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The Sears HQ layoffs are painful, but were inevitable
Friday, Feb 17, 2012 - Posted by Rich Miller * OK, so Sears is run by a guy who has no real ties to Illinois and owns a hedge fund. People with those two characteristics should not generally be trusted for their geographic loyalty. So, when the company threatened to leave, it had to be taken seriously. If it had left after 160 years in Illinois, more than 6,000 direct headquarters jobs would’ve vanished and the resulting furor would’ve created some of the worst international publicity this state’s economic climate has ever experienced. Sears is a company in trouble. It is downsizing, closing stores and cutting other jobs. The Hoffman Estates headquarters operation was never supposed to be immune from those cost-cutting moves, nor should it have been. When the state government starts micromanaging corporate operations… well, let’s just say we’ve got our own problems and they’ve got theirs. Why was it obvious that Sears planned to cut HQ jobs? Because the formal agreement with the state in exchange for its incentive package required Sears to keep 4,250 at the headquarters - almost two thousand fewer than the 6,200 employed there right now. * So, while I definitely feel for the 100 people who are about to lose their jobs at the Sears HQ, this was an inevitable move by a company struggling to get back on its feet and anybody who tries to tell you differently just doesn’t know what he or she is talking about…
The choice facing state negotiators was simple: Lose some HQ jobs or all of them. The cost-benefit ratio of losing some of those jobs was already figured into the equation. And keep in mind that if the company does go under, or employment levels fall below the mandated minimum, the state tax incentive money will be shut off.
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- Oz - Friday, Feb 17, 12 @ 9:26 am:
Only problem is that the political apparatus has done nothing to prevent any of these bailout tax break for jobs corporations from coming back again and again holding the taxpayers hostage.
Whatever happened to we don’t negotiate with terrorist?
How about we take all that money that is being used for corporate welfare and invest it into things that the corporations need like education and infrastructure? That way Illinois can tell them hey..if you can find something better than our students, our location, our infrastructure have a nice day and good luck!
As it stands the corps got the money this year and they will be back for more when that runs out. Like GM and Chrysler. Bankruptcy government bailouts, gut the wage base and bust the unions and then apply for more government loans. The reason these two examples are not at the trough for more is only because it’s an election year watch and see.
- Rich Miller - Friday, Feb 17, 12 @ 9:31 am:
===Whatever happened to we don’t negotiate with terrorist?===
Last I checked, Sears was not on any terrorist lists. Tone it down, please.
- wordslinger - Friday, Feb 17, 12 @ 9:34 am:
It’s just hard to figure out where Sears can make a stand in the marketplace. They’re not a winner on price; they’re not a winner on selection; they’re not a winner on the shopping experience.
Now, they’re selling their top brands — Kenmore, Craftsman, DieHard — at other retailers.
I think this hedge fund guy is waiting for commercial real estate to rally, then he’ll whack up the company; sell the brands, sell the real estate. The sum of the parts is worth more than the whole.
- just 'cause - Friday, Feb 17, 12 @ 9:35 am:
Inevitable as it may be, they came to the GA holding up their jobs as the reason they needed a tax give back. It took them 60 days to start firing people. The optics are less than good.
- Yellow Dog Democrat - Friday, Feb 17, 12 @ 9:37 am:
Cost Benefit Analysis / ROI for public goods and services is only marginally better than voodoo in most cases, and in some cases much worse.
CBA led one “authority” to conclude that governments should actually encourage people to smoke so that they would die before Social Security/Retirement.
Heck, why not just take the Logan’s Run approach and euthanize everyone when they reach 50 and, statistically speaking, marginal rates of return begin to steadily decline.
Did their CBA even include standard consideration of alternative use?
Like what if this money was put into the school district instead to increase long term earning?
Yeah, I didn’t think so.
- Lakeview - Friday, Feb 17, 12 @ 9:37 am:
Sears is struggling because of its own dumb mistakes in merchandising and store operations. Those jobs are going away one way or the other. It would have been better to give the incentives to businesses that are struggling because of the economy and that have the potential to add jobs over the long haul.
