Last updated: January 8, 2013 9:23 pm

The long, long wait for a Sears turnround

When Eddie Lampert unveiled his deal to create Sears Holdings in late 2004, the hedge fund manager said it would be “an enormous undertaking”. The US retailer’s sorry performance in the eight years since has proved him painfully right.

It is US retail’s most long-awaited turnround story. Now Mr Lampert is taking more hands-on responsibility for it after saying late on Monday that he would take over as chief executive, adding the title to his roles as chairman and controlling shareholder.

But a 6 per cent drop in Sears shares on Tuesday showed that many investors share the concern of retail experts, who say Mr Lampert himself bears much responsibility for the difficulties because he has failed to define a clear strategy.

“The big problem is they continue to focus on the minutiae of tactics,” said Doug Stephens, president of Retail Prophet consulting and author of the forthcoming book The Retail Revival.

“You hear them talking about renovating stores, leasing out space to vendors, and bringing in new products. But they are not addressing the elephant in room. There is no core essence of brand any more. Nobody understands what Sears stands for.”

When Mr Lampert created the group through the $11bn merger of Sears and Kmart, some analysts saw it as a real estate play, but he has denied he is interested only in its land and buildings.

Sears – which has 260,000 staff and is expected to post sales of $39bn for 2012 – says its strategy is to be an “integrated retailer” that melds stores and ecommerce. These days, however, that goal is more hackneyed than it is a badge of distinction.

Analysts also complain that its stores are dingy, but Sears points to the 44m customers who it says use its home service business to repair and maintain their appliances.

Mr Lampert, whose ESL Investments owns 56 per cent of the group, is replacing Lou D’Ambrosio, who is leaving due to “family health matters”. In his two years at the helm, Sears shares have tumbled more than 40 per cent.

Mr D’Ambrosio said 2012 had been a “turnround year”, when Sears closed more than 100 of its now 2,600 stores and cut operating costs. Even so, its like-for-like sales continued to decline, as they have for six straight years.

The figures Sears cited as evidence of improvement were telling: a $1.8bn increase in liquidity, a $400m reduction in net debt, and four consecutive quarters of rising earnings before interest, tax, depreciation, amortisation and pension charges.

While they have quietened the questions circulating a year ago over Sears’ ability to survive, they also underscore a sense that Mr Lampert has always been more interested in – and more skilled at – financial engineering than retailing.

Evan Mann, senior analyst at Gimme Credit, said: “Eddie Lampert is a smart and insightful guy, but he has no experience as a merchandiser. That’s been one of the big issues.”

If Sears had announced it was now searching for a “world-class merchant” to be chief executive, its share price could have gone up on Tuesday, Mr Mann says.

Steven Dennis, who was head of strategy at Sears before Mr Lampert’s arrival and is now president of SageBerry Consulting, said the decisions the hedge fund manager had made were baffling.

“I think Lampert needs to decide if they really want to be a retailer and make the investments necessary to give that a reasonable shot, or if it’s a liquidation strategy,” he said.

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