Thursday, January 10, 2019

Lampert's Sears Strategy

Can he pull a rabbit out of a hat?

In some of my very earliest blog postings from almost a decade ago, I opined that Sears was headed for bankruptcy.

But Sears, like General Motors before it, took a long time to crash. And even now, Eddie Lampert, the CEO and majority shareholder - and apparently one of the majority debt holders of Sears - is filing last-minute papers to try to resuscitate at least a scaled-down version of the storied catalog merchant.

By all accounts, Mr. Lampert is a smart guy, being a successful hedge fund manager and all.  But then again, the track record of these hedge fund managers seems to follow the same sort of pattern. These boy wonders make an awful lot of money for their clients in bull markets, where almost every stock purchase goes up in value.  Then, the market crashes, or they make a series of bad choices, and everyone wonders how they lost their golden touch.  Never confuse being lucky with being brilliant.

Lampert has made a lot of very odd moves in his management of Sears, many of which may be subject to litigation.  He has spun off and sold divisions and brand names and also sold off much of the real estate to a company that he controls.  This could very well be considered insider dealing.

But even then, one wonders what his secret plan is to make money from all of this.  After all, the real estate that any Sears store sits on really isn't worth a lot of money.  Leases for mall space are probably so worthless that you could give them away and not have any takers.

Who, in their right mind, would want to buy an abandoned Sears building?  It's not like people are chomping at the bit to move into these spaces.

It then struck me there are probably a number of rational scenarios where Lampert will make out with a ton of money in this deal.  Apparently he must have a secret plan to capitalize on all of this real estate and the demise of Sears.  He'll end up making billions of dollars and leaving everyone else destitute.

Such scenarios might include:

1.  It turns out that many of these Sears stores are sitting on buried piles of Nazi gold  that was secreted there after World War II.  Apparently Lampert is the only one who actually knows about this and he's been very carefully unwinding Sears so that he can get access to this real estate and dig up the Nazi hoard. 
2.  The US government concealed alien technology beneath the foundations of Sears buildings across the country back in the 1950s, when aliens crash-landed on the Earth.  In order to preserve secrecy and suppress this technology from the general public, the Air Force buried all of the relics from Area 51 underneath Sears stores across the nation. Lampert will unearth this technology and slowly offer it to the public, becoming the next Bill Gates or Mark Zuckerberg. 
3.  Lampert is actually a time traveler from the future.  Being from the future he knows that in the year 2020, a wave of nostalgia will wash across America as we hark back to simpler times.  People will start flocking back to America's malls to try to relive the 1970s experience.  The popularity of Sears fashions will skyrocket.  Sears "Tuffskin" jeans will outsell Levis 2 to 1, and will appear on runways in Milan and Paris.  Kenmore appliances will supplant the Wolfe ranges and Sub-Zero refrigerators shown in Architectural Digest.  Lampert will be sitting on a pile of money when this happens. 
4.  With the coming recession, tens of millions of Americans will be forced out of their jobs and many will lose their homes. The government will have to scramble to find space to house all these homeless people and they will lease empty Sears buildings from Eddie Lampert at a premium price. 
5.  Alternatively to #4, President Trump will stage a military coup and declared himself dictator for life.  Unlike the crazy internet rumors about Obama, instead of using Walmart stores as detention centers, abandoned Sears stores will be leased by the government to hold dissidents and Democrats.  Again, Lampert will be sitting in the catbird seat.
These all seem, to me, to be rational scenarios where Lampert could end up making a lot of money from his Sears Holdings.  Thus, if I was a banker or venture capitalist, I would be more than happy to lend him billions of dollars to rescue Sears.

Of course, most of these scenarios could occur without even closing the stores.   Let's face it - no one goes there anymore, so no one would notice if a Sears was turned into a detention camp for Hillary supporters or a homeless shelter.   Many of the stores already smell like the latter, and/or look like aunt Hattie's hoarding house.  Lampert could do whatever he wants to, and no one would be the wiser.  Indoor skating rinks?  Just a thought.

Of course, the Federal Government is already using abandoned Wal-Marts as detention centers for illegal aliens, so maybe Lampert has this as his back-up plan.

What would be an irrational scenario?  Well, the idea that you could just run the Sears chain, people would go there and spend money, and you'd make a profit selling commodity items.   That's just crazy, particularly when you haven't invested in the stores in nearly a decade.