SEARS CANADA NEWS: HOW EDDIE LAMPERT WILL EVENTUALLY DRIVE SEARS HOLDINGS INTO BANKRUPTCY

Sears Canada news: Introduction

The news for Sears Holdings out of the United States is not better than the Sears Canada news. Customers at Sears can’t discover Whirlpool appliances or ladies’ Levi Strauss denim and currently the Wall Street Journal reports they are short on one of the holiday’s hottest toys– the L.O.L. Surprise– because its maker is questioning Sears’ financial wellness.

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Sears Canada news: The sad, slow demise of Sears Holdings

Why it matters: Sales at Sears accounted for about 1% of U.S. GDP in the 1960s, however years of competition with big-box stores and online merchants, incorporated with current (mis)management by CEO Eddie Lampert, has whittled down Sears’ financial position extensively.

Sears Canada news: (Mis) management

I put “mis” in brackets because, I am not convinced that Mr. Lampert’s plan was to make Sears a successful retailer. He may have just seen assets with value that he could liquidate to reap financial rewards from until Sears can no longer function as a viable retailer. So what we see today with Sears, may very well have been his management plan all along. (See more on this hypothesis below).

Sears Canada news: The Wall Street Journal article

Currently distributors are minimizing deliveries, tightening funding terms, or declining to work with the merchant completely from concern of being stiffed if Sears is forced into bankruptcy. This is all according to a Wall Street Journal (WSJ) article on October 31, 2017 titled: “Inside the Decline of Sears, the Amazon of the 20th Century”.

Sears Canada news: What the analysts say about Sears Holdings

Bill Dreher covers Sears Holdings for Susquehanna Financial Group. WSJ states that “We see no viable path for Sears to succeed as a retailer,”. He worries that the suppliers are starting to lose confidence in Sears. He also suggests that this is what put Sears subsidiary Kmart into bankruptcy in 2002, when it was an independent company. Lampert took control of Kmart after its bankruptcy and then leveraged its stock to acquire Sears in 2005.

The fraying patience of vendors is clear as reported by the WSJ:

• LG Electronics and Samsung are demanding money in advance to supply certain products.
• Sears sued two long time manufacturers of its Craftsman tools brand before this year to keep them shipping product to stores. This is despite the Craftsman brand name was sold by Sears months earlier.
• Clorox is imposing harder payment terms for its well-known products.

  

Sears Canada news: Sears Holdings CEO

Mr. Lampert’s management style is partly responsible for Sears’ current battles, according to the article. The WSJ reports that Lampert took on a strategy of skimping on investment and upgrades and instead used that cash to buy back Sears shares from certain shareholders.

This approach maintained Sears stock price, until the financial crisis hit. It is no secret that Americans’ preference for online shopping grew significantly, which has negatively affected all brick and mortar retailers. Sears is no exception.

The WSJ articles states that Eddie Lampert doesn’t visit Sears headquarters greater than a pair of times annually. He likewise hardly ever visits stores and favours that top Sears executives do the same. He argues that it is more affordable and more efficient to connect with store managers over videoconference.

Sears Canada news: Sears Holdings continues to cannibalize itself

Sears Holdings has closed unprofitable stores and spun off lines of business. The merchant’s shop footprint has been more than cut in half. Since 2010, the number of Sears locations has dropped from 4,000 stores to 1,250 currently. Sears’ current strategy is to shut a lot more. From 2010 to 2016, its sales have dropped by almost half, from $43.3 billion to $22.1 billion last year.

Sears Canada news: The financials tell the story

Sears had just one quarter of favorable same-store sales growth between 2008 to the 1st quarter of 2017, according information from retail study company Retail Metrics. During that very same time, Sears’ operating income was negative in all but 8 of 37 quarters.

Sears is a laggard in a lagging field. The business has suffered EBIDTA losses, and requires cash for operating expenditures such as:

• fundamental upkeep;
• capex;
• pension plan payments; and
• debt repayments

Sears Canada news: Sears Holdings has fended off bankruptcy; for now!

Sears has been able to fend off default for many years mostly with store closures, staff lay offs, asset sales and loans from Lampert’s hedge fund ESL Investments. In trying to revive sales, Sears has partnered with Amazon to market Kenmore items, tested new store styles and revived its holiday catalogue.

Few traditional stores have actually thrived in this period of online shopping. But Sears, which was at one time one of the most innovative retailers in America, has been left more than most retailers partly due to Lampert’s decisions.

For these reasons, one day I fear that there will be a big Sears clearance. Sears Holdings news out of the United States will be the same one day as what we already know about the Sears Canada news. It is only a matter of time, IMO anyway.

Sears Canada news: It doesn’t need to be your company’s news

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