feel very strongly that what we’re doing deserves a chance.”

But headlines can sandbag the company. For example, spinning a lapsed vendor contract as “Vendor Cuts Off Sears” when in fact it might have been the other way around — or just changing economics, Lampert said. “We don’t call up the newspapers and say, ‘We just cut off a vendor because they’re jerks,’ but they will do that. Then it becomes, ‘Vendor Cuts Off Sears.’ If you’re a vendor and you read that, you say, ‘Let’s call them up and get better terms.’”

Responding to a shareholder who “respectfully” suggested that Lampert sounded both paranoid about dealings with vendors and in denial about Sears’ future, the ceo responded, “There’s a lot of things happening behind the scenes,” and that if people read the back-channel communications with some vendors, “they’d be shocked at the behavior of so many parties trying to take advantage of our situation. That’s not paranoia, that’s just reality. If you’re playing basketball, and the refs are not calling it when you’re elbowed in the chest, you have to deal with that.”

As for the denial question, “I understand where it comes from,” Lampert acknowledged, but added: “A lot of people who have been in denial, in some people’s view, eventually broke through. Amazon — people said it’s growing, they like Amazon — but they never make money. They missed [the company’s potential]. It was in plain sight.”

He then predicted: “As soon as we make money…people are going to look and say, ‘How did I miss this?’ But we need to prove it’s working. I accept that.…Our financial results give people a lot of ammunition to shoot at us.”

To right the ship, Sears will continue to evaluate profitability and shrink or close stores as well as recognize the fact that consumers increasingly are using physical stores as “showrooms” to try out merchandise before buying it online, Lampert said. “Integrated retail is very important to us,” he said. “We’re still one of the largest footprints both in terms of the number of stores and square footage. I can’t predict how that’s going to evolve in the next five to 10 years.”

Sears does not believe the Shop Your Way program needs to add members so much as deepen its relationship with existing members, Lampert said. To do so, the company in November unveiled a partnership with Citi to roll out a “Shop Your Way” Sears Master Card, which provides 5 percent back on Shop Your Way points at gas stations, 3 percent in grocery stores and restaurants, 2 percent at Sears and Kmart, and 1 percent elsewhere. The 5 percent and 3 percent discounts drop to 1 percent after $10,000 in purchases.

“The more points people accumulate, we believe, the more they’ll shop with us,” Lampert said. “You’ve got to give people a reason, more than just what you sell, to shop with you. Amazon Prime is working for a reason.”

Sears also has partnered with Uber to offer $2 in points for Shop Your Way members every time they use one of the company’s drivers. “It’s a no-brainer,” he said. “We need to be better at getting people to understand how easy it is to create value by working in our ecosystem.”

And the company partnered with Activehours, which provides Shop Your Way members the ability to draw on their paychecks before they have received them, provided the app can validate that the member has worked for a given number of days. Someone who makes $2,000 every two weeks could access $600 if their company agrees they have worked three days, for example.

“It’s not traditional retail,” Lampert said. “We’re focusing on the customer and our members, and how we bring value to them. It’s not just selling products.”

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