Kenmore sale unlikely to save Sears
Plan provides liquidity, but reinvestment is key
A proposal to sell Sears’ lucrative Kenmore brand may be a good financial move for the company’s CEO, but it’s unlikely to buy much time for the beleaguered department store chain, industry watchers say.
Kenmore, known for its range of home appliances from refrigerators to washing machines, is just one of Sears’ assets CEO Edward Lampert expressed an interest in acquiring through his hedge fund ESL Investments. He’s also eyeing the home services division.
Selling them, Lampert said, “will provide an important source of liquidity” for Sears and help it “to complete its transformation to respond to the challenging retail environment.”
But a key factor in Sears’ slowing sales has been its fraying stores and a collection of merchandise many shoppers feel they can get at a lower price or better quality elsewhere. Industry watchers doubt that extra funds from spun-off assets will be invested to change that.
“The proceeds from asset sales have always been used to pay interest and to keep the company operationally sol- vent,” says Neil Saunders, managing director of retail consultancy GlobalData. “They have not been used to invest in the company and make it profitable.”
Losing Kenmore and home services — two of Sears’ most popular assets — would also mean there would be even fewer reasons that customers would want to shop at one of Sears’ department stores, further imperiling the chances of survival.
“We’ve been waiting for the end for a long time,” says Paula Rosenblum, managing partner at RSR Research, a retail advisory firm, “and it looks like we’re pretty close, because now (Lampert’s) saying we’d better break it up. And when it’s done, what’s left?”
Lori Vaughan, a business bankruptcy attorney with the Trenam Law Firm in Tampa, believes money made from spinning off Kenmore would be invested in Sears stores, but she’s not sure that would be enough.
“They would need a very aggressive and creative plan to save their stores in this market,” she says. “Sears seems to be trying to rebrand itself as an appliance, tool and mattress store. It’s unclear how the sale of Kenmore would affect that effort.”
If the company, which also owns bigbox chain Kmart, cannot regain its financial footing and files for bankruptcy protection, its network of stores may attract some interest from an outside buyer, Vaughan says.
“I think there’s still a market for the stores,” she says. “The trick is, is someone going to come in and buy all of Sears’ stores?... That’s really unlikely.”
At a time when retailers are paring their big-box locations in favor of smaller, more curated formats, a sale would probably come in the form of “small deals, (and) one-off sales,” Vaughan says, an unwinding that “takes more time and effort.”
Ultimately, selling the stores to another retailer is probably not the end game, some consultants say.
“The economics of the core business, including the stores, don’t stack up,” Saunders says. “The real estate could be sold off, especially if larger stores could be subdivided into smaller units ... The company would, in essence, cease to exist.”