The Blue Light Shines No More
The fall of Kmart in the mainland United States
I was around nine years old. I really wanted a Super Nintendo, but my mom and I did not have the money. Dad wasn’t in the picture. I did a whole bunch of chores and definitely “earned it” but we couldn’t see a path to spending 199 dollars in early 90s money on a video game system when the pantry was full of ramen. It seemed hopeless. “Kmart!” mom blurted out, remembering that the store that Sebastian Sprering Kresge started in 1912, the same year a little ship called Titanic slipped beneath the icy waves. Kmart had layaway, over by the dingy brown shoe aisle, not too far from the full service café restaurant that was in the back of the store. For the uninitiated, layaway took items off the shelf, put them aside, and let shoppers make payments on them. They couldn’t be sold out, the item was reserved for the shopper, and one 30 dollar payment at a time, I was able to eventually obtain my Super Nintendo. Layaway is an old system, and one that some may look down on, but it made all the difference in the world back then and still has validity now. Ironically, in my 20s I would do the same at Sears when working as pizza guy to acquire a surprise Nintendo Wii for my wife, who rarely cares much about video games (unless they are certain puzzle games, mostly mobile) but really wanted a Wii. Both stores would merge in 2005 and join forces to march together into integrated retail irrelevance until the control of hedge fund wizard Edward “Eddie” Lampert.
High Class Kmart
Bridgehampton, New York is an upper crust community. The average home costs almost 7 million. This is the land of mansions, pastures and strutting dressage horses. If Martha Stewart was a place, this would be it, although I’m not sure everyone here appreciates Snoop Dog. In other words, it’s very unlikely place for a Kmart, which has a reputation of being anything but high class. Nevertheless, Bridgehampton is the home of the last full-sized Kmart in the mainland United States. As Kmart’s go, it has definitely been a cut above. The walls are nicely painted and the shelves were mostly fully stocked. The tired IBM registers from the 90s were still in place along with a some new Toshiba replacements installed this year. The aisles will become sparse now, as the clearance signs have gone up and the store prepares to close on October 20, 2024, bringing a close to decades of full line bargin retail in the mainland United States. A small outpost remains in Miami, Florida for now, a comically diminutive sub-leased version of the full-sized store that stands as a physical testament to the cutthroat nature of the current Transformco real estate strategy. In Miami, furniture and décor retailer At Home is leasing the full-sized Kmart building, relegating the operating Kmart to a comparatively small space in the former garden center. Kmart, for now, lives on in the Virgin Islands and Guam as well as Australia, although the aussie outposts are totally separate from Transformco and have been quite successful.
A Simple Plan
Defenders of Transformco point to the real estate operation as the true heart of the company, a way in which the former Sears Holdings will live on. They tend not to mention that Eddie Lampert, long-time Kmart and Sears CEO personally benefits immensely from this arrangement. It’s created a perverse situation in which the stores are reportedly run as a sort of side project while in many ways Lampert and those with a significant stake in Transformco, as the combined private company is now called, benefit from continued retail failure. There are reports from former employees that this has been a strategy of Lampert’s from very early on as Institutional Investor wrote about back in 2018, the same year that Sears Holdings went bankrupt, reporting that “The “CEO egomaniac” whom some called “Fast Eddie” was “ruining the company,” they [claimed]. “Eddie Lampert doesn’t know the first thing about retail,” another complained. “He is just a hedge fund manager that is looking for an exit strategy.”” Converting the stores into real estate, and with them thousands of good paying jobs, was perhaps his true goal from early on. Even when the employees lost, Lampert still gained, again according to the respected business publication: “Although current Sears shareholders have lost almost their entire investment, tens of thousands of employees have lost their jobs, and creditors — including the U.S. government — and others are owed $11 billion, Lampert has still made nearly $1.4 billion to date from his Sears investment, a number that has never been calculated before. It’s also a sum that could change radically — up or down — depending on the outcome of what is likely to be a contentious bankruptcy process, which is now unfolding.” Now it is not my desire to make this an opinion piece, but I will illustrate something here: Sears and Kmart had a proud if flawed retail history long before Eddie Lampert took over. In 2005, at the merger, the combined company employed approximately 300,000 people. In 2005 money, front line staff made eight to twelve dollars per hour; this included cashiers and sales associates, some of whom made significantly more with commissions on the Sears side. In decades past, Lampert’s own mother worked at a Kmart store where she served a secretary. Management made anywhere from 50k to 75k a year in salary. At headquarters in Hoffman Estates, staff could earn anywhere from 70k to over 300k, depending on position. The point is, these were good jobs. I feel safe in saying that there is no way that a real estate operation will ever generate that kind of compensation for the masses as was once the case. Transformco may be transformative, but the transformation does not replace the retail heritage that some small towns such as Big Bear Lake, California still relied upon (some Kmart’s were the only game in town) nor does it mitigate the impact on the broader economy. It does however provide literal yacht money for Eddie Lampert, who has a megaboat called Fountainhead that he galivants around Miami in. In short, this transformation that some have said is the worst form of vampire capitalism, further erodes the middle class in America. It calls into question the true role of a CEO and owner. Does a CEO owe employees anything? Should he provide leadership that is not literally leading a company into irrevance in a sector it once dominated? In short, did Lampert have an obligation to be a steward of Sears Holdings long and storied history, to make a real concerted go of it, or is he free to enrich himself and shareholders no matter the consquence? I happen to think this speaks to a fundamental problem with our system as it stands and is a solid reason for more guardrails on what is the best form of economy the world has ever seen, Capitalism.
