Summary
Although $400 million is rather small in the scheme of things, the last time GE got involved with a major retailer, it proved to be one of the most costly mistakes of Mr. Welsh's career. When Mr. Welsh approved GE's purchase of Montgomery Ward there was a move afoot in financial circles to diversify and a belief that GE was so smart and so rich that they could easily fix the ailing retailer. It turned out that after a few years and several cash infusions, GE and Mr. Welsh quietly shut down the entire company at a reported loss of approximately $3 billion.
Analysis
A prudent observer might raise an eyebrow or two at the similarity of the condition of these two giant retailers at the point where GE rides to the rescue. Very few, if any, retail analysts gave Montgomery Ward much chance of survival in the late 1980's. As a close observer of the company back then I can attest to the fact that Ward's and Sears were as similar as any two retailers have ever been. They even shared many of the same executives. In fact the CEOs of the two companies were brothers!
Fast forward to today's retail landscape and after holding the two companies up to the light to examine the similarities, a careful observer would see that SHLD is about the same proximity to the "drain" they are circling as was Wards when GE came to their rescue. The only significant difference I can see in today's Sears, is that it is being run by Mr. Lampert who has far fewer credentials as a retailer than did Bernie Brennan at Wards.
When I saw the article about this loan I could not help but think back to the time when both Sears and Wards were on top of the world and vigorous competitors. I watched while Wards went through a series of ownerships by people (Mobil Oil, GE) who knew nothing about running a retail company and saw how quickly the company deteriorated, even after trying to hire some good retail talent. Now with Mr. Lampert micro managing SHLD and watching it deteriorate and bleed more money faster than Wards ever did, I can't help but draw the comparison for what it's worth for the GLG reader.
I wonder what some smart reporter with a long memory might get in the way of commentary from Mr. Welsh if he were asked to comment on the current GE management's involvement with the sister to the ill fated involvement with Wards.
