A Money Man's Trials in Retailing

When Sears Holdings said it would close as many as 120 stores last month after holiday sales tanked, its shares fell 27 percent, the biggest drop since 2003. In all, the stock has fallen about 80 percent from its peak in April 2007. Grim news for shareholders. Yet not necessarily for Chairman Edward Lampert, who with his hedge funds owns about 60 percent of the company since merging Kmart and Sears in 2005. Lampert still made money on his original investment, according to a Bloomberg analysis.

In the face of the company’s poor retailing performance, that’s drawn criticism that the 118-year-old retailer is being managed more as a portfolio asset than as a merchant for the long haul. “A lot of traditional department stores have reinvigorated themselves through merchandising—think of Macy’s,” says Gregory Melich, an analyst at International Strategy & Investment (ISI). “You haven’t seen that from Sears.” Adds Erik Gordon, a professor at University of Michigan’s Ross School of Business: “Being a successful hedge fund manager doesn’t make you a good retailer. It just gives you enough egomania to think you are.”