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Sears is ‘one sick puppy,’ and there may be no remedy
Published: Jan 16, 2017 6:17 a.m. ET
Sears has bought itself some time with recent moves, but bankruptcy is increasingly looking like an option
Bloomberg
Sears has run out of real-estate assets to leverage, experts say
By
Tonya
Garcia
Reporter
Sears Holdings Corp. is using everything in its arsenal to stay afloat, but that still won’t be enough if the company can’t make its brand more relevant and generate sales, experts say.
Last week, Sears SHLD, -0.79% announced it had sold its Craftsman tool brand for $900 million to Stanley Black & Decker Inc. SWK, +0.48% the latest move in an effort to keep the business going.
The sale came after Sears announced a new credit facility with funds run by Chief Executive Eddie Lampert of up to $500 million, secured by mortgages on 46 real estate properties. That facility came a week after it said it had secured a standby letter of credit for up to $200 million, also with funds owned by Lampert’s ESL Investments. That facility can also be increased to $500 million, if the lenders agree.
“You’ve got a group of symptoms that would lead one to believe a bankruptcy would be imminent,” said Chuck Tatelbaum, director and chair of the bankruptcy and creditors’ rights department at the Tripp Scott law firm, and a 50-year bankruptcy law veteran.
“It’s a sick puppy.”
Even among those who don’t believe bankruptcy is imminent, like Dave Marcotte, senior vice president of the Americas for Kantar Retail, the question is whether Sears still has the juice for a turnaround. Reducing inventory and cutting employees is the company just “eating itself,” he said. “All you’re doing is reducing capabilities.”
Without resources, Sears’ options are limited.
“All the best quality moves that you can make in terms of real estate have already been done. There are too many stores in poor locations,” said Marcotte. “[N]othing they have gets them where they need to be.”
Sears has lost $8.2 billion over the past five years. Net losses in the third quarter were $748 million, as sales fell to $5.03 billion from $5.75 billion in the year-earlier period. The company said last week that same-store sales for the first two months of the fourth quarter fell by 12% to 13%.
“Sears has lost its marketplace, especially when they take the Craftsman line away,” said Tatelbaum.
The company will close 150 stores, adding to the more than 2,000 the company has closed, sold or spun off in the last 10 years, according to The Wall Street Journal.
Even with those cuts, the outlook is poor, said Tatelbaum. The company could continue to hemorrhage money into 2017 and burn through this latest infusion of cash. It still has more than $3 billion of long-term debt on its balance sheet, according to FactSet. Its most active bonds, the 6.625% notes due October 15, 2018 were last trading at 94 cents on the dollar, according to MarketAxess.
Macy's will cut more than 10,000 jobs and close nearly 70 stores after a lackluster holiday shopping season, while Kohl's warned of lower profit targets. WSJ's Suzanne Kapner and Lunch Break's Tanya Rivero discuss how department stores continue to lose ground to online shopping, and which retailers are finding a profitable balance. Photo: AP
The thing Sears both needs and lacks most is relevance, experts agree. The company is running out of time to build a strong brand, something it desperately needs to drive traffic and revenue.
But now many of the company’s remaining stores are in malls that are also contending with traffic declines. Mall traffic has slipped thanks to store closures from bankrupt or troubled retailers like Aéropostale Inc. AROPQ, -12.39% The Limited, which just closed all of its stores nationwide, and Sports Authority. And the consumer shift to e-commerce is taking a toll on many retailers.
“Leading retailers aren’t looking at their assets and asking, ‘What can we sell?’” said Brendan Witcher, principal analyst focused on retail strategy at Forrester. “[Sears is] focusing on the operations of being a retailer rather than being relevant.”
Looking forward, there aren’t any big selling occasions to look to near term, with the exception of perhaps Easter. Sears made a push into appliances in 2016, but Tatelbaum believes shoppers might be hesitant to buy.
“They don’t want to buy gift cards or things they might not be able to return,” he said. “They go to Sears because it’s in the neighborhood, they have a card, or they want a Sears Craftsman product.”
Bringing in shoppers rather than leveraging assets will have to be the focus going forward if Sears is going to survive.
Sears shares closed Thursday down 3.3% and are down nearly 53% in the last 12 months, while the S&P 500 SPX, +0.18% has gained about 20%.
