Seeking Alpha
Profile| ()  

News that Aylwin Lewis is leaving Sears (SHLD) as CEO is hardly surprising. He was mentioned here several weeks ago as among CEOs who would appear to be on thin ice.

Several points:

1. It’s unclear if Lewis quit or was fired. But if he suffered what Sears calls “constructive termination,” he’ll get a cash package of $3 million plus $5.5 million in restricted stock and $13.4 million in stock options plus a few other incidentals that will give him a total “don’t shut the door on your way out” package of $22.9 million. If he quit on his own, he’ll get just $869,000.

2. Lewis is being replaced by Bruce Johnson, who is head of the company’s supply chain and operations. That Lewis is being replaced, even on a temporary basis, by someone with a background in supply management, and not a merchant, shows how shallow the depths are within Sears of true merchants/retailers. Retail veterans say in order to get a real chance at succeeding, Sears needs a serious merchant at the top — a merchant who will have complete autonomy from Chairman Eddie Lampert, a hedge fund manager. A story in Sunday’s New York Times says that the best names in retail have turned down Sears.

3. Finally, real estate has been key to the Sears story. With real estate values falling, some experts have said the value of Sears real estate is suffering at the hands of the real estate market. One retired retail veteran I know, who has held top real estate positions at many of the largest retail concerns, has a different take. “The real problem,” he says, “is that the portfolio has the same meager value today as it had just prior to Mr. Lampert’s purchases! There are many reasons for this. In addition to the obvious facts that competition has passed them by, the two main reasons are: the myths associated with the assumptions connected to leashold value, the restrictions imposed on the value of the Sears-owned mall stores.”

He adds he believes the value of Sears' real estate is worth considerably below estimates of $10 billion.

He adds:

I could even make a case for the entire portfolio actually having a negative value,” he says. “It would not be hard because most of their Sears department stores would most likely require a payment to the landlords before the landlords would accept them back and relieve Sears Holding of the liability for taxes, CAM charges, demolition costs,etc. While most of the Kmart landlords would not accept Kmart to walk away from their lease obligations until they have figured out how to replace the income stream.

This could take many years because there simply are not enough new tenants ready willing and able to pay rents sufficiently high to cover the costs of new construction (or reconstruction) plus give the landlord enough to cover the costs associated with leasing, vacancy, taxes, time value of money, etc.

The beat goes on…

Source: Lewis' Departure From Sears - Only a Matter of Time