I may be early, but I’m often right. Next up JC Penney.
The melting ice cube that is Sears – once a shining beacon of American consumerism – has finally dissolved.
After missing a $134 million Monday debt payment, as was widely expected, CNBC reported early Monday that Sears filed for Chapter 11 Bankruptcy protection in bankruptcy court in White Plains, New York. To be sure, filing for Chapter 11 protection is a victory of sorts for Lampert, who has managed to convince a coterie of Sears’ largest secured creditors, including Bank of America, Citigroup and Wells Fargo, into extending a $300 million debtor-in-possession loan that will allow Sears to continue operating (albeit in an even more limited form) through the end of the year (though, if we had to guess, we’d speculate that Lampert secured the loan by convincing these banks that it was in their best interest to allow Sears management to continue slowly stripping assets from the company instead of resorting to a bankruptcy firesale).
Lampert has also secured another $300 million from outside investment banks (a loan that, we imagine, is backed by Lampert’s assurances that he is shopping for a buyer for Sears’ popular Kenmore appliances brand, though that buyer could end up being ESL, which has the power to forgive Sears debt in exchange for assets).
By staving off Chapter 7 liquidation, Lampert has set up his fund, ESL Investments, as a stalking horse during the bankruptcy auction process. ESL and Lampert own a combined 50% of Sears shares, and ESL is one of its largest creditors. Lampert said Monday that he will step down as Sears CEO but remain on as chairman, while Mohsin Meghji, managing partner of M-III Partners, will step up as the company’s chief restructuring officer.
As part of the bankruptcy, some 142 stores are expected to close by the end of the year, along with 42 that were already in the process of closing, while the company’s remaining 500+ stores will continue operating.
In a statement to the media, Lampert insisted that was doing everything he could “to help the company” succeed, though analysts have disputed this claim, as most believe Lampert is merely staving off the inevitable to allow his firm enough time to continue stripping assets at the best possible price, allowing ESL (and by extension, Lampert himself) to preserve as much capital as possible.
“Everything I’ve done as an investor has been to help the company succeed,” Lampert said. Though, as CNBC pointed out, many analysts dispute that. Lampert first merged the two struggling discount stores more than a decade ago, hoping to strengthen their market position and, ultimately, save their brands.
As CNBC reminds us, Sears has been in survival mode for more than a decade.
Unable to rely on the Sears’ business to pay the bills, Lampert instead sold or spun off many of its most valuable stores and brands.
Since its merger with Kmart, Sears has spun off its Lands’ End clothing brand, sold the Craftsman tool brand to Stanley Black & Decker and closed hundreds of stores. It spun out 250 of its best properties into real estate investment trust offshoot known as Seritage.
In a jarring reminder of just how far the company had fallen, some vendors, wary of Sears’ future, have demanded tighter payment terms. Others, like Whirlpool, stopped shipping all-together. Until it emerges from protection (or is liquidated), Sears will be run by an Office of the CEO, and independent directors will oversee the restructuring.
According to Bloomberg, the retailer has listed more than $10 billion in debts and more than $1 billion in assets in its filing, and has said it hopes to reorganize around a smaller base of profitable stores. Sears and Kmart stores will remain open with help from $600 million in new loans, but the company will shut 142 unprofitable outlets near the end of the year, on top of 46 unprofitable stores already slated for closure by November.
While liquidation is not currently imminent, like Toys R Us, before it, the retailer’s chances of surviving bankruptcy as a going concern remain slim.
As CNBC points out, it’s difficult for a retailer to make investments that would help secure its survival (like building an e-commerce platform) while making its creditors whole. The company’s last profitable year was in 2010, and last year, it rang up less than $17 billion in sales, half of the roughly $40 billion in revenue it brought in five years earlier. The company has had little free cash to reinvest in strategies that could save the struggling business, and since Lampert took over in 2006 after impressing Wall Street with his successful turnaround of discount retailer K-Mart, an entire generation of Americans have never visited the company’s stores.
And with that, Sears 125-year history is nearing its inglorious end, as the merciless engine of capitalistic creative destruction chugs on and as iguana-eating, online-retailing monopolists have a hearty chuckle at the company that was once upon a time America’s first Amazon.
Perfect call on Sears. They would have been in trouble with the monopolistic power of Walmart and Amazon anyway, but seldom will you ever see a business as unable to adapt as that one. Their feet were stuck in cement. It seems like they never came up with a new plan, after being in trouble for close to 15 years. Was it deliberate? Who knows.
Montgomery Ward.
Their customers died.
