Sears Holdings (US)

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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 remains one of the biggest "broadline" retailers in the US but sales have drifted steadily lower since the merger, and there is no sign of any imminent turnaround. The main Sears division, still the larger of the two brands, sells a wide selection of home furnishings and home appliances, apparel and automotive accessories under a range of different formats including general and discount department stores, discount and specialty stores. Several satellite units, including Land's End and Sears Outlet stores have been spun out as independent companies though they are still controlled by Sears' ultimate owner, hedge fund ESL. See also separate Kmart profile. In 2017, Sears' operations in Canada went into liquidation with the closure of all stores. Finally, towards the end of 2018, ESL accepted the inevitable and filed for bankruptcy protection for Sears Holdings pending a restructuring of the business and the likely closure of more than half its remaining Sears and Kmart stores.

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Kmart Craftsman
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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.

Adbrands Weekly Update 25th Oct 2017: Another nail was driven into the coffin of one-time retail giant Sears with the announcement that it will no longer sell appliances from America's biggest such manufacturer Whirlpool. Cash-strapped Sears has been struggling to maintain its relationship with several manufacturers as a result of credit issues, but in this case the disagreement is apparently over pricing. The company told staff "Whirlpool has sought to use its dominant position in the marketplace to make demands that would have prohibited us from offering Whirlpool products to our members at a reasonable price." Whirlpool accounts for around $600m a year in sales for Sears; the company hopes to make up the difference from sales of other brands. This latest development follows the collapse of Sears in Canada earlier this year. With no ready buyer, all Sears Canada stores are being shuttered and the company will be liquidated.

Adbrands Weekly Update 27th Jul 2017: Ailing US retailer Sears may have found a lifeline, or at least a stay of execution, in a new and surprising partnership with Amazon. Instead of trying to compete with Amazon in ecommerce, the struggling store has signed up the digital giant as a major strategic distribution partner for its Kenmore appliances range. It will also incorporate Amazon's Alexa AI function in selected products, starting with air conditioners. "Alexa, please set my air conditioning to 70 degrees". The announcement caused Sears' stock price to surge by as much as 24% before falling back.

Adbrands Weekly Update 29th Jun 2017: Ailing retail giant Sears took another step towards the exit with a filing by its Canadian arm to seek protection from creditors pending a restructure. Sears Canada operates separately from its US counterpart but, like the larger company, is controlled by hedge fund investor Edward Lampert. It says there is "significant doubt" that it can continue to operate profitably unless it can implement a turnaround under protection, including the closure of almost half of its 140 stores. Observers fear the court filing is more likely to lead to a full liquidation of the business, and barring any miraculous stroke of luck, the same fate probably awaits Sears Holdings of the US a little further down the road. Lampert's ESL Since he acquired the business in 2004, Lampert has overseen a steady diminution of what was once the world's biggest retailer, notching up billions of dollars in losses and selling off almost all of the group's more valuable assets. In the past five years alone, its retail footprint has shrunk from 3,400 Sears and Kmart stores to just 1,700. Paula Rosenblum of Retail Systems Research told trade source WWD: "He has done a brilliant job of destroying one of the largest and oldest retailers in North America and selling it piece by piece to make sure he's the only one to benefit. It’s tragic." [Sears Canada announced plans for a full liquidation in Oct 2017, with the closure of all remaining stores.]

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Free for all users | see full profile for current activities: The roots of Sears, Roebuck & Co were laid down in the late 19th century. In 1886, Richard Sears was responsible for managing the railway station in the town of North Redwood, Minnesota. In his spare time he sold wood and coal to residents, but discovered a more lucrative line when a local retailer asked him to dispose of an unwanted shipment of watches. Sears made a tidy profit on the deal and decided to set up in business for himself. The following year he moved to Chicago and opened his own store, the RW Sears Watch Company. He advertised for a qualified watchmaker to become his first employee, and the job went to one Alvah Roebuck, who spent the next six years working his way up to become a Sears' partner.

Sears' experience as a station manager taught him the value of being able to deliver goods to people in their own town instead of waiting for them to come into a store, and the company repositioned itself as a mail order business around 1890, delivering its goods via America's fast-expanding railway network. Initially, Sears offered just watches and jewellery, but as demand grew the company began to widen its range to sell a variety of other products including household furniture, clothing, bicycles and farm equipment. By 1895, the company was publishing a mail order catalogue with more than 500 pages, and sales topped $750,000.

Towards the end of the decade, Roebuck was forced to resign as a result of ill-health. Sears recruited former clothing manufacturer Julius Rosenwald to manage the business, and the new recruit was appointed as vice-president and treasurer in 1901. Five years later the group floated its stock, and the following year the company's massive new warehouse opened in Chicago. Covering 3m square feet, with a building cost of $5m, it was at the time the world's biggest business building. But Sears and Rosenwald clashed over policy and in 1908, Sears himself left the company.

By the 1920s, under Rosenwald's leadership, the group had built a number of mail order plants nationwide to manage local demand. The business had matured also, replacing hard sell with a drive towards value and quality; but also some crafty marketing ploys. One involved rewarding existing customers with a free gift if they passed on catalogues to their friends. But the company was still dependent on rural sales, and had almost no business in the country's fast-growing cities. More damagingly, JCPenney and other city retailers were expanding fast into smaller towns and beginning to eat at Sears' market dominance. In 1924, Sears hired Robert Wood, recently fired by arch-rival Montgomery Ward for trying to persuade the company to open chain stores. His ideas found a more receptive response at Sears Roebuck, and a year later the company opened its first store in Chicago, housed within the mail order factory. It was an immediate success, and the company quickly mounted a massive nationwide roll-out.

