Challenges remain after Sears ousts CEO

Maybe this time Sears will choose a retailer to run the business.

That was the mantra from retail analysts Monday as Hoffman Estates-based Sears Holdings Inc. announced the ouster of Chief Executive Officer Aylwin Lewis and the naming of operational head W. Bruce Johnson as the interim chief executive.

The New York Times reported Monday that Sears Chairman Edward Lampert has already approached retail executives about running the company, owner of Sears and Kmart stores.

J.Crew Group Inc. CEO and former Gap Inc. head Millard Drexler and former J.C. Penney Co. CEO Allen Questrom were approached about the job but both turned it down, the report said.

Choosing a retailer would be a switch from recent years.

Lewis is a former chief operating officer of Yum! Brands Inc., the owner of the Taco Bell, KFC and Pizza Hut chains.

Previous CEO Alan Lacy's background was in finance.

Lewis' ouster brings up other interesting scenarios.

Lewis, widely seen as hedge fund billionaire Lampert's second-in-command, was viewed as an operational expert brought in to execute Lampert's vision for the firm since Lampert organized its takeover in 2005. So Lampert bares a lion's share of the blame for Sears' recent troubles, analysts said Monday.

Which raises the issue of Lampert's own ouster.

Although he controls ESL Investments fund, which controls more than 40 percent of Sears' shares, even his hedge fund lost 26 percent last year.

"Almost every hedge fund manager is in trouble because they lost money," said George Rosenbaum, chairman of Leo J. Shapiro, a Chicago-based retail consulting firm. "There could be a palace coup if (ESL investors) feel Lampert has lost his magic."

If a major retail figure does accept the top spot, Rosenbaum said the new CEO would have to know power will be shared with Lampert.

Also, retailer chief executives would likely want to pump money into Sears' infrastructure, something Lampert has cut back.

"Even then the odds for success are still very low," Rosenbaum said.

Sears could sell some of its formidable real estate holdings or brands, but the widely expected upcoming retail slowdown greatly pushes down the value of those assets, according to Credit Suisse analyst Gary Balter, who last week downgraded Sears to "underperform."

"We don't believe that they will break their way out of their problems," Balter said in his report. "The asset value has deteriorated to a point where one can argue that there is very little value other than as an ongoing retailer."

In an inner company memo Monday, Lampert thanked Lewis, 53, who will leave the job Feb. 3. And he moved to boost employee morale.

"We know we are facing a difficult macroeconomic and retail environment, but we also expect to come out of these challenging times as an improved and stronger company," wrote Lampert, who declined to be interviewed.

Sears said this month fourth-quarter profit may fall more than 50 percent after U.S. holiday sales shrank at its namesake and Kmart retail chains.

Sales at stores open at least a year have declined every quarter since the Sears-Kmart merger as the biggest U.S. department-store chain loses customers to Wal-Mart Stores Inc., Target Corp., J.C. Penney Co. and Home Depot Inc.

Sears, which operates 3,800 stores in the U.S. and Canada, saw its shares rise 1 percent on Monday, or $1.28, to $100.28 in New York Stock Exchange composite trading. The shares declined 3 percent this year through last week following a 39 percent drop in 2007.

Sears said last week its businesses would split into five categories: operations of its home appliances, apparel and other lines; support services; development of its brands such as Craftsman tools and Kenmore appliances; real estate; and online sales growth.

Also in Monday's announcement, the company said Lampert will no longer have executives reporting directly to him. However, analysts said Lampert will most likely remain a force at Sears.

And he's bound to like the next CEO -- Lampert said Monday he will head the search for a new executive.

"We view (Lewis' ouster) as a positive for Sears," said Kim Picciola, a retail analyst at Morningstar Inc., a Chicago-based equity research firm. "I think (Lampert) will still be very involved, whoever they pick."