Sears About Face

I've criticized Sears repeatedly for selling their credit division. It didn't make sense, and CEO Lacy had previously made statements about how important it was to the company. Now this may explain the shift in strategy.

Why the change of heart? Lacy declined to comment for this story, but many point to the influence of Edward S. Lampert, the low-profile investor who now has a 10% stake in Sears. "The sale completely fits his modus operandi," says a managing director at a hedge fund just down the street from Lampert's Greenwich (Conn.) office.

Lampert isn't talking, but a close look at the strategy he honed at other retailers suggests what he may be up to at Sears. By taking a position in a struggling company, then adopting an activist role, he has forced such underachievers as AutoNation (AN ) Inc. and Kmart (KMRT ) Corp. to focus on core operations, boost cash flow, and control costs. "Eddie is all about unlocking value," says Joseph Grabowski, an analyst at Strong Capital Management.

Unlocking value is fine, but there has to be some value to unlock, and in Sears' case I am not sure there is. At the Sears near me, the tool department is the only section that is ever busy. People can find appliances and electronics at other places for better prices. Clothing is okay, but not as cheap as at WalMart nor as fashionable as the stuff at other department stores. I just don't see why people would shop at Sears over any other place.

Selling the credit division will give Sears cash to burn while they revamp stores and strategy, but to win in retailing, they have to differentiate themselves in some way. So far, I am not seeing it.