SEARS CANADA FOLLOWS ‘EATON’S DEATH SPIRAL’
Bid to save money-losing retailer fails as it seeks to close all stores, lay off 12,000
Sears Canada is closing up shop, announcing Tuesday that it is seeking court approval to close all of its stores across the country and lay off about 12,000 employees.
The move came after weeks of discussions with executive chairman Brandon Stranzl to save the money-losing retailer, but the company failed to reach an agreement after his most recent bid last week.
“Following exhaustive efforts, no viable transaction for the company to continue as a going concern was received,” said a statement from the retailer, adding the liquidation was recommended by its financial advisers and its court-approved bankruptcy monitor, FTI Consulting.
“The company deeply regrets this pending outcome and the resulting loss of jobs and store closures,” the statement said.
Sears Canada entered bankruptcy protection in June, saying it could not continue to operate as a going concern without a new source of financing. Sears Canada has 74 full-line department stores, eight Sears Home stores and 49 Hometown dealer stores in smaller markets across the country. The retailer wants to start liquidation sales no later than Oct. 19 and expects them to continue for 10 to 14 weeks.
The news comes after more than a decade of sales declines for Sears Canada, which was founded as Simpsons-Sears in 1952, a national mail-order business in partnership between Toronto’s Robert Simpson Company of Toronto and Sears Roebuck Co. of Chicago.
Sears Canada was viewed as the most likely inheritor of the market share void left by Canadian department store chain Eaton’s when it folded in 1999 and Sears bought out its remaining assets.
But in the lengthy interim period, Sears failed to adapt to a changing marketplace, ceding customers and market share to Walmart, Canadian Tire, Best Buy, Costco and Winners, and more recently, Amazon. Sears Canada’s sales were $2.6 billion in 2016, down from $6.7 billion in 2001.
“This took a heck of a long time, because the writing was on the wall almost 20 years ago,” said retail consultant Richard Talbot of Sidney, B.C.-based Talbot Consultants International Inc., who has followed the company for decades. “It’s very sad, and it’s just amazing how they could fritter away their name, reputation and business model.”
“What I found astounding was here was a company with a catalogue business across the country and they somehow messed up when e-commerce was coming in. It was theirs to lose. For the longest time, Sears was the only place for young families to go. Fifty years ago, it was one of the very few places to give credit.”
Many industry analysts say the retailer’s fortunes worsened after billionaire hedge fund investor Eddie Lampert and his ESL Investments Inc. gained control of Kmart in 2003 and merged it with Sears Roebuck in 2005 to create Sears Holdings Ltd.
The following year, Sears Holdings made a bid to buy up the remaining 46 per cent stake of Sears Canada that it did not own to take the company private, but the effort failed after a dispute with minority shareholders.
By 2014, Sears Holdings had a 51-per-cent stake that Lampert bought up directly and through ESL after he was unable to find a buyer for the Canadian business. More recently, his combined holdings with ESL stood at about 45.3 per cent.
Analysts were critical of Sears Canada’s failure to significantly reinvest in its business over the past decade even as it raised cash through hundreds of millions of dollars in asset sales by selling off its plum leases to landlords. Observers also questioned Sears Canada’s decision to issue $600 million in special dividends to its shareholders in 2012 and 2013, a move that would significantly benefit Lampert and ESL.
“The company was always saying it wanted to reinvent itself and they did try to a degree, but they didn’t spend very much money on it, and they had money from the asset sales,” said Alex Arifuzzaman, partner in Toronto-based retail real estate specialist InterStratics Consultants.
“Basically, Sears Canada was starved of innovation capital at a time when retailers were going through huge transformations and the whole industry was changing.”
Stranzl, who had worked as an investment analyst at ESL before starting his own investment firm, joined Sears Canada’s board and began running the company as executive chair in July 2015 when then-CEO Ronald Boire quit after just six months in the role to become CEO of Barnes & Noble. He was the latest executive tasked with fixing a business where many saw a revolving door at the top of the C-suite.
During his tenure, Stranzl initiated store renovations, overhauled Sears Canada’s website and began selling some off-price merchandise to compete with Winners. But it might have come too late. “They were following the Eaton’s death spiral — selling off their good real estate and leases, selling off their credit card business,” Talbot said.