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  • Discussion Question

    Posted by David Foster on April 3rd, 2005 (All posts by )

    The discussion centering around my previous question about “What would you do if you were running General Motors?” was fun and generated a lot of worthwhile thoughts. So let’s try another one.

    Eddie Lampert calls you. He’s like you to take over as CEO of Sears Holdings, the company that resulted from the merger of K-Mart and Sears.

    Your compensation plan, should you accept the job, will be highly performance-based. Your base salary will be fairly minimal. But the job provides for significant stock or stock option grants, which are conditional on meeting some fairly stringent financial targets. The package doesn’t really pay off significantly unless you can both (a)grow revenue and profitability significantly, and (b)cause the stock price to increase significantly above its current level, and (c)sustain this performance for 5 years or more.

    1)Do you take the job?
    2)If so, what actions will you take?

    (Disclosure: I’m a Sears Holdings shareholder)

     

    9 Responses to “Discussion Question”

    1. Ralf Goergens Says:

      “What would you do if you were running General Motors?”

      I would stop running the company and start just plain running. :)

      Just kidding. Btw, several European car makers have a hard time, too. More on that in my own post.

    2. Shannon Love Says:

      I know squat about large scale retail but from the consumer side I think an important innovation would be to provide realtime inventory of local stores on the web. I don’t think people enjoy the actual process of shopping, i.e. going from store to store to compare prices, as much as they once did. Knowing whether a store could provide a particular item or not and at what price would make me more likely to shop there. It would definitely make it the first place I would start my shopping process.

      Some smaller speciality stores already use this idea and it is addictive. For example I can check if my local Borders or Barnes&Noble has a copy of a specific book. That saves me a lot of time. A similar system for large retail stores might let Sears/Kmart distinguish themselves from the retail pack.

    3. incognito Says:

      they really dropped the ball in letting category killers like pep boys and home depot took over what was once their domain. same for major appliances. hence, the softer side of sears… worked for a while, but they’re stuck in that rut of middle ground. If people want cheap, they go to walmart or costco. if they want cache, they go to nordstroms/macys or neiman marcus. same goes for kmart.

      Here’s a relatively quick exit strategy. Take an inventory of all real estate holdings and liquidate/return money to shareholders.

    4. Jonathan Says:

      I’ve had good recent experiences buying things at Sears. I can check selection and local inventory on their website. They are competitive on price. I can call an 800 number to get tech questions answered. Their delivery system is integrated well with their ordering system. The local Sears store is spacious and pleasant to visit. Sears isn’t perfect, but to my taste it’s usually much more pleasant to buy things from Sears than from Walmart, Kmart, BestBuy or Home Depot.

    5. incognito Says:

      Wow, second thought… I took a look at Sears’ chart, talk about on fire. I’d keep the current CEO, whatever he’s doing, he’s obviously doing it right.

    6. GUYK Says:

      Sears has had in the past a reputation for quality merchandise at a reasonable price. Ask any shade tree mechanic about Craftsman tools! Conversely, KMART is known as a ‘box store’ with cheap prices but also cheap merchandise-mostly imports. Combining the two stores appears to be amixing of the unmixable. But, there are some things that could be done to make both stores profitable.

      First things first. What is the most important part of a retail business. The CUSTOMER of course. Although no business wil stay in business for long if the bottom line doesn’t show at least a small bit of black,without the customer the bottom line will be bright red.

      Every KMART store that I have been in shows a disregard for customer satisfaction. Very few sales associates on the floor to render help and usually a long line at the single cashier on duty.Customers will put up with a lot for discount prices but the one thing they will not put up with is undue waste of their time. The answer to the problem? Simple. Time and motion studies to identify peak customer activity. SChedule employees to work during these periods with minimum coverage during slack time. And, it doesn’t take a genius to know that Friday nights will be a peak period in most stores. That is check cashing day for a lot of people, especially those who shop in box stores. I would upgrade KMART’s merchandise to at least the quality of SEARS merchandise, especially in clothing and shoes and hardware. KMART’s sporting goods dept is generally as good if not better than Sears. However, both stores seem to have a problem delegating dept managers the authority to stock the merchandise that will move in a particular area. Face it, snow skis just don’t sell that well in Tampa Florida in the summer time! However, fishing tackle does provided it is the tackle used in the local area.

      Among other things I would do is put all dept, store, district, and regional managers on the same type of pay plan I accepted. If they make it work we all make money. If they can’t make it work then we all get jobs at Wally World.

    7. oregano Says:

      Could I get rid of Ty Pennington?

      As an IT contractor, I am paid well yet have zero security and no benefits. My longevity on the contract depends solely on my performance. In a sense, I like that. If the keep me around, it lets me know if I’m doing well and whether I’m worth the pay. It is a rather stressful way to stroke my ego but, I enjoy the challenge. On the other hand, I’m not interested in retail.

    8. GUYK Says:

      oregano: I recently retired after selling a small retail corporation in which my wife and I owned 100% of the stock. Retail is a tough business at best. Competition is rough, especially from the box stores. However, we survived and made a comfortable living by providing a niche in the marketplace for those who desired service and a quality product at a reasonable price. However, if I had it to do over again I would do it over a bar! I figure that the best of all possible businesses is a bar that also serves bar-b-que and has waitresses that hultle on the side! Three things that never suffer during a recession are booze, food and hustlers. Get a lock on all three in the right location and roll in the dough.

    9. Fûz Says:

      One place where Sears shines, without question, is in replacement parts for appliances large and small, not just Sears/Kenmore-branded ones, and the web-based catalog to identify and order them.

      I can find a caster for a 10-year-old humidifier, using illustrated parts breakdowns on their web page, so I can compare the image of the listed part to the broken one in my hand.

      That part may be more expensive than one grabbed from the shelf at Home Depot but I know it will fit and the right fasteners come with it.

      This business is too valuable to be sloughed aside for cash. If Sears’s identity is to be retained at all, this must be part of it.