Sears survives bankruptcy auction, but doubts remain

Sears Chairman Edward Lampert appears to have pulled off his bid to rescue the bankrupt retailer from liquidation. It’s good news for employees at the stores that could remain in business and for still-loyal shoppers. But it remains to be seen whether the retailer’s latest lifeline from its former CEO buys the time needed to finally pull off a turnaround.

Lampert, who stepped down as CEO when the company filed for bankruptcy protection in October, has been trying to right the ship at Sears for years. Meanwhile, competition from rivals like Amazon, Walmart and Target isn’t getting any easier for old-school department stores. Even at stronger chains like Macy’s, consumers didn’t spend as freely as expected during an otherwise strong holiday season.

Neither Sears Holdings Corp. nor Lampert’s hedge fund, ESL Investments, shared details of the final bid the hedge fund submitted in a bankruptcy auction this week. Bloomberg News reported the final offer is valued at more than $5 billion and represents a more than $150 million improvement over ESL’s previous offer. It also doesn’t release Lampert from liability related to transactions between his hedge fund and the retailer prior to Sears’ bankruptcy filing, according to Bloomberg, something Lampert sought in earlier bids. The deal still requires approval from the U.S. Bankruptcy Court for the Southern District of New York.

A committee representing Sears’ creditors has questioned financial dealings between Lampert, ESL and Sears, saying those transactions “may be part of an extended pattern of conduct that served to benefit certain (insider) equity holders,” according to court filings, claims ESL has denied.

An early version of ESL’s offer included about 425 stores and many of Sears’ remaining assets. ESL said it could preserve up to 50,000 jobs.

But Lampert and ESL haven’t elaborated on their strategy, and some analysts said the plan to reorganize around a smaller group of successful stores sounded a lot like the playbook Lampert relied on before the company’s bankruptcy, as the company amassed more than $11 million in losses since 2011.

Now that customers can shop online, many retailers have decided they don’t need as many bricks-and-mortar stores. But Sears has already closed hundreds and “still can’t find a profitable base sitting there,” said Neil Stern, senior partner at Chicagobased consulting firm McMillanDoolittle.

"While I think everyone is happy that Sears gets another life — particularly good news for the 50,000 or so associates — it remains to be seen whether there is a viable go-forward strategy to keep the stores, and the company, open in the future,” Stern said.

At the time of Sears’ bankruptcy filing in October, it had 687 Sears and Kmart stores, down from 1,672 stores in January 2016. Another 262 stores have closed or are expected to close by March. Downsizing to a smaller group of stores will still leave the company with “major hurdles to its long-term business,” Christina Boni, a vice president at Moody’s Investors Service, said in an emailed statement.

The competition isn’t getting easier. Retailers and analysts were optimistic that consumers would be spend freely this holiday season, but some chains, including Macy’s and Kohl’s, reported relatively modest sales growth compared with last year’s holidays. J.C. Penney, meanwhile, said it would close three stores and consider shuttering more after reporting a decline in sales during the holiday season.