Before there was Amazon.com, Inc. (NASDAQ:AMZN), there was Sears Holdings Corp (NASDAQ:SHLD) and the Sears catalog. Before there was a Wal-Mart Stores Inc (NYSE:WMT), there were SHLD department stores in working-class neighborhoods around the U.S.
Discover Financial Services (NYSE:DFS), Allstate Corp (NYSE:ALL) and such brands as Kenmore, Craftsman and DieHard, all came out of Sears. The first attempt to build a service like the modern internet, Prodigy, began with SHLD. At one time, the company owned Dean Witter and Coldwell Banker.
Until Walmart overtook it in 1990, Sears was America’s biggest retailer. The company owned both National Tire & Battery and Lands’ End. In the 1970s the Sears Tower in Chicago was the tallest building in the world.
Many investors, including InvestorPlace readers, see the fall of SHLD stock as a peculiar American tragedy. The company became too vast and its management became too distant. The lesson is that size will not save you, that businesses must remain lean, hungry and focused to stay on top, and that anyone can fall.
Sears Stock and the Tragedy of Eddie Lampert
The fall of Sears stock was already foreseen when hedge fund manager Eddie Lampert merged it with Kmart to create the present SHLD in 2004. He is also, now, part of the tragedy.
Lampert is the harder side of Sears. A follower of Ayn Rand ( according to Wikipedia), he was said to be worth $3.8 billion as recently as 2006. By last August, his net worth was estimated at $2.2 billion.
Lampert’s fortune was caught trying to save the company. Warren Buffett saw this coming as far back as 2005. SHLD’s margins were too large, its distribution system too cumbersome and its stores already felt backward, he said.
He was right.
What Can Be Salvaged From SHLD Stock?
SHLD is now a Grey Gardens of retailing. Anyone can see it in a walkthrough. Empty shelves, listless employees — predicting the date of its demise has become a cottage industry.
Yet people still go to Sears. People still buy things at its stores. SHLD racked up $25 billion in sales last year. It lists assets worth $11.3 billion. Investment cash flow came in at $2.5 billion last year alone. The cadaver continues to stumble around, reminding Americans of what their country used to be.
If there is value remaining in Sears stock, enough to justify a $89 million market cap, which is down from over $20 billion in 2007 at the height of the last real estate boom, it’s in the real estate. Much of that real estate was spun-out in 2014 to a real estate investment trust called Seritage Growth Properties (NYSE:SRG), which is now also losing money with a market cap of $1.6 billion. SHLD still owns 400 stores, though. It can do this REIT thing again.
Sears sold Craftsman to Stanley Black & Decker, Inc. (NYSE:SWK) for $525 million in January while it closed 150 stores, mostly Kmart units. Lampert offered another $500 million in loans. It has licensed the Kenmore name for use on gas grills, and is reportedly looking to sell its DieHard battery line, too.
SHLD still runs 1,670 stores, including Kmart units, and celebrities ranging from Jaclyn Smith and Ty Pennington to Adam Levine and Nicki Minaj still have brand names associated with it. There are still 620 Sears Auto Centers and it recently opened a new auto center, far from any SHLD department store, under the DieHard name outside San Antonio.
Sears stock may be the walking dead, but there’s still a little meat on the bones — maybe more than $842 million of value to be had. Watching SHLD stock fade is like watching a great beast be devoured by wolves, but if you’re a wolf, it’s still a hearty meal. Like the aftermath of a car crash, it’s horrible but we can’t look away.
Dana Blankenhorn is a financial and technology journalist. He is the author of the sci-fi novella Into the Cloud, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in AMZN.
