At its peak in the early 2000s, Sears Holdings — the parent company of Sears, Roebuck and Co. and Kmart — operated over 3,500 stores across North America and employed more than 300,000 people. Sears had been the Amazon of the twentieth century: a retail empire that had literally built modern consumer culture, from the Sears Catalog that brought manufactured goods to rural America to the Sears Tower that dominated the Chicago skyline. Kmart, once the nation’s largest discount retailer, had battled Walmart for dominance of the American heartland.
By October 2018, both were bankrupt. The company that had defined American retail for over a century filed for Chapter 11 protection with $11.3 billion in debt, and the man who had orchestrated its decline — hedge fund manager Eddie Lampert — emerged from the wreckage having extracted billions while the company and its workers were left with nothing. The death of Sears is not a story about a company that couldn’t adapt to the internet. It’s the story of a company that was deliberately hollowed out from within.
Richard Sears and the Catalog That Built America
Richard Warren Sears founded his mail-order watch company in 1886. By the turn of the century, the Sears, Roebuck and Co. catalog had become the most important retail innovation in American history. The “Big Book” — sometimes running to over 500 pages — offered everything from clothing and tools to houses (sold in kit form, shipped by rail, and assembled by the buyer). For millions of Americans living in rural communities far from urban stores, the Sears catalog was their primary connection to consumer modernity.
As America urbanized, Sears followed its customers. The company opened its first retail store in 1925, and by the 1960s, Sears was the largest retailer in the world. It wasn’t just a store — it was an institution. Sears created Allstate Insurance, launched the Discover credit card, owned the Coldwell Banker real estate empire, and built the Sears Tower, the world’s tallest building. At its zenith, one in every two American households had a Sears credit card. The company’s house brands — Kenmore appliances, Craftsman tools, DieHard batteries — were synonymous with middle-class American life.
Kmart: The Discount Giant That Lost Its Way
Kmart’s trajectory was equally dramatic. Founded as S.S. Kresge Company in 1899, it launched its first Kmart discount store in 1962 — the same year that Sam Walton opened the first Walmart and the Dayton Company opened the first Target. For two decades, Kmart was the undisputed leader in American discount retail, with over 2,000 stores by the mid-1990s.
But Kmart failed to invest in the supply chain innovations and data systems that allowed Walmart to undercut it on price, and it lacked the brand differentiation that kept Target relevant. By the early 2000s, Kmart was bleeding market share and losing money. In January 2002, it filed for bankruptcy — at the time, the largest retail bankruptcy in American history.
Eddie Lampert: The Hedge Fund Manager Who Bought a Retail Empire
Enter Edward “Eddie” Lampert, the founder of ESL Investments, a Connecticut-based hedge fund. Lampert had made his fortune through value investing — buying undervalued assets and extracting maximum returns. He began acquiring Kmart debt during its bankruptcy proceedings, eventually converting his position into a controlling equity stake when the company emerged from Chapter 11 in 2003.
In 2005, Lampert orchestrated the merger of Kmart and Sears, creating Sears Holdings Corporation. The deal was marketed as a transformational combination of two iconic retailers. In reality, it was a financial engineering exercise. Lampert had no retail experience and, by most accounts, little interest in the operational challenges of running thousands of physical stores. What he was interested in was the real estate — thousands of store locations sitting on valuable land — and the cash flow that could be extracted from the combined entity.
What followed was a masterclass in corporate asset stripping. Rather than investing in stores — which desperately needed renovation, technology upgrades, and inventory — Lampert redirected cash to stock buybacks and financial maneuvers. Between 2005 and 2017, Sears Holdings spent over $6 billion buying back its own shares, enriching Lampert (the largest shareholder) while the stores deteriorated.
The Slow Strangulation
The decline was visible to anyone who walked into a Sears or Kmart store during the Lampert era. Shelves were understocked. Departments were closed. Floors were dirty. Employees were scarce. The stores looked and felt like they were going out of business years before they actually did. Capital expenditure — the money spent on maintaining and improving physical assets — fell to a fraction of what competitors like Walmart and Target invested. Lampert was starving the business.
Meanwhile, Lampert spun off the company’s most valuable assets into separate entities that he controlled. In 2012, Sears created Seritage Growth Properties, a real estate investment trust (REIT) that acquired 235 of Sears’s best store locations. Sears then leased the properties back from Seritage — paying rent to an entity controlled by Lampert for stores that Sears had previously owned outright. The Lands’ End clothing brand was spun off in 2014. The DieHard, Kenmore, and Craftsman brands were sold or licensed.
Each transaction enriched Lampert and ESL Investments while stripping Sears of the assets and brands that gave it value. It was like a doctor removing a patient’s organs one by one while insisting the patient was getting healthier.
Bankruptcy and the Final Act
Sears Holdings filed for Chapter 11 bankruptcy on October 15, 2018. The company listed $6.9 billion in assets against $11.3 billion in debt. Lampert, through ESL Investments, submitted a $5.2 billion bid to acquire the remaining viable assets — essentially buying the company out of the bankruptcy he had helped create, at a fraction of what the assets had been worth before his stewardship.
The bankruptcy was a catastrophe for everyone except Lampert. Over 140,000 employees lost their jobs. Retirees saw their pension benefits slashed. Vendors and suppliers were left with billions in unpaid invoices. The communities that had relied on Sears and Kmart stores as anchors for their shopping centers and main streets were left with vacant buildings and lost tax revenue.
Lawsuits from creditors alleged that Lampert had conducted “a systematic, multiyear scheme to strip billions of dollars of Sears’s assets for the benefit of Lampert and his affiliates” while leaving the company unable to pay its debts. Lampert denied the allegations, maintaining that he had tried to save the company and that its failure was due to market forces beyond his control.
The Lessons of Sears
The death of Sears is often attributed to Amazon and the rise of e-commerce. But this narrative is incomplete. Walmart, Target, Costco, and Home Depot all thrived during the same period that Sears declined. The difference was investment. Those companies invested billions in their stores, their supply chains, their technology, and their employees. Sears, under Lampert, invested in financial engineering.
The Sears story is a cautionary tale about what happens when a company is treated not as a living institution with obligations to employees, customers, and communities, but as a portfolio of assets to be liquidated for maximum financial return. Eddie Lampert may have been a brilliant investor. But he was a catastrophic steward of one of America’s most important companies, and the human cost of his stewardship — the lost jobs, the gutted communities, the broken retirement promises — is a bill that will never be fully paid.
Go Deeper
📚 The Big Store: Inside the Crisis and Revolution at Sears by Donald R. Katz — The essential history of Sears’s transformation from America’s most powerful retailer into a company struggling to find its identity.
📖 Explore more on our Recommended Reading page.
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