Business

A leaner Sears emerges from bankruptcy

But can this new iteration surive?

Chicago Tribune/TNS

A U.S. Bankruptcy Court judge approved Sears Chairman and former CEO Edward Lampert’s proposal to buy the retail chain’s operating assets for $5.2 billion.
Chicago Tribune/TNS A U.S. Bankruptcy Court judge approved Sears Chairman and former CEO Edward Lampert’s proposal to buy the retail chain’s operating assets for $5.2 billion.
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In some ways, the “new” Sears has a lot in common with the company that filed for bankruptcy protection in October.

Its largest shareholder is now its owner. The U.S. Bankruptcy Court for the Southern District of New York approved a $5.2 billion bid by Sears Chairman Edward Lampert to buy the company through his hedge fund, ESL Investments, last week.

Plans outlined by ESL — including smaller stores and a focus on the retailer’s strengths such as appliances — sound like initiatives Sears has pitched before, as losses mounted in the years leading up to the company’s bankruptcy.

But early attempts to put the strategy in place were hampered by Sears’ past financial challenges, said Mohsin Meghji, Sears’ chief restructuring officer and managing partner at M-III Partners, an advisory company hired by Sears.

“It is a high-quality management team, but all of their horsepower was largely focused around legacy issues related to contractual obligations, debt leverage and liquidity management,” Meghji said.

“Is there a place for a niche, appliance-focused retailer called Sears? Sure. But it has to be executed really well, and previously it wasn’t done as well as it could have been.”

Now, Hoffman Estates, Ill.-based Sears has another chance, this time with healthier finances after shedding debt, pension obligations and unprofitable stores in bankruptcy.

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“As we embark on this new chapter, we look forward to continuing to build meaningful relationships with our members and customers, who rely on us for our trusted brands, services and convenience,” Sears said in a statement.

Experts who have watched the company’s struggles say it still has a tough battle ahead.

“There is a viable path, but it’s still a long shot,” said Craig Johnson, president of Customer Growth Partners, a retail consultant.

The new Sears will have 223 Sears and 202 Kmart stores, nearly half of which are in California, Florida, Pennsylvania, New York and Puerto Rico, according to court filings.

That’s down from 687 when the retailer sought bankruptcy protection four months ago and 1,672 stores in January 2016.

There no longer are any Sears or Kmart stores in the Corridor.

Closing locations that don’t make money will help, but shrinking means giving up some of the economies of scale and power to negotiate with suppliers that bigger players enjoy, said Ray Wimer, assistant professor of retail practice at Syracuse University.

Rivals such as J.C. Penney and Kohl’s have more than 860 and 1,100 stores, respectively.

But even a smaller Sears is big enough to get some of those benefits, said Paula Rosenblum, co-founder and managing partner of RSR Research, a retail technology research company.

“Vendors still want to see a healthy Sears,” Rosenblum said.

Lampert told the Wall Street Journal last week that he intends to sell or sublease some of Sears’ remaining 425 stores.

Some of those stores are not profitable, and in financial forecasts ESL said it expected to bring in about $200 million a year through real estate sales over the next three years, according to court filings.

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That means Sears could close more stores, though it’s also possible the company could continue leasing space in properties it sold or offset closures with new, smaller store openings.

Despite the uphill battle, “I wouldn’t bet against these guys,” Meghji said. “I think there is a big segment of America who would like to see Sears rise again.”

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