In 2010 Sears hired Jim Haworth, a 20-year Wal-Mart veteran, to run its Sears and Kmart stores. He saw at once that Kmart’s food and drugs cost more than Walmart’s and Target’s, and his group began looking at discounts on goods such as milk and soda. That summer the company’s internal researchers came back with a proposal: cut prices at several dozen Kmarts, bringing them to within 5 percent of Walmart’s.
The presidents of the business units agreed. Then Haworth’s group asked them for $2 million to pay for it.
Nobody would. According to eight former executives who spoke to Mina Kimes of Bloomberg Businessweek, no unit was willing to give up its own operating profit to bring more shoppers into the stores. The team took the idea to the chief executive and asked for a loan. It was rejected.
Thirty companies under one roof
The units came from a reorganization Sears announced in January 2008. Its chairman, Eddie Lampert, a hedge fund billionaire who had used Kmart to buy Sears in 2005, split the company into more than 30 business units: product divisions such as apparel and tools, brands such as Kenmore, Craftsman and DieHard, and support functions such as IT and human resources. Each had its own president, its own chief marketing officer, its own board and its own profit-and-loss statement. Lampert evaluated each unit, and calculated its executives’ bonuses, on a metric called business operating profit.
He told Businessweek by email that decentralized structures “work better than centralized ones because they produce better information over time.” A company spokesman wrote that “clashes for resources are a product of competition and advocacy.”
What the units did
Kimes interviewed more than 40 former executives. According to several of them, the apparel division cut back on staff, knowing salespeople in other departments would pick up the slack. The appliances unit had to pay fees to the Kenmore unit, and because it could make more money on outside brands such as LG, it gave Kenmore’s rivals better spots in the stores. An idea for a Craftsman tool with a DieHard battery was quashed because Craftsman didn’t want to pay DieHard extra royalties. Sears did not dispute these examples. Units fought for space in the weekly circular until it became, in former executives’ word, a “Frankenstein,” with screwdrivers advertised next to lingerie. Some executives brought laptops with screen protectors to meetings so colleagues couldn’t see what they were doing.
The model was not the only trouble. The merged company had thrived at first, but by 2007, before the reorganization, its profits had fallen 45 percent. Between the takeover and the article in July 2013, sales fell from $49.1 billion to $39.9 billion.
On Monday, October 15, 2018, Sears filed for bankruptcy. The next day Lampert, who had stepped down as chief executive on Monday, told 1,000 employees at headquarters: “We need to show material progress over the next few months to establish to our senior lenders that a reorganization of the company is realistic and to avoid a shutdown and liquidation.”