A Brief History
Kmart as a chain started in 1962 in Garden City, Michigan. It’s unique brand of discount retail was such a success that in 1977, the parent five and dime SS Kresge Company changed it’s name to Kmart Corporation. By the early 90s, the chain operated over 2,300 stores. It would develop brands such as Big Kmart and Super Kmart, the latter of which gave Walmart a half-decent run for it’s money for a short time. When Walmart started it’s meteoric rise in the early 90s, using the power of it’s advanced inventory management system and cutthroat pricing, Kmart (and Sears) was unable to remain competitive. At the same time, the company was badly mismanaged from it’s sprawling fortress-like headquarters in Troy, Michigan, where it was slow to modernize stores. Former CEO Charles Conaway was ordered by a civil court in 2009 to pay 10.2 million in fines for his actions in the years leading to the chain’s bankruptcy after being sued by the SEC. There was trouble at the store long before Lampert came on the scene, but what perhaps nobody expected is that his draconian brand of management would starve the firm of resources while making departments fight amongst each other. He is a known fan of Ayn Rand and it showed.
What’s Next
A central mystery around Kmart, Sears and Transformco as a whole is why the company continues to operate stores, especially in the mainland United States, where many people are surprised to learn that any stores are operating at all. In Guam, a large standalone Kmart exists, that is well stocked and seemingly well run, at least compared to other locations. It even serves Little Caesars Pizza on Fridays still, harkening back to the long standing partnership Kmart had with the chain. There are Kmarts in the Virgin Islands as well. Perhaps the undisputed flagship of what Transformco’s once mighty retail empire (back when it was Sears Holdings), is in Puerto Rico, at the Plaza Las Americas Mall in San Juan. Here you will find a Sears that could potentially give Target a run for it’s money, with a clean well apportioned sales floor. There are name brands galore, which is not the case at the remaining Sears locations in the mainland, which are often half-bare liminal spaces that make shoppers think of the back rooms meme. (Read here for a look at a mainland-based full line Sears: https://medium.com/@chrismanam/the-good-life-isnt-here-anymore-5eca40447730) The San Juan location confirms that Transformco is capable of creating a viable and even successful store if it really wants to. There are Sears locations in Mexico that are similarly successful, but like the Kmart in Australia, it is owned by a different company, backed multi-billionaire Carlos Sims who unlike Lampert apparently maintains an interest in actually running a retail business. I explored the mystery of why the stores still exist in another article (https://medium.com/@chrismanam/the-mysterious-side-of-sears-821a05cb6a07) which has been my most widely read piece since I started doing this whole freelance journalist thing. The short answer, and one that has been shared many times by insiders and followers of Transformco’s shadowy doings, is to satisfy lease obligations. In other words, it is not a real go of it, just holding down the lease so it can be flipped into more real estate earnings. I have often reflected on what it must be like to be a Store Manager at one of these Potemkin villages. Imagine getting up in the morning, brushing your teeth, getting in your car, driving to your Sears, walking backstage to your office in the Hub (Hub is what they call their behind the scenes office areas; Human Resources used to be there, along with the administrative offices and break room) and sitting at your desk, presiding over a store in a chain that is over 100 years old, used to be number one in the country, and is now a tired, dusty shell of it’s former self with maybe 50 customers (Members!…ok Eddie, I said it) a day tops. From what I have read, most current Store Managers have been with the company for a long time, long enough to see it devolve from a chain that had stores large enough to contain portrait studios, vision centers, driving schools, human resources on site and three floors of merchandise. They worked busy Black Fridays. They have been there to see corporate support disappear, district managers be RIFed out of existence; in short a front row seat to the long, painful decline of a mighty retail empire. I picture them closing up at night, standing on a nearly empty sales floor, or maybe in the back looking at old calendars and humming the Softer Side of Sears jingle (Softer Side was a disaster for Sears but man was it catchy) and thinking about how everything is dust in the wind. It’s a sad, wistful picture, and one common refrain I’ve picked up since becoming ensconced in the Transformco watcher community of former employees, superfans, stockbros and retail watchers is along the lines of “why won’t you die already?” To me it’s an intellectual exercise, a bit of nostalgia, and an object of almost morbid fascination. To former employees especially though, it is a source of pain, of broken promises and diminished pensions and many would prefer that the stores just go away, if only to allow them closure and to not be reminded of Eddie’s avarice.
There is a sign on the door of the Whitter Sears. You can’t miss it. It says “This Isn’t Goodbye.” It struck me in a way no store should. People have already said goodbye to Sears and Kmart. When I mention either in conversation, people act surprised. Both chains are from the past. I don’t think they are ever coming back, not as a retail force in America. Many had a hand in it’s demise and I do lean towards Lampert making some sort of attempt to actually have it succeed at one point, in his own dog-eat-dog way, but at this point, the future of Transformco appears to be buildings. One day, perhaps sometime soon, the last Store Manager of the comparatively tiny Miami Kmart, Store Number 3074, will walk to the front doors, lock them, pull down the shutter and get in her car and never return, ending the legacy of a company that started in 1899 and employed millions throughout its life. Attention Kmart Shoppers, the Blue Light is out forever. You don’t have to go home, but you can’t stay here.
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