Softer slide at Sears

ECONOMY | Lampert says lower debt will help retailer survive

Financier Edward Lampert defended Sears Holdings Corp.'s strategy of paying down debt and keeping expenses down, which will help the troubled retailer survive today's economic turmoil.

Lampert told investors at Monday's annual meeting that Sears' competitors have overextended themselves with store openings and debt acquisition. He bemoaned plans by Sears' five top rivals to collectively open another 5,000 stores, which would add 500 million square feet to the retail landscape.

Sears must keep its expenses lean, better manage inventory, get its mix of prices right, and improve its customers' in-store experience in order to try to deal with the proposed expansion, Lampert said. He said Sears cut its debt by 47 percent in the last four years.

''We do feel that because we're not building a lot of new stores, that we can do a better job with the assets we have in place,'' he said. ''... Our focus is on upgrading the customer experience and being ready when the economic environment turns.''

Lampert damped down expectations that Sears would sell its Kenmore and Craftsman brands at rival retailers -- at least any time soon.

Lampert, billionaire operator of hedge fund ESL Investment, which holds a 47 percent stake in Hoffman Estates-based Sears Holdings, said he believes opening the brands to greater business opportunities, even if hypothetical, will bring about greater innovation and unleash what he believes are the unrecognized values of the Kenmore appliance and Craftsman tool brands.

William Ackman, whose Pershing Square Capital Management hedge fund battled Lampert for control over Sears Canada two years ago, stood in line with other shareholders to ask how executives would be compensated if one lobbies to sell Craftsman at Lowe's and another sees his store sales suffer as a result.

Lampert said parent company Sears Holdings Corp. would make a final decision whether an argument could be made for selling the Kenmore and Craftsman brands outside of Sears and Kmart.

"The holding company acts as a Supreme Court and the legislature," he said.

Sears still is searching for a chief executive officer and one or more leaders to manage the brands as it continues reorganizing into five asset groups that will be subdivided into as many as a 30 or more business units.

A range of topics surfaced during the three-hour shareholders meeting and a one-hour session with reporters that followed:

• • Sears, which has cut 300 of its 5,000 headquarters jobs since January, intends to keep its store base intact, though Lampert conceded that an unspecified number of stores are unprofitable.

• • Sears is bulking up its home goods in anticipation of losing Martha Stewart's business in January 2010. It will add the Cannon home goods brand to help beef up its offering.

• • Acting Sears CEO W. Bruce Johnson said top executives at Hoffman Estates have started a new customer-response effort in which each top executive takes a complaint from a customer each week and follows it through to a successful conclusion. He said one discovery is that the customer-complaint telephone system isn't working the way it should.

• • Lampert conceded that he has been very disappointed with Sears Holdings' results and said "some of it was self-inflicted." Sears' shares dropped 40 percent last year, and its sales and earnings have stumbled for the last two years.

• • Lampert pointed repeatedly to online retailers such as Amazon and Zappos that have realized sales gains despite the competitive retail environment, and said Sears must capture that kind of momentum in figuring out how consumers shop in a variety of formats.