If you have any doubts, just wake up and think about it. It’s a win-win for both Jeff “Get Big Fast” Bezos and Eddie “Take the Money and Run” Lampert. Amazon gets roughly 2400 US stores (or “buildings”), overnight (1300 Sears, 1100 Kmart). The acquisition becomes Bezos’ answer to omnichannel and the proven revenue synergy of consumers’ ability to shop online and off; the convenience of proximity for pick up and returns; and facilitation of even greater delivery speed. So just as Walmart’s 4500 stores double as distribution centers, so would Amazon’s acquired Sears/Kmart stores.
The real estate assets would be the primary reason for Amazon’s interest in acquiring Sears Holdings. However, there are several other valuable assets and operations, which Amazon could enhance and grow.
What Eddie gets in such a sale is a potentially profitable exit strategy that many analysts, myself included, believe he is pursuing. In fact, in several of my past articles I have opined that Lampert was, indeed, managing the business into liquidation. And regarding the real estate assets, Lampert has been methodically selling, leasing (partial or in total), and/or closing Sears and Kmart locations. Indeed, he indicated not too long ago that Sears Holdings was considering shuttering its entire fleet of Kmart stores. So if he is seeking an exit, a far less painful and certainly more profitable option would be a sale to Amazon.
This could fall nicely into Bezos’ hungry little hands. Amazon might be able to cut an incredible deal, at least far less costly in time and capital, than building or leasing its own nationwide distribution centers/stores.
The financial complexities involved in such a deal are beyond my pay grade, particularly since Eddie engineered a total reorganization of the business: morphing its structure into some 30 business units; establishing the securitization of brands — “unlocking value” as Eddie called it — and other aspects that might give the dealmakers a royal headache.
However, “by the numbers” alone, it might be timely for both Bezos and Lampert to want to make the deal. When Lampert formed Sears Holdings in 2005, revenues of the combined businesses were around $50 billion with about 3500 stores. Revenues and profits have dropped steadily, to $36 billion in 2013, with a loss of about $1.4 billion last year. The stock price hit a high in 2007 at $192 per share; today, a share of Sears Holdings is hovering around $30. One analyst said if the stock drops to around $20 per share, Sears would be “one stop on the way to liquidation.”
So as Sears’ declining financial condition continues, its valuation as a potential acquisition target falls as well, making it very attractive to Amazon. Sitting in Amazon’s lengthening shadow, Eddie might assess that the “whole” is now more valuable than the sum of each of the last few remaining assets. Therefore, in my opinion, Eddie might be bailing into his lifeboat sooner rather than later, and a deal with Amazon would no doubt fill it with enough cash for him to add substantially to the pile he’s already extracted through his brilliant financial engineering.
There are other attractive assets and operations that could easily be integrated into Amazon’s model, and to which value could be added (in some areas repaired). While Kenmore appliances, Craftsman tools, and DieHard batteries have been placed into another entity and charge Sears royalties as a licensee, I’m sure Amazon would insist they come with the deal. And, those are iconic brands that can be re-energized. The e-commerce business, which Lampert invested most heavily in and strategically focused on for future growth, while only accounting for about 3% of the total business, could certainly be leveraged when plugged into Amazon’s model.
Furthermore, Amazon has mastered “Big Data” (its database is estimated to be larger than that of the Pentagon), and more importantly, they know how to use it strategically. For example, it has the ability to guide customized or “localized” assortments into each of the store locations based on local consumer preferences.
What Amazon Shouldn’t Want
However, and above all, the Sears or Kmart names are not on anyone’s “value-added” list. Sears and Kmart’s financial plunge; the physical deterioration of their stores; the fragmented and “siloed” operations; strategically chaotic merchandising and marketing strategies and ad hoc implementation, all have contributed to the decimation of the consumers’ perception of the brands. The iconic Sears brand has taken this biggest hit; it was once at the pinnacle of retailing in the 1970s even bigger than today’s behemoth Walmart.
So, in my opinion, bye, bye Sears and Kmart brands, hello Amazon, replacing those brands wherever they appear, store nameplates included. Why not? The Amazon brand name is simply more powerful today, and I suggest even more so among the younger generation, well on its way to becoming the largest consumer segment.
You say, ‘How sad!’ But, get over it. If Sears and KMart aren’t discarded in this kind of a deal, at some point in the very near future, they will end up in the trash bin of history. And “Fast Buck” Eddie “Time to Exit” Lampert will go down though the ages as the iconic financier who won more cash (way more than most people would know what to do with), but failed to succeed at what he declared was his original objective: to return Sears and Kmart to their once powerful positions as iconic American retail brands.
Amazon, a little-known brand just a decade ago, is becoming the new American icon. Maybe acquiring these two fading American icons is a more dignified way to put them to rest than the blunt harshness of liquidation.