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Sears and Kmart may no longer be retailers where very many people go to buy hedge clippers, but the company that owns them, Sears Holdings, seems to be functioning largely as a hedge fund.

The Washington Post reported yesterday on Sears’ evolution, noting that as the its retail sales have dropped for five years, “Sears is pouring its money into risky, esoteric investments to generate huge returns for shareholders.”

Ironically, the story came out on the same weekend as it was reported that Sears chairman Edward S. Lampert might be interested in adding BJ’s Wholesale Club to his retail holdings.

The Post writes: “Lampert's management of Sears Holdings, the nation's third largest retailer, has been a departure from long-established industry practices – using extra cash to improve stores or earn a small amount of interest. That has stirred anxiety among former executives who fear the iconic brand could be dying. Their concerns are being heightened by retail analysts who predict the company will shed hundreds of stores… Hundreds of poor-performing stores are being allowed to deteriorate, according to analysts and interviews with store managers. A sign of this can be found in the company's financial statements. In 2005, Sears' first full year under Lampert, the firm recorded that its buildings and other assets lost $1.1 billion in value, but it spent only half that maintaining and upgrading its properties.

“Meanwhile, Lampert has amassed a war chest worth about $3.3 billion in cash. Some Wall Street analysts speculate this kind of build-up is a prelude to making a huge acquisition. But others say Lampert will use the money for his financial trades.”

To be fair, it must be noted that Sears’s shareholders are unlikely to be complaining.

“Sears the Hedge Fund has never been healthier,” the Post writes. “Hedge funds are massive unregulated investment pools typically open to only institutional investors and wealthy individuals. The company's stock soared 45 percent in 2006, driven by high risk trades that produced $101 million, or a third, of Sears Holding's pretax income in the third quarter. These investments did not perform well in the fourth quarter, and the firm had to sell off properties to cover its losses, according to a Morgan Stanley report.”
KC's View:
We have long been critical of Fast Eddie Lampert because of what we perceived as his lack of commitment to retailing, so none of this stuff about Sears and Kmart falling on hard times really surprises us. However, we do have to concede that he’s making his investors money…and he sees that as being job one.

Still, it is tough to watch the virtual disintegration of two proud old retailing names. But maybe that’s simple evolution, and there is nothing anyone can do about it.