October 3, 2014
Will selling Sears Canada stock save Sears Holdings?
Sears Holdings needs money. After nine straight quarters of losses, Sears Holdings announced plans to raise roughly $380 million through the sale of all but 12 percent of the shares it holds in Sears Canada. This move comes after the company was unable to find a buyer for its 51 percent of Sears Canada in an auction.
The parent company of Sears and Kmart said it is counting on the sale of the Sears Canada stock along with $500 million in proceeds from the Lands’ End spinoff, $165 million from real estate transactions and $400 million in a short-term loan from ESL Partners, the hedge fund run by Eddie Lampert, Sears Holdings chairman and CEO, to provide additional funds heading into the Christmas holiday selling season.
Mark Cohen, a former chairman and CEO of Sears Canada, who left the company in 2004, called what has happened to his former company "a tragedy." Mr. Cohen, who is now a professor at Columbia University’s business school, told the Financial Post, that people used to call him "nuts" for his belief that Mr. Lampert’s plan all along was "to essentially liquidate the business."
Douglas Campbell, the current CEO of Sears Canada, recently announced he is stepping down from the position to return to the U.S. to deal with family issues. Mr. Campbell said he would continue to serve as CEO of the company until Jan. 1 of next year if a replacement could not be found sooner.
Kevin O’Leary, chairman of O’Leary Financial Group, told the Business News Network (BNN) that the sale of Sears Canada stock is a way for Mr. Lampert to keep Sears Holdings afloat while he attempts to figure something out.
In the end, however, Mr. O’Leary thinks Sears will be looking at liquidation within three years unless it finds a master merchant to replace Mr. Lampert as its leader. "No amount of financial engineering is going to save the company if nobody shops there," he told BNN.
- Sears Holdings Corporation Announces Intent to Conduct Rights Offering of Sears Canada Shares – Sears Holdings Corporation
- Sears Holdings Corporation Provides Update on actions to generate liquidity, fund its transformation and evolve its capital structure – Sears Holdings Corporation
- Sears Holdings Plans Share Offering For Sears Canada – Bloomberg News
- Sears Canada ‘tragedy’ seen as victim of overreach by U.S. hedge fund tycoon Edward Lampert – Financial Post
- Sears will be gone in 36 months: O’Leary – Business News Network
- Sears Canada Announces Leadership Change – Sears Canada Inc./CNW
- Sears Canada auction flop darkens outlook – New York Post
Discussion Questions
Will the sale of Sears Canada stock give Sears Holdings the room it needs to figure out a more effective way forward for the company? Is there, in fact, a possible route back to viability for the retailer?
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The sale of Sears Canada is a sign of the inevitable, not salvation.
Sears Holdings is desperately in need of more than cash to last another day. The Sears brand no longer holds value or cachet for today’s consumer. Sears was very late to the party with omni-channel, despite pioneering store pickup of major appliances.
George Anderson says it best when he summarizes the Sears situation as two fundamental issues:
It’s a scary day when I can nod sagely at something Kevin O’Leary says.
Whatever Mr. Lampbert’s original plans were, he has buried Sears and messed with his ESL holders as well.
It’s a sad end for a good brand. I just bought a new Kenmore Elite washer and drier and they are great. Too bad. If he could find the space in his head, he would be ashamed of what he’s done. I don’t think he has that gene.
Where to start? How about at the endpoint of the commentary, where Sears can only be saved by a “master merchant”? If the last ten years have taught observers of Sears anything, it’s that Mr. Lampert will not cede authority to anybody else, as long as he feels he is a “master merchant” himself. And with a number of other companies looking for new leadership (starting with J.C. Penney), why would any “master merchant” take on the challenge of a company whose real CEO refuses to invest in the business?
I haven’t shopped Sears Canada for several years, but at one time it was a credible quality alternative to The Bay. (I believe this is no longer true.) The idea of selling the company to its existing shareholders is akin to the recent “loan” from ESL hedge funds to Sears Holdings. It’s a Band-Aid where a tourniquet is probably required.
Finally it’s worth noting, according to today’s Wall Street Journal coverage one company insuring vendors against Sears’ non-payment is canceling its coverage as of October 6th. How many smaller vendors will cut off shipments for fourth quarter, and will the downward spiral accelerate?
