Killing Me Softly - Sears, Sara Lee
About 30 years ago Roberta Flack hit the top of the record charts (remember records anybody?) with "Killing Me Softly" - a love song. Today we have 2 examples of CEO's softly killing their shareholders, employees and investors. Definitely NOT a love song.
Sears has continued its slide, which began the day Chairman Lampert acquired the company and merged it with KMart. I blogged this was a bad idea day of announcement. Although there was much fanfare at the beginning, since day 1 Mr. Lampert has pursued an effort to Defend & Extend the outdated Sears Success Formula. And simultaneously Defend & Extend his outdated personal Success Formula based on leveraged financing and cost cutting. The result has been a dramatic reduction in Sears stores, a huge headcount reduction, lower sales per store, less merchandise available, fewer customers, empty parking lots, acres of unused real estate and horrible profits. Nothing good has happened. Nobody, not customers, suppliers or investors, have benefited from this strategy. Sears is almost irrelevant in the retail scene, a zombie most analysts are waiting to expire.
Today Crain's Chicago Business reported "Sears to Offer Diehard Power Accessories for Sale at Other Retailers." Sears results are so bad that Mr. Lampert has decided to try pushing these batteries, charges, etc. through another channel. At this late stage, all this will do is offer a few incremental initial sales - but reduce the appeal of Sears as a retailer - and eventually diminish the brand as its wide availability makes it compete head-to-head with much stronger auto battery brands like Energizer, Duralast, Optima and the heavily advertised Interstate. Sears has attempted to "milk" the Diehard brand for cash for many years, and placed in retail stores head-to-head with these other products it won't be long before Sears learns that its competitive position is weak as sales decline.
Mr. Lampert needed to "fix" Sears - not try to cut costs and drain it of cash. He needed to rebuild Sears as a viable competitor by rethinking its market position, obsessing about competitors and using Disruptions to figure out how Sears could compete with the likes of WalMart, Target, Kohl's, Home Depot, JC Penneys and other strong retailers. Now, his effort to further "milk" Diehard will quickly kill it - and make Sears an even less viable competitor.
Simultaneously, Chairperson Barnes at Sara Lee has likewise been destroying shareholder value, employee careers and supplier growth goals since taking over. During her tenure Sara Lee has sold buisinesses, cut headcount, killed almost all R&D and new product development, sold real estate and otherwise squandered away the company assets. Sara Lee is now smaller, but nobody - other than perhaps herself - has benefited from her extremely poor leadership.
As this business failure continues advancing, Crain's Chicago Business reports "Sara Lee to Spend $3B on Stock Buyback." In 2009 Sara Lee announced it was continuing the dismantling of the company by selling its body-care business to Unilever and its air-freshener products and assets to Procter & Gamble Co. for approximately $2.2 billion. As an investor you'd like to hear all that money was being reinvested in a high growth business that would earn a significant rate of return while adding to the top line for another decade. As a supplier you'd like to hear this money would strengthen the financials, and help Sara Lee to invest in new products for growth that you could support. As an employee you'd like this money to go into new projects for revenue growth that could help your personal growth and career advancement.
But, instead, Ms. Barnes will use this money to buy company stock. This does nothing but put a short-term prop under a falling valuation. Like bamboo poles holding up a badly damaged brick wall. As investors flee, because there is no growth, low rates of return and no indication of a viable future, the money will be spent to prop up the price by buying shares from these very intelligent owner escapees. After a couple of years the money will be gone, Sara Lee will be smaller, and the shares will fall to their fair market value - no longer propped up by this corporate subsidy. The only possible winner from this will be Sara Lee executives, like Ms. Barnes, who probably have incentive compensation tied to stock price -- rather than something worthwhile like organic revenue growth.
Both of these very highly paid CEOs are simply killing their business. Softly and quietly, as if they are doing something intelligent. Just because they are in powerful positions does not make them right. To the contrary, this is an abuse of their positions as they squander assets, and harm the suburban Chicago communities where they are headquartered. That their Boards of Directors are approving these decisions just goes to show how ineffective Boards are at looking out for the interests of shareholders, employees and suppliers - as they ratify the decisions of their friendly Chairperson/CEOs who put them in their Board positions. The Boards of Sears and Sara Lee are demonstrating all the governance skill of the Boards at Circuit City and GM.
It's too bad. Both companies could be viable competitors. But not as long as the leadership tries to Defend & Extend outdated Success Formulas unable to produce satisfactory rates of return. Lacking serious Disruption and White Space, these two publicly traded companies remain on the road to failure.