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Eddie’s Brave New Retail World

Many observers derided Sears chairman and majority shareholder Eddie Lampert’s decision to add CEO to his title last month.

Perhaps addressing naysayers who questioned his merchandising depth, Lampert offered his take on the state of retail in his annual open letter to shareholders, employees and customers, which accompanied today’s improved full-year earnings results.

In it, he deflects past criticisms of capex starvation at Sears and Kmart by pointing to his investments in multichannel and the struggles of other national chains, and speaks of the need for a new generation of managers who can better navigate the sea change at retail.

Here are some highlights:

“The retail industry is complex and changing rapidly. But, it’s not just retail. Many industries are going through a transformation driven by information technology — financial services, newspapers and magazines, books, music, movies, healthcare, you name it.

“As anybody can now see from the events surrounding JCPenney, Best Buy, Toys ‘R’ Us, Staples, Barnes & Noble and others, the retail landscape is fundamentally shifting. In our case, observers have mistakenly concluded that our issues were primarily related to under-investing in our stores. This ignores the significant investment that the retailers cited above and many others have made in their stores without relieving themselves of what I believe are the more fundamental issues facing the retail industry today. If it were just about store investment, then Best Buy would be thriving after the demise of Circuit City, Barnes & Noble would be thriving after the demise of Borders and other retailers who made significant store investments would be thriving instead of struggling to chart a new course.

“In reality, and as I have discussed in prior shareholder letters, the progression of the Internet and mobile technology is fundamentally reshaping many industries, with retail being one of the largest. Increased price transparency, better customer-level information and analytics, faster supply chains and the advent of social networking and social media are all contributing to making running a large retail organization more complex.

“We are living in a hyper-connected world. Customers are looking for convenience and they are more networked than ever. They want to get what they want, when they want it and where they want it — on their own terms. They are visiting stores to talk to expert associates and get advice, they are researching online, and they are making purchases and comparing products through their mobile devices. An integrated store, online and mobile experience is not a ‘nice to have’ anymore. Companies that are not innovating and are not connected across their channels to provide a seamless experience are becoming less and less relevant to their customers.

“There has been a significant amount of turnover at the highest levels of retail leadership and it only seems to be increasing. Changes at the CEO or president level of Safeway, Toys ‘R’ Us, Staples, JCPenney, Best Buy and others are signs that the talent needed to transform companies in the retail industry today and the persistence required to see transformations through are not easy to come by. I believe that we are seeing an enormous shift in the type of talent that will be running retail enterprises in the future, similar to the shift that Google brought to the advertising business and that quants brought to financial services. It isn’t that the qualities required to be a successful executive in retail in the past are no longer valuable. Instead, additional skills are required to adapt to the speed, creativity, analytics and experiences that customers require in their shopping as new competitors emerge to excite and educate them, and to disrupt the status quo.

“As this process plays out, I would expect to see significant levels of management turnover as companies try new ideas and new types of capabilities and organizational structures. I believe that Sears Holdings has been early in pursuing these ideas and that some of the turnover we have experienced is a product of this change. But if we don’t change, and if our talent can’t adapt to that change, we won’t be successful. This is just as true for many others in our industry and other industries as well.

“To win the game, we have to change the game. We not only need to adapt, we need to lead and stay ahead of the curve. Our strategy to transform the company has remained consistent in the face of this change … We aim to make Sears Holdings a great place to work for those who are excited about learning and trying new things.”