Last-ditch Sears bid could have saved 10,000 jobs: ex-CEO
The former head of Sears Canada says he had a solid plan to revive the insolvent retailer but felt constrained by a court restructuring process that seemed to favour liquidating the company’s assets over keeping it afloat.
Speaking publicly on Monday for the first time since Sears Canada was put into liquidation two weeks ago, Brandon Stranzl also responded to recent criticism from his former boss Eddie Lampert, the CEO of U.S.-based Sears Holdings and the largest shareholder of Sears Canada.
In a blog post last week, Lampert suggested that Stranzl hastened the demise of Sears Canada through a strategy that was “highly risky and unlikely to succeed,” and that a less risky path could have avoided liquidation. Lampert, who along with his hedge fund ESL Investments owned about 45 per cent of the company’s stock, also said he was not told in advance that the company intended to file for bankruptcy protection in June under the Companies’ Creditors Arrangement Act.
“Eddie is putting forth a fairly valiant effort to bring Sears Holdings in the U.S.A. to a better place and I was really just doing the same thing here,” said Stranzl, who was executive chairman of the company until an Ontario Superior Court rejected his most recent attempts to buy the company earlier this month. Stranzl, a former analyst at ESL, was tapped by Lampert to join Sears Canada’s board in 2015 and he took on the role of executive chairman that July after CEO Ron Boire left to run Barnes & Noble.
“I am confused by (Lampert’s) comments. I don’t really understand them because he was informed all the way along,” said Stranzl.
Stranzl said his bid would have seen between 8,000 and 10,000 Sears employees keep their jobs and aimed to keep its pension plan alive, currently underfunded by about $270 million.
He says his plan for Sears, including initiatives such as creating an off-price merchandise business and a new Sears private label, gained traction before the company ran out of money after more than a decade of sliding sales and dwindling market share.
Stranzl pointed to the retailer’s two quarters of consecutive samestore sales increases before it filed for court-appointed bankruptcy protection, and said he had a plan to improve the company’s margin erosion. Sears’s real problem, he said, was that it operated for years in an outmoded model as an “aggregator” of products, and it needed a radical reinvention to compete with its rivals. “Ultimately we ran out of time,” he said.
Alex Arifuzzaman, partner in Toronto-based retail real estate specialists InterStratics Consultants, said a focus on same-store sales as a yardstick of success is far too limiting. “The most important thing for retailer is net profit,” he said. “You can drive sales by lowering prices and if you get enough traffic that can increase profit, but that did not happen here. A couple of new initiatives this late in the game would not have turned it around. (In CCAA), Sears was losing seven million dollars a week.”
Had Sears Canada made the bold step of digitizing its once-strong catalogue business 15 years ago, Arifuzzaman added, it would have fared far better.
Given that the company issued more than $2 billion in dividends to shareholders that it might have otherwise reinvested in the business — a move that riles Lampert’s critics, who note he was the biggest beneficiary of those dividends — any efforts were pretty futile at a time when the healthiest of retailers are grappling with a rapidly changing retail marketplace, Arifuzzaman said.
Stranzl believes that liquidation bids should not have been considered from the inception of the CCAA restructuring process alongside going concern bids. The restructuring was set up as more of a sale process than a plan of arrangement, he added, due to factors such as the strict terms of the debtor-in-possession financing.