My Mom worked for Sears for many years so I grew up as a Sears brat. It is sad to see what was a great retail company in this death spiral. Sears still has a few known strengths, including the Kenmore and Craftsman brands, but they are not enough to save the company.
This current fundraising may slow down the demise of the company, but George is absolutely right when he states the company needs customers and Mr. Lambert has demonstrated he is not the leader necessary to get them.
Buying a terminal patient a little time isn’t the same thing as a cure.
Sears has been so mismanaged that, at this point, the prognosis just isn’t good.
Selling off everything anybody might want leaves you with the parts that don’t work and/or have no commercial value.
Unless there is a really inspired team hiding in the wings ready to transform Sears it may be time to throw in the discounted towel.
I imagine a lot of people will be stepping down to go deal with family issues. When that is a better alternative to working and collecting a high six figure-or-better salary, ways to effectively move forward have disappeared. In the past 10 to 15 years Sears has made ZERO serious efforts to be a viable retailer. Anything they have done has been a lateral move at best and just for the press release. Since everything they do results in losses, I predict everything they do in the future will result in losses.
Mr. O’Leary’s comments are quite sage, if not old news. Sears can bring in all the money from all the sources mentioned. But until they can find a way to bring customers in the stores nothing is going to change. So far, after many years trying and many leadership changes the stores usually have more staff on the floor than customers.
Short answer: No, it won’t. As Mr. Campbell says, the plan all along couldn’t possibly be anything other than liquidation. The reasoning behind Lampert’s investment in Sears that I always heard was that it was a real estate play. But Lampert bought in at a time when real estate—especially retail real estate—was way over-valued and over-inventoried. And omni-channel will only increase that pressure. So he bought in high on a depreciating asset. The only place to go from there is down.
Sad to see. Aside from the brands and products wrapped up in Sears, the company also did some innovative things in the digital space. But I think even three years is optimistic for Sears’ current life expectancy.
The slow death spiral appears to be speeding up! Really, there’s not much that can save Sears now, the fundamentals are so flawed. This calls for a sub-brand IMO. Why not re-trench and create a new brand with all the great new things they’re doing with “Have It Your Way”? There’s a lot to like there. Have you ever bought something online and picked it up at Sears? They’re the best at BOPIS right now. The problem is getting someone to buy something.
I know, easier said than done, but it could be a better tact than bailing buckets of water out of a sinking ship!
There is no route back to viability for the retailer, and there never was. Both Sears and Kmart were on their way to dead when Lampert took control and he knew that. This was a real estate play all along and yes, his plan has always been to liquidate the company. When he engineered Sears Holdings, the company’s balance sheet without the real estate showed a negative net worth.
Where his plan went a bit wrong is that he figured the retailers could generate enough cash to carry the company as the value of the real estate increased. Perhaps now he has realized that their is no life to the retailers and it is time to quickly liquidate?
Mr. Lampert’s narrative has been about positioning Sears and Kmart to compete in an evolving and challenging retail environment. He also speaks of merchants as having a “nostalgic look back at the time where the world moved at a very different pace and information was very different.” Suggesting that today’s merchants aren’t up to the task at hand in the 21st century.
Even if one accepts his narrative at face value, the challenge is that one can see the formation of a new business paradigm of e-commerce, brick-and-mortar, mobile, social, and so on but that doesn’t guarantee that the right strategic plan will be created or that the execution will not go astray.
In the case of Sears Holding, it’s not clear if all the motions of the past eight years or so have been to maintain liquidity for an eventual re-imagining and execution of a new business model (once all the fog has cleared) or if this has been an organized and calculated carving out of a once proud brand into piecemeal slices to feed other parts of the empire. The whole notion of a member-based retail business (Shop Your Way) is interesting but doesn’t get to the core of the problem at Sears.
Regardless, Sears as we knew it is a historical artifact but that doesn’t mean that in a new form, it couldn’t re-emerge and find relevance. However, my sense is under Mr. Lampert, that day is very far off indeed—if it ever comes at all. Retail may not be as sexy as running a hedge fund (but can be every bit as exciting) and takes much more than adeptness at financial engineering to succeed (although that can create breathing room or a final gasp).
