Once the world's biggest retailer, Sears has seen its market steadily eroded by mass-market discounters such as Walmart and Target. Sears probably suffered more than most other traditional retail groups, especially during the 1990s. But after two decades of inconsistent retail strategy, the group appeared to have made a substantial recovery by 2004. At the end of that year, Sears launched itself in a new direction by announcing plans to merge with discount retailer Kmart to create what was then a $50bn-plus giant, under the control of former hedge fund manager Ed Lampert. The enlarged group became one of the biggest "broadline" retailers in the US, selling a wide range of products from household appliances and tools to fashion and furnishings, but sales drifted steadily lower after the merger. Over the next 15 years, Lampert has presided over a slow motion car crash, as massive under-investment in the business and competition from online and other stores led to a steady decline in store traffic and sales. To keep the company afloat, Lampert has systematically sold off any corporate assets of value, including mail order retailer Lands End and Sears Outlet stores, either to other entities controlled by his own investment company ESL, or to third party bidders, as in the case of Craftsman tools to Stanley Black & Decker. In a bid to retain its remaining customers, the group launched loyalty program and "social shopping experience" Shop Your Way, which offers lavish benefits on spending, despite the company's financial woes. In 2017, Sears' operations in Canada went into liquidation with the closure of all stores. For the year to Feb 2018, group revenues were $16.7bn, having fallen by half in five years and by two-thirds since 2005. Net loss was $383m, the group's seventh consecutive deficit. Finally, towards the end of 2018, Sears Holdings accepted the inevitable and filed for bankruptcy protection. Lampert bought out 425 Sears and Kmart stores for $5.2bn, as well as Kenmore appliances and DieHard auto batteries; the other stores are being liquidated. However legal battles are ongoing between his new streamlined company and the liquidators over inventory, rights and outstanding payments. New Sears is also being sued by Stanley Black & Decker over its continued use of the Craftsman brand name, and there are continuing reports of stock shortages, empty shelves and unhappy employees. Lampert was obliged to step down as CEO of the New Sears but remains controlling shareholder. The business is run by a three-person "office of the CEO".
Capsule checked 3rd April 2019
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Adbrands Daily Update 23rd Apr 2019: Representatives of Sears Holdings, now in liquidation, sued former chairman and controlling shareholder Eddie Lampert and his ESL Investments fund, as well as several senior past and present executives of ESL including Treasury Secretary Steve Mnuchin. The suit accuses Lampert and his associates of systematically stripping the company of billions of dollars of valuable assets. Among other allegations, the suit claims that managers were directed to produce over-optimistic financial projections for the Holdings company in order to justify the transfer of key assets to other entities controlled by Lampert.
Adbrands Daily Update 16th Jan 2019: Sears Holdings' controlling shareholder Edward Lampert prevailed in a bankruptcy auction of the struggling group against an army of creditors and landlords who had been pushing for a full liquidation of the entire business. After days of negotiation, he succeeded in saving 425 of its 700 stores from closure with an offer of around $5bn. In 2006, just after Lampert merged Sears with discounter Kmart, there were around 2,300 outlets. Most observers are mystified by Lampert's apparent obsession with keeping the business afloat after spending more than a decade gradually running it into the ground with a series of unsuccessful strategies. Consultant and former Sears executive Steve Dennis told the WSJ, "Sears is so far below critical mass. What is it about having fewer stores - which doesn't allow you to spend as much on marketing or have supply-chain efficiencies - that suddenly makes it a successful strategy?" Creditors are seeking permission to sue Lampert and his investment company ESL for the "excruciating, slow-motion destruction" of the company. "Over the course of Lampert's and ESL's reign, Sears closed over 3,500 stores, cut approximately 250,000 jobs and lost untold billions in value," they claim in a court filing.
Adbrands Weekly Update 18th Oct 2018: As expected last week (and as has been increasingly inevitable for years), one-time retail icon Sears Holdings filed for bankruptcy protection under Chapter 11. The company was able to avoid a full liquidation for now by persuading a panel of lenders to make emergency financing available while it restructures its debt. It will shutter at least another 140 stores immediately, with 250 more under review. Controlling shareholder Ed Lampert has stepped down as CEO, although he remains chairman. Mohsin Meghji, managing partner of advisory firm M-III Partners, was named as chief restructuring officer. Lampert believes Sears and its sister brand Kmart still have a future if they shrink down to around 300 stores, from 700 at present. A decade ago, the two chains had a combined total of almost 2,200 outlets. However, everything depends on a successful holiday season. Just over a year ago, Toy R Us also filed for protection, but disastrous holiday season sales forced the business to liquidate at the beginning of this year. Already, according to media reports, as many as 200 of Sears' suppliers had stopped delivering products while they awaited news of the bankruptcy filing. The group's emergency financing might ease some of their concerns but will it be enough?
Adbrands Weekly Update 11th Oct 2018: The bell may finally be tolling for long-struggling US retail pioneer Sears, which has been suffering a slow-motion car crash for at least the past five years. That incredible shrinking giant is now in preliminary talks to file for bankruptcy ahead of a debt deadline next week. The loss-making store is required to repay $134m of borrowings on Monday, but has insufficient cash on hand to do so. In reality, the bill could easily be settled with a loan from Sears' chairman & CEO Ed Lampert, also the company's biggest shareholder and its main creditor. He has done so before. However this time he is trying to use the deadline as an incentive to force through a wider restructuring that would cut around 200 more stores from Sears' 900-store estate and also allow him to buy out another set of key assets, including the Kenmore appliances brand. No other lender will touch the business, which has accumulated losses in excess of $11bn since 2011 and needs to raise more than $1bn of cash each year just to stay afloat. Lampert hopes to keep trading through the restructuring. However the big fear is that, like Toys R Us earlier this year, a Chapter 11 filing could lead to a complete liquidation if Sears' suppliers lose further confidence in the business in the run-up to the holiday shopping season.
Adbrands Weekly Update 26th Apr 2018: The gradual disintegration of the once-mighty US retailer Sears and its discounter cousin Kmart continued apace. Edward Lampert, who is not only CEO of Sears but also its biggest shareholder via his hedge fund ESL Investments, and also one of its main lenders, has offered to buy out most of the group's most valuable remaining assets. It is the latest of a series of such deals, in which the struggling group's dwindling assets have been stripped and sold off - in several cases to other entities controlled by Lampert - to generate enough cash to keep the remaining business from collapse. The last big third-party sale was of the Craftsman tool brand, to Stanley Black & Decker last year. However, no acceptable buyer was found for Sears' household appliances brand Kenmore, or its Home Improvement Services and Parts Direct divisions or its more valuable real estate holdings. As a result, Lampert is offering to buy them all for an undisclosed sum; probably somewhere in the region of $2bn-$3bn. Critics argue this is another example of Lampert's relentless asset-stripping of the business in advance of an all-but-inevitable bankruptcy. A decision on his offer will be made by Sears' independent directors, and will also be put to a vote by unaffiliated shareholders. In reality, though, there is no realistic alternative open to the group, which is desperate to generate enough cash to pay staff and maintain the support of its third-party suppliers.
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