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Hedge-Fund Ownership Cost Sears Workers Their Jobs. Now They’re Fighting Back.

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Bruce Miller got a job at a Sears in Tom’s River, New Jersey, ”fresh out of high school,” he said. He didn’t have any experience other than repairing cars in his backyard, but a friend who worked in the maintenance department knew he was looking for work and recommended him. That was the beginning of a 36-year career with the company. “Everyone I had talked to said, ‘Get into Sears. Stick with them. They’re a great company. They’ll take care of you,’” he recalled. “I just kept my eyes open and my nose clean and worked my way up.” He eventually became an auto mechanic.

In 2005, the hedge fund ESL Investments Inc., owned by Eddie Lampert, took over the company. In the 1990s, Sears struggled to keep up with big-box competitors Walmart and Kmart and to compete with online retailers. When Lampert took over, he focused on reducing costs and increasing shareholder returns. Miller immediately noticed the difference that made to the quality of service and offerings in the stores. “We went from the top of retail to the bottom of the barrel,” he said. His pay was changed from an hourly rate to commission-based, which meant he and his co-workers started competing with one another. It also meant that when sales declined, as customers fled the dilapidated stores, his income did, too. When he started, Miller said, a slow day in his department meant repairing 100 cars—at its peak, 185 daily. But toward the end, “We were lucky to get 10 cars a day.”

Benefits changed as well. The company took away five personal days. Sick days disappeared. And though he had worked a steady schedule Tuesday through Saturday from 8 am to 4:30 pm, the company started asking him to work at all hours, he said, adding that some days he worked until midnight and then had to be back at 7 the next morning.

Lampert bought Kmart in 2003 and merged the two companies in 2005. He came into ownership of both with basically no experience in retail; his background was in risk arbitrage at Goldman Sachs. To buy Sears and Kmart, Lampert, through his hedge fund, used the private-equity model of a leveraged buyout: He financed the purchase of those companies by saddling them with debt and using little of his own capital. Once he became a retail CEO, he stuck with the Wall Street playbook. He sold off Sears’s most valuable assets, such as the Lands’ End clothing and Craftsman tool brands. Many business lines ended up in separate companies that he has invested in through his hedge fund and profited from as Sears withered. Lands’ End, for instance, is now worth more than Sears. He also sold off a cluster of Sears stores for $2.7 billion to Seritage, a real-estate company that he headed as chairman. Sears then had to pay rent at many of those locations.

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