The Atlanta Journal-Constitution
Sears plan to get out of bankruptcy has a familiar ring
In its bankruptcy filing Monday, Sears argued that, given enough time and less debt, it would be able to reverse the decadeslong decline of its retail business.
But the company’s latest turnaround plan looks a lot like its previous turnaround plans: close unprofitable stores, sell properties and borrow more money from the company’s chairman and largest investor, Edward S. Lampert.
Missing from that plan was any explanation of how Sears would gain the ground it had lost to big-box stores like Walmart and e-commerce giant Amazon.
In 2005, Sears had 2 percent of all retail sales. It now accounts for less than 0.3 percent, according to Customer Growth Partners, a research firm.
“Honestly, Sears is essentially dead already,” said Gerald L. Storch, former chief executive of Toys R Us and Hudson’s Bay, the parent company of Saks Fifth Avenue. “Maybe it limps along for while. But it is walking zombie.”
As part of its Chapter 11 reorganization plan, Sears says it will close 142 unprofitable stores, or about 20 percent of what remains of its once vast footprint that also includes discount retailer Kmart.
The company also plans to sell its Kenmore and Home Services brands.
Those cuts would come on top of the 1,000 stores the company closed in the past decade, and the sale of brands like Lands’ End, Craftsman and Sears Canada.
Lampert, a hedge fund manager who has lent the company about $2.5 billion, saidhewouldextendanother $300 million to keep the retailer operating in bankruptcy. The loan comes in addition to the more traditional financing from banks that Sears received Monday.
Lampert’s hope is that by focusing only on a core group of 400 profitable stores, the company can stop hemorrhaging money and restore the confidence of its customers and vendors. Many suppliers have stopped advancing products to Sears on credit and are owed millions of dollars.
Sears listed $11.3 billion in liabilities in its bankruptcy filing and $7 billion in assets.
Industry analysts, investors and former retail executives said Sears’ Chapter 11 filing is only a short stop on the way to liquidation.
“There are not strong reasons to be optimistic,” said Alan Treadgold, a retail expertatPAConsulting.“You exit the stores that are not viable. You manage the debt. But it still leaves the fundamental question: What is the purpose of Sears?”
In recent years, bankruptcy has not been kind to old-school retailers seeking a second life.
Toys R Us had hoped to cut its debts and reorganize as a smaller, more nimble company when it filed a Chapter 11 case in September 2017. But rather than keeping the company going, its lenders decided they could recoup more by putting up its toys in a fire sale and shutting down all its stores. The clothing chain Bon-Ton also liquidated this year and closed all its stores.
Sears could follow a similar path, particularly after Christmas when its stores have finished selling out their holiday inventory and will be less productive.
The one wild card is Lampert, who has continued to sink money into the company despite long odds.
In bankruptcy documents, Sears said Lampert’s hedge fund was willing to make the opening bid to essentially buy the company’s 400 most viable stores and keep them going.
In one filing, the company’s chief financial officer, Robert A. Riecker, said the hedge fund’s “support has ensured that the company’s doors remain open, and over 68,000 individuals remain employed.”
But Lampert may have reasons to make sure Sears keeps the lights on. He is the chairman of and a large investor in Seritage Growth Properties, a real estate company that owns 230 former Sears properties. Sears pays rent to Seritage and a liquidation could imperil that revenue.
Since Sears sold those stores to Seritage in 2015, the value of many of its remaining stores has declined. Real estate analysts say many of these cavernous spaces are in struggling malls, making them unlikely to attract another large retailer or an ambitious redevelopment projects like office buildings or hotels.
“Why Eddie is still in this is anybody’s guess,’’ said David D. Tawil, a co-founder of Maglan Capital, a New York hedge fund, that makes investments in the debt of troubled companies but has not bought debt issued by Sears because it posed too much risk.
“We are dealing with a new age in retail bankruptcies, and Sears is the weakest player in the market,” Tawil added. “If it makes it out of bankruptcy, it would be an astounding accomplishment.”
As far as retail sector is concerned, analysts do not expect the company’s bankruptcy filing to have much of an effect on its competitors. Competitors like Walmart, Kohl’s and Home Depot took market share away from Sears and Kmart years ago. And rents and occupancy have fallen sharply in malls where Sears anchor stores have struggled.
President Donald Trump lamented the company’s decline Monday, saying that Sears “has been dying for many years.”
Trump blamed the retailer’s decline on poor management, saying the company was “improperly run for many years.”
The president did not mention that his Treasury secretary, Steven Mnuchin, was on the Sears board for about a decade before stepping down to join the White House administration.
As part of its Chapter 11 reorganization plan, Sears says it will close 142 unprofitable stores, or about 20 percent of what remains of its once vast footprint that also includes discount retailer Kmart.