Just when I think Bill Ackman’s decision to hire former Apple (NASDAQ:AAPL) executive Ron Johnson as the CEO of JCPenney (NYSE:JCP) was the worst idea ever in the history of retailing, I stand corrected.
Shareholders have a right to be worried.
Lampert will be replacing outgoing CEO Lou D’Ambrosio, who only held that title for about two years. D’Ambrosio says he’s leaving for family reasons, and therefore won’t be finishing up the turnaround he was charged with. Those familiar with the company, however, know that the turnaround never became evident anywhere it actually counted … like the accounting statement.
At this point, it’s all academic. Come February, Lampert is the CEO, and shareholders — besides Lampert and ESL Investments, which owns about half of Sears Holdings — will just have to deal with it. Still, they have a right to ask: Will Lampert’s new role will make things better … or worse?
I’ve said it before, and I’ll say it again: From the outside looking in, retail looks easy. From the inside, however, retail is a @#$%.
I know this because I worked in retail management for the first several adult years of my life. It’s not just a matter of buying a nice variety of merchandise, marking it up and then sitting back while collecting money. It’s unbelievably competitive, and shoppers are stunningly fickle.
And yes, retailing is one arena where experience does matter. The fact Lampert has none — aside from the liquidation of retail real estate — should scare the daylights out of SHLD shareholders.
Just for some perspective on how the Sears saga could still go from bad to worse after five years of sinking revenue, investors have to look no further than at Sears’ closest competitor: JCPenney.
Another activist investor, Bill Ackman, directed his hedge fund to take on nearly a 20% stake in JCPenney, giving him the firepower to hand-pick the CEO of the then-struggling retailer as part of a major turnaround. Inexplicably, he chose Ron Johnson, who at the time was directing Apple’s retail operations (aka Apple Stores).
Technically speaking, Apple Stores are retailers. The similarities between Apple and JCPenney, though, are a lot like the similarities between a Pinto and a Ferrari. Even with Johnson’s merchandising experience at Target (NYSE:TGT), it’s pretty clear to everyone (except Johnson and Ackman) that there’s a problem.
Indeed, the problem might just be a deep-seated disconnect with reality.
At the end of last quarter, Johnson remarked that the store-within-a-store “shop” concept was working, noting that comparable-sales levels for the converted departments were 20% better than the comparable-sales figures for the rest of the store. What he didn’t mention is that the comparables for the rest of the store were a disaster; Q3’s total revenue declined 26% on a year-over-year basis.
Those specialty shops might well be working, but if you have to cannibalize several other areas of the store just to make one work, he might need to rethink his definition of the word “working.”
None of that’s to say Lampert will fall into the same trap with Sears that Johnson and Ackman fell into with JCPenney. It is to say, however, that naivety can be dangerous, especially when it concerns something that looks easy from the outside — like retailing.
Bluntly (sorry, but I gotta be the one to say it) … I can’t help but wonder if the Sears saga has now become something of a personal vendetta for Lampert, where his ego is now driving him to make bad decisions. It certainly has to be maddening for a relatively smart guy like Eddie Lampert to not be able to make Sears/Kmart work after seven long years, even if the ultimate goal was/is to sell off pieces of the company when it’s advantageous to do so.
As I noted above, though — and as I know from personal experience — retailing is anything but easy. Indeed, it’s a surprisingly complex business, and it’s amazing how quickly a retail operation can implode if you think you know what you’re doing but really don’t.
Lou D’Ambrosio might not have been the right guy for the job, but putting Lampert in charge is a step in the wrong direction, unless the only goal is selling off more real estate assets. That’s not going to grow the business, though, and the company’s real estate assets still don’t exceed the retailer’s value as an operating enterprise.
Investors should be worried.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.