Why does Sears bother to stay open?

Financial Mirror (Cyprus) - - FRONT PAGE - By Dou­glas A. McIn­tyre

Sears Hold­ings Corp. (NASDAQ: SHLD), owner of Kmart and Sears, has seen its shares drop 88% in the past year to $5.64. That is due to huge losses, fall­ing same-store sales and ris­ing debt, some of it owed to con­trol­ling share­holder Ed­die Lam­pert. In a re­tail mar­ket in which Sears and its di­rect com­pe­ti­tion are vir­tu­ally be­ing driven out of busi­ness, it is a puz­zle why Lam­pert keeps the busi­ness open. He will never get his money back.

Bloomberg re­ports that Sears has eaten through its most re­cent $200 mil­lion debt life­line. The money was, of course, from Lam­pert. Per­haps be­cause it is se­cured by Sears as­sets, he will get the money back when he even­tu­ally holds those as­sets. Based on rev­enue that the as­sets yield, their fi­nan­cial value will not be based on earn­ings.

Lam­pert’s play may be to lever­age his loans into as­set con­trol in a bankruptcy.

How­ever, Sears has al­ready sold off a num­ber of its brands and some of its real es­tate. Lam­pert likely can­not get back the value of his loans in terms of what is left of Sears, al­though that might be his gam­ble. In the mean­time, com­mon share­hold­ers would be wiped out.

It is a won­der Lam­pert con­tin­ues to loan Sears money and will have to con­tinue to into the fu­ture. The hol­i­day sea­son will be a dis­ap­point­ment. Sears has suf­fered too much ero­sion of it brand.

Same-store sales will not re­verse them­selves from quar­ter af­ter quar­ter of fall-off. Sears’s e-com­merce busi­ness can­not pos­si­bly com­pete with an on­line sec­tor con­trolled by Ama­zon.com.

Lam­pert has an un­known rea­son to keep Sears go­ing. It is not easy for out­siders to guess it. Why buoy a com­pany that has no chance of float­ing when a bankruptcy would be a clear way out of the mess, and one that could be an ad­van­tage to him?

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