Published: Jan 16, 2017 6:17 a.m. ET
Sears has bought itself some time with recent moves, but bankruptcy is increasingly looking like an option
Bloomberg
Sears has run out of real-estate assets to leverage, experts say
By
Tonya
Garcia
Reporter
Sears Holdings Corp. is using everything in its arsenal to stay afloat, but that still won’t be enough if the company can’t make its brand more relevant and generate sales, experts say.
Last week, Sears SHLD, -0.79% announced it had sold its Craftsman tool brand for $900 million to Stanley Black & Decker Inc. SWK, +0.48% the latest move in an effort to keep the business going.
The sale came after Sears announced a new credit facility with funds run by Chief Executive Eddie Lampert of up to $500 million, secured by mortgages on 46 real estate properties. That facility came a week after it said it had secured a standby letter of credit for up to $200 million, also with funds owned by Lampert’s ESL Investments. That facility can also be increased to $500 million, if the lenders agree.
“You’ve got a group of symptoms that would lead one to believe a bankruptcy would be imminent,” said Chuck Tatelbaum, director and chair of the bankruptcy and creditors’ rights department at the Tripp Scott law firm, and a 50-year bankruptcy law veteran.
“It’s a sick puppy.”
Even among those who don’t believe bankruptcy is imminent, like Dave Marcotte, senior vice president of the Americas for Kantar Retail, the question is whether Sears still has the juice for a turnaround. Reducing inventory and cutting employees is the company just “eating itself,” he said. “All you’re doing is reducing capabilities.”
Without resources, Sears’ options are limited.
“All the best quality moves that you can make in terms of real estate have already been done. There are too many stores in poor locations,” said Marcotte. “[N]othing they have gets them where they need to be.”
Sears has lost $8.2 billion over the past five years. Net losses in the third quarter were $748 million, as sales fell to $5.03 billion from $5.75 billion in the year-earlier period. The company said last week that same-store sales for the first two months of the fourth quarter fell by 12% to 13%.
“Sears has lost its marketplace, especially when they take the Craftsman line away,” said Tatelbaum.
The company will close 150 stores, adding to the more than 2,000 the company has closed, sold or spun off in the last 10 years, according to The Wall Street Journal.
Even with those cuts, the outlook is poor, said Tatelbaum. The company could continue to hemorrhage money into 2017 and burn through this latest infusion of cash. It still has more than $3 billion of long-term debt on its balance sheet, according to FactSet. Its most active bonds, the 6.625% notes due October 15, 2018 were last trading at 94 cents on the dollar, according to MarketAxess.
Macy's will cut more than 10,000 jobs and close nearly 70 stores after a lackluster holiday shopping season, while Kohl's warned of lower profit targets. WSJ's Suzanne Kapner and Lunch Break's Tanya Rivero discuss how department stores continue to lose ground to online shopping, and which retailers are finding a profitable balance. Photo: AP
The thing Sears both needs and lacks most is relevance, experts agree. The company is running out of time to build a strong brand, something it desperately needs to drive traffic and revenue.
But now many of the company’s remaining stores are in malls that are also contending with traffic declines. Mall traffic has slipped thanks to store closures from bankrupt or troubled retailers like Aéropostale Inc. AROPQ, -12.39% The Limited, which just closed all of its stores nationwide, and Sports Authority. And the consumer shift to e-commerce is taking a toll on many retailers.
“Leading retailers aren’t looking at their assets and asking, ‘What can we sell?’” said Brendan Witcher, principal analyst focused on retail strategy at Forrester. “[Sears is] focusing on the operations of being a retailer rather than being relevant.”
Looking forward, there aren’t any big selling occasions to look to near term, with the exception of perhaps Easter. Sears made a push into appliances in 2016, but Tatelbaum believes shoppers might be hesitant to buy.
“They don’t want to buy gift cards or things they might not be able to return,” he said. “They go to Sears because it’s in the neighborhood, they have a card, or they want a Sears Craftsman product.”
Bringing in shoppers rather than leveraging assets will have to be the focus going forward if Sears is going to survive.
Sears shares closed Thursday down 3.3% and are down nearly 53% in the last 12 months, while the S&P 500 SPX, +0.18% has gained about 20%.
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