In a line that caught nearly everyone’s attention, the holding company that owns both the Sears and the Kmart retail chains announced in a recent mandatory filing with the Securities and Exchange Commission that “Our historical operating results indicate substantial doubt exists related to the company’s ability to continue as a going concern.” That’s a remarkable admission and a pretty clear signal that the continued efforts by Sears Holding Corporation to cut costs, divest product lines and property, and seek new financing options have not worked as well as expected. Even after years of aggressive moves along these lines, Sears Holding Corporation lost $2.2 billion last year, bringing the total losses for the past three years over the $5 billion mark. Yet the ownership—led by a superstar hedge fund manager named Edward S. Lampert, who brokered the deal to combine Sears and Kmart in the last decade and now manages Sears Holding himself—insists that it can still make the retailer work, mainly by cutting costs even further. For external observers, that confidence looks a little bit like hubris, and several commentators note that skillful investing is very different from effective retail management. Without any retail experience, Lampert seemingly has tried to run the company by applying hedge fund principles, rather than recognizing the unique requirements of retailing.
Source: Carlos Tejada, The Wall Street Journal, March 22, 2017
See also “Sears and its Hedge Fund Owner, in Slow Decline Together,” James B. Stewart, The Wall Street Journal, March 30, 2017