By Suzanne Kapner and Lillian Rizzo
Billionaire Edward Lampert won a bankruptcy auction for Sears
Holdings Corp., keeping the struggling department store chain from
shutting all its remaining stores, according to a person familiar
with the matter.
Mr. Lampert, a hedge fund manager who steered Sears into
bankruptcy, prevailed by sweetening his $5 billion offer over
several days of negotiations with Sears's board and creditors, the
person said.
His last-ditch rescue plan would keep roughly 400 stores open.
The offer beat out a bid, which was supported by most Sears
creditors and landlords, by Abacus Advisory Group LLC to close all
the stores and sell the inventory.
Sears' longtime leader, who is also its largest creditor and
biggest shareholder, has scrambled to retain control of the company
since it filed for protection from creditors in October. He stepped
down as chief executive at the time, but remained chairman.
The 126-year-old Sears was once the dominant retailer in
America. It will emerge, though, from bankruptcy as a shadow of its
former self with about 425 locations, making it difficult to
compete against healthier chains with thousands of locations apiece
-- such as Walmart Inc. and Home Depot Inc. -- as well as with the
growing omnipresence of Amazon.com Inc.
"I don't know what's left to shop there for," said Patrick
Garrett, a retired consultant. Ever since the Sears near his home
in Calabasas, Calif., closed in November, he has visited Lowe's
Cos. for Craftsman tools, Best Buy Co. for appliances and J.C.
Penney Co. for clothes. "I'd have to drive 40 miles to get to the
nearest Sears now," the 70-year-old said.
Retailing has become a game of scale to cover the fixed costs of
operating stores, warehouses, e-commerce sites and a supply chain
that knits them all together. Sears, by contrast, has been
shrinking for years by closing stores and shedding businesses and
brands, including the Lands' End Inc. clothing brand and Craftsman
tools.
At its peak in 2006, a year after Mr. Lampert took control by
merging Kmart and Sears, the company operated more than 2,300
stores. In October, it entered court protection with fewer than 700
locations and had racked up seven years of losses. Annual sales had
shriveled to $16.7 billion, down from $49 billion in 2005.
At the time of the Kmart merger, Mr. Lampert was a Wall Street
hotshot who was often compared with legendary investor Warren
Buffett. The downfall of Sears hasn't only damaged the company's
reputation, but Mr. Lampert's as well.
Now, he has what might be his final chance to prove that his
contrarian strategy is the right one. He has long argued that as
retailing moves online, chains need fewer big-box stores. His
mantra for Sears is to turn it into an "asset-light" company.
Yet, there are few precedents of big retailers shrinking their
way to prosperity. A rare exception is Federated Department Stores
Inc., which filed for bankruptcy protection in 1990 as part of
Campeau Corp., emerged and went on to swallow up rivals to become
the current Macy's Inc.
"Sears is so far below critical mass," said Steve Dennis, a
consultant and former Sears executive, who left the company before
Mr. Lampert took control. "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?"
In recent years, chains such as Toys 'R' Us Inc., Sports
Authority Inc., Bon-Ton Stores Inc. and RadioShack disappeared
after filing for bankruptcy protection. Others such as Mattress
Firm Inc. and Payless ShoeSource have re-emerged from bankruptcy
after shedding debts and shutting hundreds of stores.
Mr. Lampert also is buying the Kenmore and DieHard brands, the
company's Sears Auto Centers and its Home Services business, along
with inventory, intellectual property and other assets. The rescue
plan will save as many as 50,000 jobs.
"Our proposed business plan envisages significant strategic
initiatives and investments in a right-sized network of large
format and small retail stores, digital assets and interdependent
operating businesses," Mr. Lampert wrote in a Dec. 28 letter to
Sears's financial advisers. "We believe that our strategy will
enable Sears to prosper in an integrated consumer and retail
landscape."
His bid, the only offer to keep Sears open, overcame opposition
from unsecured creditors, who initially argued they would recover
more from liquidation. They objected to the fact that $1.3 billion
of Mr. Lampert's offer was in the form of forgiveness of debt owed
to his hedge fund ESL Investments Inc.
The unsecured creditors also fought a stipulation that released
Mr. Lampert and others from liability related to the asset sales
and spinoffs that they say might have siphoned value away from the
company. An ESL spokesman said the transactions were approved by
independent directors and were designed to raise money for Sears
until it could return to profitability.
To overcome resistance, the hedge-fund manager raised his offer
by $600 million last week. The revised offer included no new cash
but promised to assume liabilities that could drive the retailer
further into debt. It also included an additional 57 real-estate
properties as well as accounts receivable and inventory.
Not everyone views Sears as a lost cause. Some of its surviving
stores are in healthy malls, and other locations in rural areas are
facing less competition as rivals have closed stores or gone out of
business. But big changes need to happen to make Sears viable,
analysts say.
"We think there is a path for them to survive, but they've got
to dump apparel and devote the whole store to hard lines," said
Craig Johnson, the president of consulting firm Customer Growth
Partners. "Sears still has a lot of credibility in appliances, and
they can rebuild that business."
Former executives say that idea was considered years ago but
deemed unfeasible, because consumers purchase big-ticket items such
as appliances too infrequently. It would also be dependent on
Sears's ability to reduce the size of its stores, something it has
been trying to do by leasing excess space to grocery stores and
competing retail chains.
A blueprint for the company's future could lie with a remodeled
store in Oak Brook, Ill., that opened in October. At 62,000 square
feet, it is about one-third of its original size. The shrunken
store no longer sells consumer electronics and jewelry, although
most other product categories are available.
Perhaps a bigger stumbling block to Sears is Mr. Lampert
himself. Although he has poured money into the company through
short-term loans and said he has tried to do everything to keep it
afloat, his contrarian approach to running the retailer --
including a reticence to upgrade stores without the promise of a
return on that investment -- has proven disastrous.
"Any model with Eddie involved is a no-go," Mr. Johnson
said.
Write to Suzanne Kapner at Suzanne.Kapner@wsj.com and Lillian
Rizzo at Lillian.Rizzo@wsj.com
(END) Dow Jones Newswires
January 16, 2019 06:22 ET (11:22 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
Sears (CE) (USOTC:SHLDQ)
Gráfico Histórico do Ativo
De Mai 2024 até Jun 2024
Sears (CE) (USOTC:SHLDQ)
Gráfico Histórico do Ativo
De Jun 2023 até Jun 2024