Sears Canada Liquidating 11 Major Stores; U.S. Parent Feared to Follow Suit

Retail Apocalypse 2017
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Sears Canada Beginning to Close Profitable Stores

The Canadian spin-off of the department store chain Sears Holdings Corp may have failed in its restructuring efforts following its bankruptcy proceedings. It has begun closing some of its profitable stores, sparking fears that the U.S. parent corporation may soon follow in its footsteps.

Sears Canada has announced in the past week that the company is closing 11 of its major stores across the country. The affected stores are not the usual underperforming stores. In fact, these were some of the most profitable stores in its portfolio.

The news follows days after we heard that Sears Canada’s Executive Chairman, Brandon Stranzl, was looking to cut a private equity deal with parties in the U.S. in order to save the dying company.

Stranzl was seeking investment from a private equity investor in Los Angeles, and he also planned to raise more debt from Wall Street banks. It appears, however, that existing creditors did not approve of the company taking on additional debt until they took their share out. Sears Canada is now under pressure from its current lenders to liquidate its profitable stores to return some of their money.

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Sears Canada filed for bankruptcy earlier this year and initially announced 59 store closures and more than 2,900 layoffs. But that number is continuing to increase.

There are fears that the American parent company may go down the same road if creditors force it to take drastic measures. Sears has already closed hundreds of stores in the U.S. this year. According to CEO Eddie Lampert, those closed stores were all underperforming ones. The company has been focusing on returning the remaining “best stores” to profitability.

Sears Canada, like its U.S. counterpart, has Lampert as its biggest shareholder, with a stake of more than 45%. Although Sears Canada was legally spun off from Sears Holdings Corp to become a separate entity, in spirit it may not be wholly independent of its parent company.

At least that’s what Mark Cohen, the former CEO of Sears Canada had to say after departing from the company. According to him, Stranzl is only “fronting” for Lampert, who continues to run the show. Cohen said in August, “Forgive me, but I remain tremendously cynical about the motives of the players involved and the likelihood of any kind of a favorable outcome here.”

The giant department store chain has been struggling with dipping revenues and growing losses as online shopping takes over the retail sector.

The senior management team’s shortsightedness is often blamed for the company’s financial troubles. Sears, like many traditional retailers, has been slow to respond to the changing industry dynamics. The company has been too slow in introducing the technology that is necessary to improve its digital presence.

 

Sources

Sears Canada Bankruptcy Deals Threaten to Sink Chairman’s Bid,” The Wall Street Journal, October 4, 2017.

Outgoing Sears Canada chairman ‘fronting for Eddie Lampert’: Former CEO,” BNN News, August 21, 2017.

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