We like to think that businesses succeed on the strengths of perseverence, tenacity and hard work. Yet, we know that many leaders, and their teams, follow these principles and still do not succeed. Unfortunately, too many businesses stake their claim on Defending & Extending their Success Formula "to the death" – and end up exactly there.
Sears (see chart here) is on the brink of failure, yet it is unclear the egomaniacal CEO who bought the company will give up his Success Formula to save investors, suppliers and employee jobs. (Read full Chicago Tribune article on the failing Sears turnaround here.) When Mr. Lampert took over Sears he was quick to say he was willing to give up revenue in the pursuit of better profits. Somewhere in his training Mr. Lampert built into his Success Formula that growth was not as important as short term profits – and in fact that profits could be captured in a no growth business for better investment elsewhere. But in reality, that theory just hasn’t been shown to work.
Sears cut employees, product lines, advertising, marketing and closed stores to raise short-term profits. But investors are now recognizing that these actions may well have destroyed the company. While Mr. Lampert pumped up the bottom line, he lost competitive position in large appliances – letting the Kenmore brand grow stale while Whirlpool and others grew revenues at Best Buy. And now with homebuilding on the skids, demand for these appliances is falling like an anchor. At the same time, the venerable Craftsman brand has lost share to Ryobi and other tool brands now sold in Home Depot and Loews. Mr. Lampert predicted sales for Sears products, and at Sears stores, would fall as he focused on profits. And they did! Mr. Lampert did a great job of helping competitive manufacturers and retailers gain strength while he started trying to milk his "cash cow."
Only the milk is not forthcoming. After consistently declining operating numbers, in the 2007 fourth quarter Sears profits declined 51%. So Mr. Lampert fired his hand-picked supplicant President, and announced a reorganization. Like the Captain shooting the first mate while ordering deck chair reorganization on the Titanic. And now analysist are saying that the sum of the parts at Sears (brands plus real estate) is worth less than recent market valuations – as much as 30% less!
Mr. Lampert believed in his Success Formula, and he asked investors to believe in it as well. Many did. But Mr. Lampert’s industrail era retailing Success Formula is woefully out of date – and not producing growth or positive results. He’s Locked-in, and he seems willing to take down with him anyone who will share his Lock-in. How long should investors believe in Mr. Lampert and his failed strategy? To the death? For those who think it may not happen – just consider Woolworth’s, Kresge, Montgomery Wards, KMart and Marshall Fields.