With Sears Holdings' ( SHLD) CEO stepping down after a massive decline in the company's stock price, investors are left with two big questions: No. 1: How much will shareholders have to pay Aylwin Lewis for failure? And No. 2: Will Sears replace Lewis with a veteran merchandiser who can stabilize the company's retail businesses? On the first question, Sears spokesman Chris Brathwaite declined to comment on whether Lewis' departure was voluntary or involuntary, or on the financial terms of his exit. The company's most recent proxy statement says that in the event of a "constructive termination," Lewis could receive cash, stock and benefits valued at $23 million.
Cramer: Leave Sears' Lampert Alone, Media Bullies
Lewis is stepping down after two years at the helm of Sears Holdings, the owner of the Sears and Kmart chains. The announcement comes after a disastrous holiday selling season that was only the latest in a string of disappointments for the company. Sears Holdings' stock price is down 15% since the beginning of 2006, and has been nearly cut in half since its highs from last spring. In a press release, Sears Chairman Ed Lampert said it was time for "new leadership" at the company in light of recently announced changes in its operational strategy. The second question facing Sears is more complicated, because many observers don't believe that Lampert -- who took a lead role in merchandising and several other key operational areas at the retailer in 2005 -- is even interested in stabilizing the company's retail operations. Lampert, a hedge fund manager who built Sears Holdings by merging Kmart and Sears Roebuck in 2005, has stuck to a strategy of sacrificing sales growth and market share to increase near-term profitability and cash flow. In doing so, he slashed costs, reduced investments into the company's store base and left prices higher than those found at discount competitors like Wal-Mart ( WMT), Target ( TGT) and Home Depot ( HD). For a while, the strategy was successful in driving profits even amid consistent same-store sales declines. Lampert used the healthy cash flows generated by the business to repurchase shares, which pushed the company's earnings per share even higher. The results delighted Wall Street, especially since Lampert was believed to be sitting on a treasure trove of undervalued real estate assets that could support Sears Holdings' towering stock price on their own. Lampert was widely thought to be milking cash from a dying business, which he could then use to invest elsewhere to build a publicly-traded investment vehicle modeled after Warren Buffett's Berkshire Hathaway ( BRK-A). Skeptics pointed out that Lampert's strategy was unsustainable and a real estate downturn coupled with a consumer spending slowdown could amount to a double-whammy straight into the heart of Wall Street's investment thesis on the company. Now, with both a real estate slump and a shopper pullback underway, those skeptics are getting a second hearing. "Sears is now in free-fall, and the worst is yet to come because retail is a momentum business and the momentum is against Sears in a big way," says Howard Davidowitz, a retail consultant with Davidowitz & Associates and a longtime critic of Sears. Under Lampert, Sears has lacked retail merchandising experience in its executive ranks. Lewis came from fast-food giant Yum! Brands ( YUM), where he ran chains like KFC and Taco Bell. His temporary replacement at Sears, W. Bruce Johnson, was not a merchandiser either. He was Sears' executive vice president of supply chain and operations, having previously worked at Carrefour and Colgate-Palmolive ( CL). The New York Times reported over the weekend that Sears has reached out to Mickey Drexler, the apparel merchandising genius at J. Crew ( JCG), and Allen Questrom, the retail veteran who turned around J.C. Penney's ( JCP) fortunes. Both men declined to join Sears, according to the report.