- Rich Miller - Friday, Feb 17, 12 @ 9:40 am:
===Like what if this money was put into the school district instead to increase long term earning?===
Then they might have marginally better schools and a bunch of impoverished parents.
- Robert - Friday, Feb 17, 12 @ 9:40 am:
==if the company does go under, or employment levels fall below the mandated minimum, the state tax incentive money will be shut off.==
Excellent point. This is how state tax incetives to corporations should work - tied to employment rather than just handouts and hope. I hope the state is competing for growth businesses, offering them tax incentives that would be tied to growth in payroll within the state.
- Rich Miller - Friday, Feb 17, 12 @ 9:43 am:
===Sears is struggling because of its own dumb mistakes in merchandising and store operations.===
It and KMart were bought partially as real estate plays. Real estate is seriously in the dumper right now.
- The Other Anonymous - Friday, Feb 17, 12 @ 9:47 am:
Concluding that the option was to lose some of the jobs and give a tax break, or lose all of the jobs assumes that Sears would have actually moved its HQ. In just about every case, taxes are among the least important considerations for where a company locates. Of course, once they decide where they want to go (or stay), their PR departments talk only about taxes as the company negotiates the best deal for incentives.
- Irish - Friday, Feb 17, 12 @ 9:49 am:
The real problem here as I see it, is that the agreement was presented as a political statement.
None of this would be an issue if the Governor came out and said, We have come to an agreement with Sears to keep them in Illinois. While this will not guarantee that there might not be some necessary cuts at the corporate headquarters and some possible cuts at some Illinois retail outlets the agreement does keep the bulk of HQ jobs in Illinois at their Hoffman Estates HQ. The benefit to the community is X and Y. The employees alone by spending their salaries in Illinois generate Z amount in taxes. The cost to the state if they left would be Z.
Painting it as all rosy in this business climate knowing full well that the company was in trouble was just asking for it.
- Informer - Friday, Feb 17, 12 @ 9:51 am:
The deal that if Sears goes under the incentives will be cut off is somewhat confusing. If sears goes under well then, it won’t need any incentives because it will be gone
- Rich Miller - Friday, Feb 17, 12 @ 9:55 am:
===is somewhat confusing===
Agreed, but you’d be amazed at the number of people who believe otherwise. It’s weird that I have to point this out, but it has to be done.
- Rich Miller - Friday, Feb 17, 12 @ 9:57 am:
===None of this would be an issue if the Governor came out and said===
Oh, please. The details were well known at the time this bill passed. You can’t blame this on perception of Quinn. Not this time anyway.
- dave - Friday, Feb 17, 12 @ 10:10 am:
**Like GM and Chrysler**
Those are you examples of corporate bailouts going wrong? Really? Those are arguably two of the most successful corporate bailout stories in years.
- Anonymous - Friday, Feb 17, 12 @ 10:12 am:
“Last I checked, Sears was not on any terrorist lists. Tone it down, please.”
How about “blackmailer”? Is that better?
(J/K, Rich. It’s a Friday.)
- Shock & Awww(e) - Friday, Feb 17, 12 @ 10:13 am:
The AP feed (those are a great touch) just posted a “breaking news update” that CAT will build a new plant in Georgia directly employing 1,400 workers.
While Lampert bought Sears in part as a real estate play, just ’cause puts it well - “The optics are less than good” - on the Sears stuff and the CAT stuff.
I remain, however, an eternal optimist. It will turn around sooner or later.
- Anonymous - Friday, Feb 17, 12 @ 10:14 am:
“Really? Those are arguably two of the most successful corporate bailout stories in years.”
For GM? Sure. For the taxpayers? We are shorted billions on the deal, about $14B if I remember correctly.
- Jade_rabbit - Friday, Feb 17, 12 @ 10:25 am:
“Last I checked, Sears was not on any terrorist lists. Tone it down, please.”
How about “blackmailer”? Is that better?
(J/K, Rich. It’s a Friday.)
Extortionist would be better.
