Once-formidable retailer now looks set to sink

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This article was published 06/01/2017 (3217 days ago), so information in it may no longer be current.

Sears, once the kingpin of U.S. retailers, is closing another 150 stores, selling its Craftsman brand to raise cash and borrowing money to pay down debt, but those steps may not be enough to stop the unravelling of an iconic American company.

The pending store closures, which include 108 Kmart locations, are the latest round of scheduled closings for Sears, which has been selling off properties to reverse a tide of declining sales and revenue.

But it may be too little, too late for Sears, the 131-year-old company whose ubiquitous mail-order catalogues were once as essential to American households as the vacuum cleaners, clothing and washing machines they sold. The one-time biggest retailer in the U.S. is now increasingly irrelevant, retail watchers say, as it struggles to compete with big-box competitors such as Home Depot and Walmart, as well as a bevy of online retailers.

“From what I can see, these are very intelligent financial manoeuvres to raise money,’’ said Van Conway, CEO of Van Conway & Partners, who has advised retail companies and other businesses on reorganization and insolvency.

“But the whole issue is: is the core business of the retailer viable… I honestly don’t see a spot for Sears long-term. My mom shopped at Sears. That was the only place she could go. Now you have 50 choices, and Sears is outdated.’’

The flurry of steps taken in recent days is a stark illustration of the moves Sears is making to try and survive. On Tuesday, it ended the leases on another 19 unprofitable locations, according to a filing with the U.S. Securities and Exchange Commission. The government notice was made by Seritage Growth Properties, the real estate investment trust that Sears spun off in 2015 and which subsequently bought from and leased back various locations to the retailer.

Those stores are expected to be shuttered in April.

Sears also continues to borrow, even as its long-term debt ballooned from US$2.2 billion at the end of January 2016 to US$3.7 billion by the end of October.

On Wednesday, the company announced it had obtained a US$500-million loan commitment backed by mortgages on 46 properties belonging to its subsidiaries.

Sears said in a statement it planned to use that money to bankroll its operations as it prepares to sell more of its assets in order to help pay off debt. It has already tapped into US$321 million of the loan, and may add on more properties as security if it uses the US$179 million that remains. The loan commitment “will provide Sears Holdings with additional financial flexibility and support our operations as we meet all of our financial obligations,” Jason Hollar, Sears Holdings’ chief financial officer, said in the statement.

Those are just a few pieces of the turnaround strategy that has been shepherded by Sears’ CEO, Edward Lampert, a hedge-fund manager who merged Sears with rival Kmart in the mid-2000s and whose use of the retailer’s cash flow to bolster his hedge-fund business has been compared to manoeuvres by Warren Buffett.

But in the wake of a December earnings report that showed Sears having a net loss of US$748 million and revenue plummeting 12.5 per cent in the third quarter, Neil Saunders, an analyst for retail industry-tracking firm Conlumino, likened Sears to the doomed ship, Titanic.

“While Sears was once a titan of U.S. retail, it now looks set to sink,” he wrote in a note on Dec. 8.

The selling off of key assets, including its signature brands, is particularly troubling. “The problem with this approach is that the funds raised are not being used to develop or grow the firm, they are being used to prop up an ailing and failed business… It is hard to put an exact timescale on Sears’ demise. However, in our view it is now firmly on a trajectory to failure.”

In 2014, Chicago-based Sears Holdings sold off its controlling interest in Toronto-based Sears Canada, which is also struggling with falling sales and mounting losses.

— USA Today