By
with contributions from Vicki M. Young
 on June 22, 2017
Sears

By seeking Canada’s version of bankruptcy protection with a plan to close dozens of stores, Sears Canada is seen by some as possibly a harbinger of what’s next for Sears Holding Corp.

This story first appeared in the June 23, 2017 issue of WWD. Subscribe Today.

Although Sears Holdings spun off most of its stake in the Canadian operation in 2012 and the companies now function as separate entities, Sears Holdings still holds a 11.7 percent stake in Sears Canada. Moreover, chairman and chief executive officer Edward Lampert holds a 45 percent stake in the Canadian company through his hedge fund, ESL Investments Inc., according to data from research firm Morningstar.

These ties undoubtedly make Sears Canada’s Thursday filing for protection from creditors under the country’s Companies’ Creditors Arrangement Act (akin to a Chapter 11 bankruptcy in the U.S.), with plans to close about 60 of its 140 stores and lay off 2,900 workers, a blow to Sears Holdings’ long-shaky financial position, as well as Lampert’s retail portfolio.

A Sears Holdings spokesman only pointed out that Sears Canada “is, and has always been, a separate publicly traded company, which has its own balance sheet, management team and board of directors,” but did not comment on what the CCAA filing means for the company, or Lampert, as two of its three biggest shareholders.

A representative of ESL could not be reached for comment.

Paula Rosenblum, managing partner of Retail Systems Research, sees the Sears Canada move as something it should have done years ago in order to manifest a smaller, leaner operation that’s focused on “selling the brands it’s known for.”

Despite rumblings that the retailer could simply liquidate, Rosenblum said “the general expectation is that Sears Canada will reemerge with a smaller footprint” after its largest stores are auctioned off.

Tamara Szames, Canada-based analyst at NPD focused on fashion and footwear, agreed and said “there’s absolutely hope for Sears Canada” to come out operational from its restructuring.

“Unit sales in Canada for fashion are at a five year low — people are just buying less, and this mid-price ground where Sears operates is being hollowed out,” Szames said. “Another trend we’re seeing is consumer desire for authentic branding, and I think Sears kind of got lost with that. [The CCAA filing] was inevitable.”

As Sears Canada is formally owning up to its struggles, despite still touting its recent attempts at brand “reinvention” as a success, RSR’s Rosenblum said the CCAA filing “could be setting up for the major showdown” at Sears Holdings.

“It’s entirely possible that this will be a blueprint for a bankruptcy in the U.S.,” Rosenblum said, adding that she feels adamant a filing for Sears Holdings is on the horizon.

“[It’s been called] the world’s longest liquidation sale, and I think we’re coming to the end of it.”

Rosenblum pointed out that July 10 is the end of the clawback period within Sears Holding’s recent sale of its real estate assets to Seritage Growth Properties, a Lampert-controlled real estate investment trust, and a bankruptcy filing is almost certain not to come before then.

But the same day Sears Canada won protection from creditors, Sears Holdings reportedly notified another 20 stores in the U.S. that they are slated to close, as the retailer moves aggressively to hit its goal of $1.2 billion in yearly savings.

These closings are in addition to the 252 Sears locations already targeted for closing and come about a week after the retailer said it will be slashing 400 full-time jobs, mainly at its corporate headquarters in Hoffman Estate, Ill.

Sears Holdings is by no means the only retailer looking to cut costs with layoffs and store closures — it has Macy’s and J.C. Penney for company, along with many other specialty retailers collectively closing hundreds of stores —  but store closings at the once massive retailer have slowly, and often quietly, creeped up in number.

The company started off 2012 with just over 1,300 Kmart-branded stores and nearly 2,100 Sears domestic stores and the new round of closures will leave roughly 550 Kmart and 1,200 Sears stores in operation.

Transforming into a near shell of its former self hasn’t deterred Lampert from trumpeting Sears’ future return to a profitable enterprise, nor has the fact that Sears Holdings lost $2.2 billion in 2016 and more than $5 billion over the last three years.

As for what Sears Canada’s restructuring means for Lampert’s image as a retail operator and investor, Rosenblum said it’s not a good look for the hedge fund managing ceo, adding ruefully, “I don’t know that he could look any worse.”

“He has done a brilliant job of destroying one of the largest and oldest retailers in North America and selling it piece by piece to make sure he’s the only one to benefit,” Rosenblum said. “It’s tragic.”

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