Follow the money. A business with that many advantages can’t go broke. Of course it was intentional.
It seems it was the incompetent CEO. No vision, no imagination. The problem with the modern corporate executives is they no longer listen to their work force. Who really is close to the public that is in contact with and knows what they want? It is the workers.
even though this was expected for years,it’s still a shock to the psyche for those of us over a certain age–
sears was like gm,it was an american icon–who would have thought that either one would wind up in bk?
however,there is no way that sears problems can be blamed on the internet–they’ve been in trouble for 25-30 years,at least–
businesses are like people,fail to adapt & you die–
I’m wondering what Grandpa will use for striking paper now?
Even the genius Eddie Lampert couldn’t save the titanic. Fighting against a secular trend is not a solid investment strategy.
It is not about fighting. It is about customer service. When profits come first customer service goes out the window. And so does the company.
“I may be early, but I’m often right”
Jim you have always been right about your retail projections. That’s what you’re best at.
I wish you’d do them more often like the old days. You were one fiery bastard about the banks and the doomed businesses. Good stuff.
Lampert is no better than a street hustler who destroyed a once-proud part of America. Sears was all about TRUST. If you purchased something from Sears and had a problem with it, you could rely on Sears to “make things right”. Offshoring the production of Craftsman tools and then selling them in other markets (such as K-mart) did much to destroy the brand as well. Before the offshoring of Craftsman tools, they were produced by a well-respected company (Ridgid), which assured quality.
No, it is the bean counters and jewish money interests that bled Sears dry…
Crapsman tools that is now.
I was walking through Home Depot, and saw a pathetic display of Crapsman Tools. A red case – trying to leverage off of Milwaukee.
Grainger Industrial Supply is going down the same road as Sears. China produces inferior products for commercial and industrial use.
lampert was only involved w/sears because they were in trouble–sears has been stumbling from one crisis to another for many years–
I presume his initial intention was to sell off the real estate for a quick profit and run, but the real estate market nose-dived before he could do it. He was then stuck with a company to manage, which he has probably proven he can’t do to the satisfaction of everyone.
In retrospect, Sears was in a remarkably good position in the early 1990s – they could have been Amazon, as Sears already had their catalog business in place. They decided to end the catalog in 1993 instead and their website has always sucked.
Amazon started up in 1994.
Who downvoted that?
i did star,sears was not in good shape in the early 90s,they’ve been dying a slow death since at least the 80s,maybe b4–
pension costs & a failure to retain baby boomers or ever attract gen x’ers is what did them in,imo–
Fast Eddie saw the movie “Take the Money and Run” or at least remembered the title and did this by design.
https://www.businessinsider.com/how-eddie-lampert-set-sears-up-to-fail-2017-5
When I was a little kid there was no greater thrill than getting the new Sears, Montgomery Ward or S&H catalog. You would spend hours looking at all the toys. When I got a little older it was the sporting goods or automotive sections. All gone now.
harry,
are you gay?
you didn’t mention the lingerie section,which was like playboy for young guys–
you could sure hone your imagination on those catalogs–
Gosh, that brings back memories…
Talk about getting old, I forgot all about that! I remember we’d find one of those bra models where we at least imagined we could see through and wear out the page. Frightening to think those gals are 80 years old now.
We are living in a Wal Mart economy 40% of Wal Mart profits are generated by EBT cards purchasing food . Add to that the number of Wal Mart employees that qualify for welfare benefits and “ITS GONE” !
Sears customers were GM and Steel industry employees they are gone there wages are gone and now so is Sears !
Wal Mart is the section 8 of employers . Someone else assures a huge portion of payment for the company to remain profitable .
Like a section 8 landlord without subsidies the investor class would not piss on it !
I was pissed when Monkey Wards closed.
One less place to buy ammo and outdoor goods.
With Sears going down the crapper, it’s time to call your parents and reminisce about Saturday morning shopping of yesteryear.
Yes, you are often right (unlike me, who is always right! ?) . Remember OWS, where you were not so much right? So do not get a big head.
From a great man to an eel in three steps.
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1)- Richard Warren Sears — one of the founders of Sears, he did something not even Amazon has done …. selling HOUSES via catalog!
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2) Eddie Lampart — hedge fund billionaire who said investors were his focus, not customers. In a mere 14 years after the above pic was taken, Sears stock dropped from an all time (about $150) to under 50 Cents yesterday. Bwaahahahaha!! Goooo Eddy!
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3) Lamprey —- boneless jawed PARASITE that sucks the blood out of others. Goooo Eddy!