Lampert shakes up top tier at Sears

Chairman is taking a more direct role at struggling company

Lacy out, Lewis in as CEO

September 09, 2005|By Becky Yerak | Becky Yerak,CHICAGO TRIBUNE

CHICAGO - Billionaire hedge fund manager Edward Lampert thinks he can succeed where a host of others have failed: selling more merchandise at Sears.

Lampert, who orchestrated the takeover of Sears, Roebuck and Co. in March after bringing Kmart Holding Corp. out of bankruptcy, said yesterday that he will oversee marketing, merchandising, design and online businesses at Sears Holdings and its Lands' End clothing unit.

His management shake-up at the nation's third-largest retailer also included the demotion of Sears Roebuck Chief Executive Officer Alan Lacy, whose four-year tenure as Sears' leader was marked by falling sales and capped by the takeover of the venerable retailer by Kmart.

Replacing Lacy as CEO is Aylwin Lewis, president of the holding company and CEO of the retail division overseeing both Sears Roebuck and Kmart stores.

The management shake-up was announced as Sears Holdings reported a 2 percent dip in second-quarter sales. The company said sales in stores open at least a year declined 0.3 percent at Kmart stores and 7.4 percent at Sears stores.

The news did not please Wall Street; Sears' shares skidded $7.04, or 5.2 percent, to $127.81 in Nasdaq trading.

Sears' stock reached $163 in July as investors bet that Lampert, who earned an estimated $1.02 billion last year managing his hedge fund, would sell real estate and brands. Only the company's West Coast hardware chain has been put on the block.

Further changes appear to be in store as well. Lampert hinted yesterday that Sears Holdings, which already cut about 1,400 jobs, will further reduce costs.

"Many of our retail competitors have much lower cost structures that allow them to run different business models that are valued by both employees and customers alike," Lampert said in a letter to shareholders.

Gary Balter, a Credit Suisse First Boston analyst who in June predicted that Sears stock could reach $180, said the company's results came in as expected.

"The lack of asset sales will keep some wondering whether these assets have the values we believe," he wrote in a note to clients. "Even the greater involvement of Eddie Lampert can raise some concerns that the story is not playing out for him, although he has been micromanaging this company from Day 1."

Bulls' food for thought includes improving profits at Sears and better sales results at Kmart, while bears will note Kmart's earnings drop and Sears' 7.4 plunge in sales at stores open at least a year.

"While maybe not as exciting as some had hoped, the upside is still significantly greater than the downside risk and we stay in the bull camp," Balter said.

But to another retail industry observer, a management shuffle that elevates executives lacking strong retail experience merely reinforces the perception that the merger of Kmart and Sears is more of a financial play than a serious attempt at competing in today's retail arena.

"It doesn't surprise me that Alan Lacy was squeezed down due to the questionable performance of Sears over the years," said Robin Lewis, publisher of Robin Reports and a former executive editor of Women's Wear Daily.

"It also doesn't surprise me that Eddie Lampert is taking a more direct role in merchandising and marketing. But I think the more he micromanages that business, given the fact that he doesn't have a retail cell in his DNA, the faster the business is going to go down," Lewis said. "He should give more responsibility to people who know what they're doing in that area. What this guy's doing is maniacal."

Also as part of the management changes at Sears Holdings, Chief Financial Officer William Crowley will assume the new role of chief administrative officer. He had been Kmart's senior vice president of finance.

That means that, after Oct. 1, the senior leadership of Sears Holdings will consist only of Kmart officials.

Lacy will become vice chairman of Sears Holdings effective Sept. 30 and will remain on the board. Yet his influence at Sears Holdings had been waning.

Lacy got the title of Sears Holdings CEO, but direct responsibility for Sears and Kmart stores fell to Lewis, who had left the fast-food industry in fall 2004 to accept Lampert's offer to take the helm of Kmart.

"We believe Lewis is the better person to lead a customer-centric business," said Richard Hastings, of Bernard Sands LLC.

Lacy had been unable to fix intractable problems since being named Sears Roebuck's CEO in October 2000. Sales had fallen for four straight years despite numerous initiatives, including spending as much as $900 million a year to spruce up the stores.

Lacy will take a pay cut in a new contract that ends March 23, 2010. He'll receive an annual base salary of at least $1 million and a target 2005 bonus of $2.25 million. In his previous role, his base salary was at least $1.5 million.

Sears also said yesterday that, as of July 30, it has eliminated about 1,400 jobs between Sears' and Kmart's combined home office functions.

The Chicago Tribune is a Tribune Publishing newspaper. The New York Times contributed to this article.

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