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Sears Has Problems. Gitmo Has Bigger Ones.

Shelly Banjo is a Bloomberg Gadfly columnist covering retail and consumer goods. She previously was a reporter at Quartz and the Wall Street Journal.
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Sears's chief executive, Edward Lampert, hit new heights of hyperbole Wednesday when he compared his efforts to turn around his company to President Barack Obama's promise to close the U.S. detention center at Guantanamo Bay, Cuba. Saving an iconic retailer, ending a notorious prison … that's not exactly an obvious parallel. But is he onto something? Bloomberg Gadfly's Shelly Banjo and Bloomberg View's Tobin Harshaw decided to discuss it.

Tobin Harshaw: Shelly, you cover retailing for Gadfly and I write about national security for View, and I doubt either of us thought we'd have much overlap in our beats. Other than the fact that Sears and the Gitmo Naval Base were both created around the time of the Spanish-American war, the comparison seems a non sequitur. Do you see any way in which the analogy is helpful to understanding the respective issues?

Shelly Banjo: It certainly is a stretch, Toby. Let's look at Lampert's challenge and see if it's anything like Obama's.

For one, Sears -- like many traditional retailers -- is stuck with a bunch of real estate built over the decades that doesn’t really make sense any more. Real-estate consultancy Green Street Advisors estimates that department stores need to close 800 locations to regain the productivity they had a decade ago. Out of that, 300, or 43 percent of them, belong to Sears.

But it’s not that easy. There are long-term leases with mall owners that don’t want to let Sears out of its contracts for fear other stores would follow, and then the owners have empty malls. There are small towns that rely on the stores. And there’s research that shows shoppers aren't very loyal, as more than half of them wouldn’t actually visit that retailer’s website or shop a nearby store if their local store closed.

Tobin Harshaw: Speaking of long-term leases, the U.S. presence at Guantanamo has no expiration, and since 1934 we've been paying Havana a piddling $4,000 a year (which the Castro government refuses to accept). But there are other costs. A standing U.S. occupation of another country's sovereign territory is a disturbing colonial anachronism, all the more so since Obama began to open relations with Cuba. The Pentagon wants to keep the U.S. naval station at Gitmo active, and I agree -- but we need to come to some sort of understanding with Cuba's government, which may be easier after the Castro brothers exit the scene.

As with those moribund Sears branches, the financial cost of keeping up the detention center is enormous -- around $2.7 million per prisoner each year. And given the black eye in terms of America's global reputation, Gitmo can hardly be considered a good investment. Yet shuttering it would be expensive as well, at least in terms of constructing a new facility in the U.S. Like Lampert, Obama faces a pair of financially unappetizing options.

Shelly Banjo: Sears is also hemorrhaging money trying to keep stores open that fewer and fewer people even see a need for anymore.

At the end of February, Sears posted $580 million in quarterly losses, capping off 23 straight quarters of losses. Its shares have plunged by 80 percent since Lampert took over in the mid-2000s. Sears’s market value now stands at $1.8 billion, down from $20 billion when Lampert became chairman. It’s now worth less than the real estate investment trust into which he spun off the bulk of Sears’s best properties, called Seritage. The retailer is burning through cash fast.

But what’s the alternative? Shuttering the stores doesn’t really solve the company’s problems. Its efforts to get customers to use its loyalty program and shift online have also failed to gain traction. And for the first time in a decade, Lampert finally recognized his grand vision for bringing Sears into the digital age is falling flat. Shoppers just don’t want to shop there anymore.

The crazy thing is that Lampert continues to tell anyone who will listen that it’s his “intention” to return Sears to profit this year. He is careful to explain that that’s not a formal forecast, though.

Tobin Harshaw: There is another parallel: Shuttering the bricks-and-mortar operation doesn't really solve the problems at Gitmo either. The U.S. still has a problem with its "stock" -- these dangerous people it needs to keep somewhere. And the human-rights community and many allies will still be outraged by the concept of indefinite detention, no matter where we put them.

While I believe Obama could close the facility under his executive powers, he hasn't braved it. Congress, and to some extent the Pentagon, have blocked any attempt at a compromise, even banning by statute any spending that would bring the prisoners inside the U.S. What sort of external forces does Lampert think are keeping his hands tied?

Shelly Banjo: Good question! Lampert doesn’t have Congress to deal with. Or even an independent board of directors who are going to keep him honest, for that matter. Just two shareholders own three-quarters of the stock: Lampert (and his investment funds) and Fairholme, which is run by one of his buddies and fellow board members, Bruce Berkowitz. So, ostensibly, unlike Obama with Gitmo, Lampert can do whatever he wants.

And like Obama, who has been pledging to close the camp since before he took office, Lampert has been saying for the better part of the last decade that he’s going to turn around Sears.

Lately, though, Lampert has seemed a bit defeated. This year, he used his annual letter to shareholders to lay blame on harsher standards for older companies compared to those for startups like Uber and e-commerce companies like Amazon. Those businesses can raise almost unlimited amounts of money and play outside government rules and regulations, and aren’t expected to churn the profits expected of a traditional retailer like Sears, he complained.

“It’s not easy,” he told shareholders this week. That’s right, Eddie, it’s not easy. But if you can’t take the heat, may we suggest you consider one of Sears's fine induction cooktops, and a matching range hood?

Tobin Harshaw: Uneven standards are a fact of life in military and diplomatic affairs as well. Obviously, the terrorists feel they can do anything they want to civilians, while the U.S. is constrained by the Geneva Accords and international law. Yet the military feels that the press, other nations and the human-rights crowd seem indifferent to the handicap.

I think we have about snapped this rather slim reed, but I want to bring up one last thing: branding. Even if Obama is able to close Guantanamo, and despite the reforms of the last decade, the entire detainee program is going to be mired in memories of what was once called "enhanced interrogation." Given that most millennials would probably rather be waterboarded than set foot inside a Sears, what can Lampert do to change his company's unhip image? 

Shelly Banjo: The best thing Lampert could do to save Sears now would be to walk away. To let someone run it who actually cared about the business as a retail concern, rather than real estate roulette.

And much like the way J.C. Penney’s new CEO is making mundane but effective changes to turn around that iconic retailer, a different leader at Sears is probably its last chance at survival. Just as a new president is probably the only hope of getting Congress to cooperate on closing Guantanamo.

Yes, the store closures should continue and the investments in e-commerce should be ramped up, but focusing on fixing the basics -- cleaning up its stores, selling differentiated merchandise people actually want to buy, hiring and paying good employees to help customers -- could go a long way.

The again, perhaps it’s best to put the Sears catalog in a museum and leave the stores to memory.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the authors of this story:
Shelly Banjo at sbanjo@bloomberg.net
Tobin Harshaw at tharshaw@bloomberg.net

To contact the editor responsible for this story:
Philip Gray at philipgray@bloomberg.net