Sears wins another lifeline, but is it too late?
Embattled US department store Sears has been granted yet another lifeline, with a bankruptcy auction now scheduled for January 14.
That will give billionaire hedge fund operator Edward Lampert, Sears biggest shareholder and former CEO, one final opportunity to preserve the business.
At Monday’s auction, he will bid against rival parties seeking to liquidate the business, described by GlobalData Retail MD Neil Saunders as “more like a patient in a coma than a fully functioning retailer”.
Sears filed for Chapter 11 bankruptcy protection in October and the independent directors of the 126-year-old company are seeking its liquidation, seeing it as the only means by which creditors can retrieve some of the $5 billion in debts it owes. Lampert wants the remaining 425 stores trading under the Sears and Kmart banners to remain open, convinced it can return to viable trading.
Saunders disagrees and says talk of a potential liquidation of the company suggests the much-storied retailer is now at the end of its long road to collapse.
“Its recent journey to this point has been characterised by incredibly poor strategic decisions, chronic underinvestment, and continuous financial machinations designed to keep the company afloat. All of this impacted trading, which has remained dire.”
Saunders says while Lampert has worked hard to rescue the remains of his empire, there is simply not enough financial firepower left in the company to persuade investors of his bid. Indeed, the terms of the deal put forward by Lampert would only likely delay the inevitable and make it far more difficult for creditors to extract their money.
“Moreover, his track record in putting the company on a sound financial footing has been less than impressive, and we believe this has undermined his credibility with stakeholders.”
Saunders says there may be interest from people who see value in elements of Sears business such as the automotive side, the online operations, the brands, and the various home services. Those operations include brands like Kenmore appliances, DieHard batteries and Wrangler jeans. “As such, parts of Sears could live on even if the company as we know it will disappear.”
According The Wall Street Journal, Sears, which merged with rival Kmart in 2005, has been losing money for seven years under Lampert’s leadership. Since April 2007, the company has shed 200,000 staff, lost $30 billion in shareholder value and closed more than 1700 stores, leaving it with less than 700 now.
Saunders says Sears will act as a case study in how not to run a retail operation.
“It also serves as an example that even the once most powerful and cutting edge of brands can easily fail in a retail environment where change and evolution are the order of the day.”