Sears Corporation will be filing bankruptcy as early as Saturday, or as late as Monday morning. Sears is the definition of a former retail/corporate powerhouse. Look at some of these companies that used to be a part of Sears: Dean Witter, Allstate, Discover Financial, Morgan Stanley (later merged with Dean Witter), Orchard Supply Hardware (OSH) AKA (rest in peace, liquidated 2018) spun off: Sears Hometown, and Sears Canada in 2015. Wow look at that list! In its heyday, (think 1960’s) Sears sold everything from toys to hardware, to mail order houses, now its circling the drain at ramming speed. What caused all this death spiral you might say? Well a series of poor decisions that began with the ill-advised merger with Kmart in 2004. This is because while Sears competed in the middle to higher end, Kmart catered to the lower end customer seeking value and low prices. A fatal mistake is Sears began cross selling its most valuable brands in Kmart stores such as; Craftsman, Kenmore, and Diehard. By doing this they cheapened their brand, and due to needing to sell the product at a lower price had to cheapen their product.
Craftsman was a very trusted top of the line name in the tool category, they also came with a lifetime guarantee if it broke, by the way, it was actually good for life, not a certain number of years. As a young child, Craftsman tools were a large part of my father’s childhood. He and his father would always be working on or fixing something with Craftsman tools in hand. He always told me he could count the number of times a tool broke on one hand and usually have 3 or so fingers to spare. When it broke you simply went to the local Sears and presto, no questions asked it was replaced. No such luck anymore. The tools are made of cheap material from China that resembles the graphite found in a number 2 pencil. There is a reason they are sold at discount prices, they break with ease. Similar to when you hire folks from LaborReady or whatever they are called now, if the directions call for 1 wrench you better buy 3. Oh, and getting the tool replaced…get ready to gear up for a fight over that “lifetime warranty” means. Cheap crappy tools.
Back to a central part of this blog, the real reason for bankruptcy is CEO Eddie Lampert.
If you are thinking the same guy who runs hedge fund ESL investments, your right. Lampert has never run a retail business, he just knows how to buy lots of stock in a company, force changes, and cash out when he makes a tidy profit; think Buffett, Icahn, and Nelson Peltz.
Lampert has actually been running a liquidation sale over the last decade to tell you the truth. He is a hedge fund guy, the only thing they know how to do is monetize assets and suck every dollar out of a company as humanly possible. Lampert inherited a company which albeit was struggling but had 3,500 stores, the company now has 700, planning to close another 150, keep 300 open and decide the fate of the other 250 in due time. This is too small a footprint to compete, more on this later. Lampert over the past few years has spun off most of Sears property (the ground/building) not the name into a different company to monetize its real estate, spun off Lands’ End into a stand-alone, mostly inside of Sears stores business, selling Craftsman to Stanley Black and Decker (by the way now available at Lowe’s, Home Depot, and pretty much everywhere). He also has loaned the company money through his fund ESL investments. By doing this he can charge a corporate bond interest rate think 8-12%, so he can suck more money out of the company. Lampert may own quite a bit of Sears stock, but he is very wise, shareholders are last in line in a bankruptcy, the banks are close to first, his loans essentially make him a creditor, and thus he will get most of his money back. Now here we are today, with Sears owing a $134 million dollar debt payment October 15th, they have no way to pay it. Enter Lampert again; offering to loan the company the money to make the payment, in exchange for Kenmore and several real estate plots the stores currently sit on. Sounds like a pretty good deal for Ole Eddie. The board is contemplating this, and I think they won’t go for it.
The moral of the story is this, we here at ReallyRight.com don’t like to see anyone lose their livelihood or see stores close but Sears hasn’t been relevant in at least 15 years. Honestly, they got rid of the Christmas (or is it Holiday) Catalog, likely to save money, bought a chain known for selling cheap crap with Blue Light Specials, and viola, it’s over. Cheapen your core brands to the point no one wants them or make it so they are now available anywhere not just exclusive to your store. In addition, ask yourself this question, what can you get at Sears that you can’t get cheaper elsewhere? Or better yet what do you go to a Sears to buy? Sears is the new Toy’s R Us, except that when it goes out of business it won’t be back, rumor has it Toy’s might be risen from the ashes like a Phoenix. It doesn’t help when you have a blood sucking hedge fund manager out only for himself who owns and runs the company.