A delay at best as the sucking sound of cash disappearing down the drain continues to rise! Sadly there probably is room for a well-run Sears Canada in a market that really has seen the over-consolidation of department stores leave very few players, with probably room for one more. In the U.S., Sears seems to have done a great job of becoming irrelevant with plenty of competition to offer the customer alternatives.
More time to figure out a strategy isn’t going to help this team. They ran out of either ideas or the ability to execute years ago.
Sears is an incredible opportunity for someone who can comprehend the great value of the brand. The potential is there to compete on many levels of omni-channel. They just need a person who can mold it correctly. I am available!
Selling Sears Canada stock will not revive the dead, and death is not a reliable platform for renewing vitality.
This is REALLY a shame and very sad. I agree with Mr. O’Leary and I also agree with Ms. Rosenblum—Mr. Lampert should be ashamed of what he has done.
There’s an old expression about throwing good money after bad which I think applies here. Mr. Lampert has not single handedly taken Sears down. That started back in the 70’s when they decided to start chasing Walmart and abandoned their customer-first mentality. I know — I lived through it with my father who was then an executive with Sears.
Mr. Lampert will, however, be the one that history will show cast the final blows to this once iconic brand. To the credit of Mr. Sears and Mr. Roebuck, and the strong brand they built, it has taken forty years to bring this great brand down. A real tragedy.
We all seem to be in unanimity. Mr. Lampert has been in charge so long now that even new leadership has little or no chance. But Peter raises (what is to me at least) the more interesting question: even though there is little hope for Sears in the States, is there at least some hope for Sears Canada? I suspect only if the ownership share is reduced to zero percent.
How much more time is needed? A lot of time has been used already to search for a new strategy and one has not been found. Why is there a reason to think one will be found now?
Sears will never succeed with their current leadership. They need to rethink from the ground up. Both Sears and K-mart were once great retailers; their day has ended. They did not move properly with the times.
I know ways to turn the company around and make it profitable again, but the changes would be great, including but not limited to the culture of the company.
Sears has been struggling to find a way to pay the bills the entire 21st century. Selling off Sears Canada, selling information technology services and employee cutbacks have not proven successful in the face of a poor economic climate and slow sales. One of the best ways to elevate cash flow problems is to engage the market with successful retailing practices. Sears has not done anything new and innovative to increase sales for quite a long while.
If the company decline is not turned around, the company failure will crush many more businesses large and small. It is bewildering that the board of directors and banks don’t push for someone that can and will increase sales while there is time to do so. I can not help but wonder what the board of directors and executive committee have on their lists of things to do.
Fast Eddie is jettisoning assets to stay afloat. This won’t end well.
Simple answer is no. This doesn’t address any of the fundamental issues and therefore there is no reason to believe it will change the direction of the last 10 years, although it may slow momentum a bit.
Eddie knew that Sears had no chance, and since the 1998 credit card scandal has had no chance. That’s why in 2004 CEO Lacy sold the company to Kmart aka ESL. Sears’ last chance for success was the day before it sold the catalog biz in 1993, the end of Amazon 1.0.
At that time, Sears had two key assets:
The franchise brands are baked into a mix including insurance, service and easy, pernicious credit. Take Craftsman out of that and you have Kobalt, Husky or any other hand tool. Take Kenmore out and you have Whirlpool, GE or any other appliance. They aren’t relevantly differentiated away from the business model.
The underlying reason for failure is that the 875 mall stores are irrelevant. Which isn’t much different than Macy’s or J.C. Penney, and all continue to search for a reason to exist. Once the catalog closed, Sears ceased being a national brand and became a regional retailer and it kept behaving as a national retailer. National assortments are not relevant on a local basis. Especially nowadays.
So this Halloween, don’t demonize Eddie. Sure he has grossly mismanaged good old Sears, but that is only because WE all expect it to be managed like a retailer, even an omni-channel merchant. Eddie didn’t buy it to be a retailer, because that opportunity was LONG gone.
Remember Eddie also bought Kmart post-peak. It is time to stop thinking of Eddie and Sears as retailers.
As we like to say, “retail ain’t for sissies.”