Sears avoids liquidation as Eddie Lampert wins bankruptcy auction

0
91
Sears avoids liquidation as Eddie Lampert wins bankruptcy auction

Sears’ chairman, Eddie Lampert, has won a bankruptcy action to keep the 126-year-old retailer from liquidating, The Wall Street Journal reports.

Sears advisers accepted Lampert’s bid, worth about $5 billion, after two days of negotiations.

Lampert’s hedge fund, ESL Investments, had said his bid would keep 400 stores open and up to 50,000 of Sears’ workers employed.

When Sears filed for bankruptcy in mid-October, it had 687 stores and about 68,000 workers.

Read more: Inside Sears’ death spiral: How an iconic American brand has been driven to the edge of bankruptcy

Sears has been struggling to survive for years. The company’s sales tumbled from $53 billion in 2006 to less than $17 billion in 2017.

Lampert has blamed the company’s grave decline on the media, shifts in consumer spending, and the rise of e-commerce, among other reasons.

For years, he has kept the ailing retailer afloat through billions of dollars in loans from ESL, the selling off of valuable real estate, and the slow dismantling of Sears’ exclusivity over some big American brands.

He has said the measures would buy Sears more time to execute a transformation that would lead the company back to profitability.

But analysts have long been skeptical that the company could make a comeback following years of underinvestment in stores.

“While there is no doubt that a shrunken Sears will be more viable than the larger entity which struggled to turn a profit, we remain extremely pessimistic about the chain’s future,” Neil Saunders, the CEO of GlobalData Retail, said in a note to clients on Wednesday.

“In our view, Sears exits this process with almost as many problems as it had when it entered bankruptcy protection. In essence, its hand has not changed and the cards it holds are not winning ones.”

Some stores have suffered severe decay, such as crumbling walls, cracked floors, collapsing ceilings, and a lack of working toilets for weeks on end, according to store visits and interviews with Sears employees over the past two years.

In addition to maintenance problems, several stores featured barren shelves and empty floors long before the bankruptcy filing. This was most likely the result of suppliers exacerbating Sears’ problems by threatening to cancel contracts and demanding new payment terms for orders.

Read more: Sears chairman Eddie Lampert submits $4.4 billion bid in hopes of rescuing the company from imminent death

Sears employees have hung bed sheets and shower curtains from store ceilings to cover empty areas. The company introduced handwritten pricing signs last year apparently in an effort to slash costs.

Lampert responded to the supplier troubles in a rare interview in 2017 by blaming the news media and by publicly threatening to sue two of its top tool vendors.

He has also defended his investment strategy in stores.

“I was criticized for not investing enough in the stores,” Lampert said in 2013. “My point of view is we couldn’t invest in everything.”

Lampert’s critics, including some former Sears executives, have also blasted him for managing a company in crisis from afar, visiting Sears’ Illinois headquarters only once a year or so for the annual shareholder meeting.

Instead, Lampert prefers to work from an office in Bay Harbor Islands, off the coast of Miami, and communicate with employees primarily through teleconference meetings.

“The only way you see Eddie is through a screen,” one former executive told Business Insider in 2017. “We used to joke about who had to go upstairs to get fixed and see Oz.”

Waiting to find out the fate of the company has been an excruciating process for some Sears employees.

“We have no idea about the destiny of Sears,” one Sears store employee, who asked to remain anonymous, told Business Insider last month.

“Inventory has been reduced. Management has no idea if we are getting spring merchandise. We are so poor we can’t afford to hire a loss-prevention person to watch for shoplifters … Floors are dirty due to the fact that we can’t pay our cleaning crew.”

The next Warren Buffett

Sears’ chairman, Eddie Lampert.
AP

Lampert, 56, graduated from Yale, worked at Goldman Sachs, and started his own hedge fund, ESL Investments, when he was 26. He was a celebrated investor for much of his three-decade career.

ESL generated annualized returns of more than 20% a year for 20 years, marking one of the strongest long-term investment records in history, according to a 2013 Wall Street Journal article. In 2004, Bloomberg Businessweek asked whether Lampert was the next Warren Buffett.

Lampert acquired Kmart out of bankruptcy and combined it with Sears in 2005 to create Sears Holdings. About a year after the deal to create Sears Holdings closed, Lampert described the company — which included more than 3,000 Sears and Kmart stores — as a “$55 billion-revenue, 350,000-person startup.”

“My goal is to see Sears Holdings become a great company whose greatness is sustainable for generations to come,” Lampert, then just chairman of the company, told shareholders in a March 2006 letter.

Lampert has publicly compared Sears’ strategy to Apple’s and Microsoft’s. In a 2016 letter to shareholders, he said that Sears was trying to meet new customer needs like Uber, Amazon, and Tesla were doing. Sears had faced more scrutiny from Wall Street than those companies, however, simply because it’s a retail company, he said.

“In an environment where new companies like Uber can raise almost unlimited capital, what are the implications for older companies that are held to a very different standard when it comes to profitability and regulation?” Lampert wrote.

Shop Your Way

Before Sears and Kmart, Lampert had no experience in retail. The big plan he hoped would transform Sears was a rewards program called Shop Your Way, which the company introduced in 2009.

Through the program, frequent buyers accumulate points for their Sears and Kmart purchases and turn them into coupons and discounts. One primary goal of Shop Your Way was to acquire customers’ personal information and sell it to other companies, according to a former executive who worked on the program.

There’s also a social-networking component on Shopyourway.com, where members can see and comment on products their friends have liked or purchased.

Lampert aggressively pushed the rewards program, requiring store employees to meet ambitious quotas for new sign-ups. But in many ways it backfired. The program is complicated and has held up lines at checkouts, angering customers.

At the same time Lampert was pushing Shop Your Way, employees started complaining that Sears had stopped investing in its physical stores.

Read more: Sears workers describe decay in failing stores

“While we have been criticized for not investing more in our stores, I have explained in the past that the investments in our transformation go well beyond our stores, but don’t ignore our stores,” Lampert wrote in a letter to shareholders in February 2016.

“We believe that our investments in the Shop Your Way membership platform and our integrated retail capabilities were more appropriate investments given the massive shift in how customers are shopping and how competition has evolved.”

“Integrated retail capabilities” is Lampert’s term for shopping at stores and online.

Sears stopped reporting its e-commerce growth in 2014. Lampert conceded in 2016 that the company had “fallen short” on getting customers engaged in the program.

“Our reputation will change,” he said at the company’s annual meeting in 2016, according to Crain’s Chicago Business, when the company gets the Shop Your Way network “to matter.”

More recently, Lampert has focused on closing hundreds of stores to turn Sears into a more “asset-light” organization focused on a small number of profitable locations.

The company’s store count has dropped from 1,980 stores in 2013 to fewer than 600 today.

Read More

LEAVE A REPLY

Please enter your comment!
Please enter your name here