Eddie Lampert's Letter to Sears Shareholders

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 underinvesting 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.

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. We aim to make Sears Holdings a great place to work for those who are excited about learning and trying new things.