In the space of just three years, the group opened 300 stores around the country. There were many teething problems, not least bitter feuding between old-time catalogue salesmen and newly appointed store managers, as well as often poor choices of store locations. Nevertheless, sales rocketed. In 1931 store sales overtook revenues from the catalogue division for the first time. The group also began to develop its own range of exclusive brands, including Craftsman tools, Kenmore appliances and DieHard car accessories. Also in 1931, the company launched a new subsidiary to market low-cost car insurance using the name of one of its successful tire brands, Allstate.

During the 1940s, Sears Roebuck took its first steps abroad. A store opened in Cuba in 1942, followed by Mexico (1947) and other Latin American countries. Sales skyrocketed, passing $1bn in 1945. In 1953, Sears Canada was established as a joint venture with local retailer Simpsons; Europe got its first Sears outlets later that decade. By now, Sears was without doubt the world's biggest retail group. In 1969 the company celebrated its success by commissioning the world's tallest building, Chicago's Sears Tower, completed in 1973. The 1970s was a good decade for the group, and sales boomed as the brand was seized upon by affluent suburbanites. But during the 1980s Sears began to lose its way. In 1981, the company started to diversify, acquiring financial services company Dean Witter as well as real estate agent Coldwell Banker. The same year it launched Sears World Trade to pioneer a global expansion drive, but the project was a disaster, and was abandoned in 1986. Meanwhile parts of its retail business were being stolen away from under its nose by fast-expanding new chains such as Toys-R-Us and especially discount chain Wal-Mart, which overtook Sears as the world's biggest retailer at the start of the 1990s.

The retail business continued to decline in the early 1990s, reaching its lowest point in 1992 when the group reported losses of $3.9bn. Management announced a massive restructuring. A key move was to spin off several of Sears' most successful subsidiaries in order to plug the massive holes in retail. The financial services group, in particular, had become a huge business, following the launch of its Discover credit card in 1986. In 1993, part of Dean Witter's stock was floated, with the remainder of the shares distributed to Sears shareholders. (The business was subsequently bought by Morgan Stanley and more recently spun off as Discover Financial Services). Later that year, 20% of Allstate Insurance was floated in what was then the US's biggest ever IPO. The remainder of shares were distributed to Sears shareholders in 1995. Other subsidiaries including Coldwell Banker and other financial services and real estate companies were sold, slimming the group back down to its principal business of retail. 

Meanwhile, within the retail division, more than 110 unprofitable stores were closed by newly appointed CEO Arthur Martinez (later group chairman). As many as 50,000 jobs were cut, and the group even pulled the plug on its bloated Sears catalogue, the core of the original business. The department stores were then repositioned to target women shoppers, while the group bolstered its growing chain of specialty stores in the auto repair, hardware and home services sectors. In 1996, Orchard Supply Hardware was acquired for $415m. But there were still problems in other businesses. In 1990 Sears had partnered with IBM to invest $1bn in the internet community Prodigy. It had the makings of a brilliant idea, with Sears managing the commerce and IBM the software, allowing users to shop online for the first time. At its peak Prodigy had 2 million subscribers. But the service was quickly hamstrung by two major problems: it banned "adult" content, and also took the decision to charge users for sending email. Members deserted the service in droves. By 1996, half the service's members had left and it was sold at a massive loss the following year. 

Also in 1997, a row over the handling of defaulters in its Sears card credit business led to a massive $475m charge. Two other businesses - Western Auto and HomeLife - were sold in 1998. In 1999 the group was forced to cut 1,400 retail jobs in a bid to cut costs in the face of competition. However the company put great faith in its online shopping site, backing it with a $100m marketing spend. The stores were pruned to sell only the best-selling lines, while the website geared up to sell a vast selection of other products including a huge range of tools and appliance parts, and product ranges such as furniture which had been abandoned in stores years ago. Yet this was not enough to repair the fortunes of the increasingly tired retail network. In early 2001, in a bid to improve profit margins the group announced it would close almost 90 of its poorest performing stores in the US. It later closed down its its skin care and colour cosmetics business, including the proprietary Circle of Beauty brand, and its pest control division. In 2002, Sears announced plans to cut almost a quarter of its workforce, introducing self-service shopping to many of its stores. 

By 2003, the group's once extensive portfolio of different businesses had been reduced to just two: the main retail division, and a large consumer finance operation which ran the group's store and credit cards. Although retail generated by the far the biggest proportion of revenues - around 75% - profit margins had decreased dramatically, and more than two-thirds of net profits were generated by the credit division. This was hardly ideal, leading to accusations that Sears had become a bank masquerading as a retailer, but at least there were decent group profits to report. 

This threatened to change during 2001 and 2002 as a result of a sharp rise in bad debts, the end result of the strategy pursued during the boom years of the 1990s of offering generous credit to low-income shoppers who were now struggling to pay their bills in the wake of an economic downturn. Group net income virtually halved in 2001 as the result of an increased provision against bad debts of $1.9bn, more than double the previous year. As a result, Sears took the decision to sell off its credit division in order to refocus on the core retail business. In July 2003, Citigroup paid $3bn to take over the portfolio of 59m US credit and store card accounts. The credit business of Sears Canada was sold to JP Morgan Chase in 2005 for $2bn.

By now, Sears had begun to look like a prime takeover target for a buyer willing to embrace the considerable risks within the retail sector. Investor Edward Lampert, already the group's biggest shareholder through his investment fund ESL, launched a full bid for the business in 2004 and merged it with Kmart, which he already owned. The enlarged group adopted the new name of Sears Holdings Corporation. See full profile for current activities

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