- Irish - Friday, Feb 17, 12 @ 10:32 am:
The point I was trying to make is that the corporate layoffs shouldn’t be a surprise to the informed person. But many folks don’t read this blog and PQ did not mention that the layoffs could come at Hoffman Estates and elsewhere in Illinois in spite of the tax incentive, eventhough he and most of the GA fully understood that. As a result the mention that there might be layoffs at retail stores and this revelation that 100 jobs would be cut at the HQ get people all riled up.
A little more thoroughness would have avoided this, but wouldn’t have created as much positive spin at the time.
- Informer - Friday, Feb 17, 12 @ 10:57 am:
Some years ago Sears would build stores that looked like big boxes surrounded by large paved well lit parking lots. Sears sold tools through clothing and everything in between. If you were unsatisfied they cheerfully refunded your money. The employees were all investing in Sears stock through the profit sharing plan and were from my obserations generally happy. Sears then decided to go upscale moving into shopping malls, carrying designerish clothing and dropping many of the mainstay everyday consumables people would buy there. Along then came someone that built a store that looked like a big box in the middle of a paved well lit parking lot and cheerfully refunded your money if you were unsatisfied… that is the story of Sears vs the Waltons. Sears had it all as a pioneer in the future of retailing and seems to have walked away and given it away to today’s big boxes. Who would have thought?
- Shore - Friday, Feb 17, 12 @ 11:07 am:
we’re paying companies to fire people. Brilliant. Back to work on serious measures like taxing strippers.
What a joke.
- Aldyth - Friday, Feb 17, 12 @ 11:25 am:
Informer, when I was in college 35 years ago, I remember an instructor talking about Sears being responsible for 1% of the GDP. Times have changed, indeed.
- Aldyth - Friday, Feb 17, 12 @ 11:26 am:
Sorry, should be GNP. Can’t proofread my own stuff.
- Anonymous - Friday, Feb 17, 12 @ 11:48 am:
On the upside, and as a follow-up to my earlier post, PNC Bank just announced they’re hiring 200 people in Chicago.
- Shock & Awww(e) - Friday, Feb 17, 12 @ 11:49 am:
Anon @ 11:48 was me. Perdon.
- Pat Collins - Friday, Feb 17, 12 @ 12:50 pm:
Are these agreements public, or must one file a FOIA to see them? Same q about the money paid out, is that a budget line item?
The Motorola agreement was similar, in that MMI could lay off some 700 people and still meet the terms.
- Rich Miller - Friday, Feb 17, 12 @ 12:59 pm:
===Are these agreements public, or must one file a FOIA to see them? ===
It’s a state statute. No FOIA required. Just a click away.
- Michelle Flaherty - Friday, Feb 17, 12 @ 1:06 pm:
Just about any print media report of the deal at some point included that Sears employed 6,000 people and the final agreement required they keep 4,250.
Apparently no one did the math until now.
- 3rd Generation Chicago Native - Friday, Feb 17, 12 @ 1:11 pm:
I wonder if they think this move is going to go under the radar because their big inital layoffs were not in the State of Illinois because it was so close to their big tax break. They could have thought this was far enough along that the dust settled on their first big layoff annoucement.
- Anonymous - Friday, Feb 17, 12 @ 1:23 pm:
=…again holding the taxpayers hostage.=
Why are you “empowering” them with such drAma?
- Anonymous - Friday, Feb 17, 12 @ 1:28 pm:
=if you can find something better than our students, our location, our infrastructure have a nice day and good luck!=
Students? They’ve thrown over the the best of their best for offshore resources who don’t even speak English…and you think they’re interested in our “students”?
Face it. These are no longer OUR corporations.
- Anonymous - Friday, Feb 17, 12 @ 1:44 pm:
And “academia” have been using off-shoring and unemployment to undermine our workforce as an excuse to not only mooch off of our government, but to also increase student debt.
So why don’t we just let those brainiacs come up with a solution…and in the meantime, tax the crap out of the corporations that are no longer ours.
- Anonymous - Friday, Feb 17, 12 @ 1:57 pm:
=PNC Bank just announced they’re hiring 200 people in Chicago=
And think about from where the originate.