Paul Krugman Says Sears Being Used As A Market Experiment

Sears (NASDAQ:SHLD) today is run as one big, happy family, a family made up of units that are all trying to kill each other, suggests New York Times Columnist and economist Paul Krugman. Sears is being used as the ultimate test of market power, that if the market is always right, units that should flourish will and those that shouldn't will be wiped out. This process, Krugman writes, is "driving Sears into the ground."

The direct subject of the criticism is, understandably, current-CEO Eddie Lampert. "One quirk, by the way, is that he doesn't meet with his division heads in person; it's all by video link. And look, I've seen that movie — probably a Syfy original, but I don't remember (better than Sharknado, anyway); clearly, this guy doesn't even exist, he's a computer-generated hologram being manipulated by an evil IT guy."

His economic theory, though, is that Lampert believes that market competition is always the best way to make a decision. "Eddie Lampert's big idea is that markets and competition rule, so he's forcing the different parts of Sears to compete for resources just as if they were independent firms, with individual division profitability the only criterion for success," Krugman wrote. "The first issue that should pop into anyone's head here is, if the different divisions of Sears have no common interests, if the best model is competition red in tooth and claw, why should Sears exist at all? Why not just break it up into units that have no reason not to compete? For that matter, why should any large firm exist? Why not just have small firms, or maybe just individuals, who make deals for whatever they need?"

He gives Lampert credit for at least being true to his beliefs: "In a way, Eddie Lampert is being consistent: he's putting his money (or actually his investors' money) where his ideology is, and applying market-worship to the internal management of his own company."

Krugman's making the textbook argument for the advantage of a corporation, the value of a CEO-directed command structure that uses experience, gut instinct and research to guide the company. Certainly shopper behavior is a factor, but the idea of a corporation is that it isn't the only factor.

Krugman's argument is based on economic theory. From a retail marketing perspective, the over-simplified analogy is that of a leader versus a follower. When a CEO's leadership team is top-notch, it can predict what customers will want long before the customers realize it. With leadership, there's no way to decide if a failing product needs to be killed or changed or perhaps simply given more time.

Although Sears has been at the cutting edge of IT issues repeatedly over the years, its fundamental marketing and retail approach has been a laggard, a follower. Perhaps Sears doesn't need more time. Perhaps it needs more creative management. And a CEO who delegates to the market is probably not the ideal choice.

For more:
- See Business Insider story
- See the original New York Times column

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