Sears and Kmart News

A change in ownership has not stopped the bleeding at Sears. The retailer, acquired by a firm controlled by former CEO Eddie Lampert in February, says it is closing 100 more Sears and Kmart stores.

That’s in addition to the nearly two dozen Sears and Kmart stores already targeted for closing next month. And of course, it follows the shuttering of hundreds of Sears and Kmart stores over the last five years as the venerable retailer struggled against a rising sea of red ink.

At the time, ESL Investments, headed by Lampert, purchased Sears’ remaining assets the company announced that it would retain only about 400 Sears and Kmart stores. It isn’t clear from the announcement whether the 100 set for closing are part of that 400 or had already been designated for elimination at the time of the purchase.

Sears Holdings, the former owner of the brand, filed for bankruptcy protection 11 months ago. It pointed to steep declines in business lost to online shopping channels and rising debt. The following months were marked by a bitter struggle to control the company’s future, with Lampert’s hedge fund emerging as the high bidder.

Opposition to selling to Lampert

Even so, board members and vendors strongly opposed the sale to Lampert, suggesting his leadership as CEO had put the company in its predicament. In making his argument for ownership, Lampert said he could at least preserve some of the stores while saving approximately 68,000 jobs.

Even after the sale was completed, there were lawsuits. The Sears Holdings’ team that was given the responsibility of disposing of Sears’ assets sued Lampert in April, alleging that Lampert destroyed billions of dollars of Sears’ value and drove the company into bankruptcy.

Lampert defended his actions as CEO, saying he was forced to sell assets in a vain attempt to pull Sears out of what he called its “death spiral.” But Sears Holdings, which filed the suit, charges Lampert in effect “gave away the store” in deals that failed to realize the full value of the assets he was selling.

The following month, the new Sears sued the old Sears, claiming that what’s left of the old company -- the Sears estate -- has failed to turn over "hundreds of millions of dollars of assets" called for by the sales agreement.

It’s a storyline that consumers have become all too used to over the past few years: Sears and Kmart are closing more store locations. 

After being snatched up by former CEO Eddie Lampert earlier this year for $5.2 billion, Sears has continued to struggle financially. On Wednesday, new parent company Transform Co. said that it would be closing 21 Sears locations and 5 Kmart locations that have been unable to meet sustainable productivity levels. 

“Our goal remains to return the company to profitability and preserve as many jobs as possible in the communities we serve,” the company said in a statement.

Liquidation sales for the affected stores are slated to begin in the coming weeks, with closures scheduled to begin in late October. Below is a full list of the closing locations:

Sears not immune to retail apocalypse

Of course, underperforming stores are not just an issue for Sears alone. Brick-and-mortar retailers across the U.S. have struggled to keep up as consumers increasingly turn to online channels to order items. 

Earlier this week, Barneys New York filed for Chapter 11 bankruptcy and announced that it would be closing many of its locations in an attempt to return to profitability. Similar actions taken by Payless and Toys “R” Us also underscore the pervasive problem for American retail giants.

Eddie Lampert stated back in February that company officials would try to shake things up by shrinking the size of Sears and Kmart stores. The executive said that future stores will be about a third of the size of previous stores and focus more on tools and appliances and less on apparel. 

Sears retirees who had life insurance coverage through the company may now receive just $135 each from the now-bankrupt retailer, Bloomberg reports. 

About 29,000 former Sears employees had a life insurance plan through the company, which sold its stores and most of its assets to chairman Eddie Lampert’s hedge fund, ESL Investments, back in January. 

In March, Sears canceled its workers’ life insurance plan and gave them the option to pay for their own life insurance. The terminated plan would have provided death benefits of between $5,000 and $14,500 for workers, but the company now says it doesn’t have enough money to pay the full amount. 

Sears has laid out a new plan that would drastically reduce the amount of money its retirees will receive. Former Sears employees who were slated to receive thousands in benefits could now receive just $115 to $135, according to a court filing.

“The new plan is totally unacceptable to the retirees,” Ronald Olbrysh, chairman of the National Association of Retired Sears Employees, told Bloomberg. “It’s totally unfair, what Sears is attempting to do.”

A hearing on the proposal is set for August 12.

Sears Holdings filed for bankruptcy in October and sold off its assets in February, purchased by former CEO Eddie Lampert for $5 billion. But it seems that’s not the end of the story.

The transition has been marked by lawsuits, the latest filed by Transform Holdco LLC, a subsidiary of Lampert’s ESL Investments Inc., established to acquire and operate for former Sears assets.

At the time of the sale, Lampert said he planned to operate 400 Sears and Kmart stores but also said those stores would be smaller than most of those operated under the old company. The suit comes as that transition is getting underway and claims what’s left of the old company -- the Sears estate -- has failed to turn over "hundreds of millions of dollars of assets" called for by the sales agreement.

As is the case with most litigation, neither party is responding to media requests for comment.

Dueling lawsuits

Transform Holdco’s suit against the Sears estate follows April’s suit against Lampert by some of the stakeholders who are winding down the old Sears operation. That suit charged Lampert is profiting from the mistakes he made while in charge of Sears Holdings. The complaint charges Lampert’s actions destroyed billions of dollars of Sears’ value, driving the company into bankruptcy.

Lampert has defended his actions as CEO, saying he was forced to sell assets in a vain attempt to pull Sears out of what he called its “death spiral.” But Sears Holdings, which filed the suit, charges Lampert in effect “gave away the store” in deals that failed to realize the full value of the assets he was selling.

Lampert’s complaint

Lampert’s suit against the Sears estate accuses the bankrupt entity of breaking the sales agreement in numerous ways. It cites the estate’s decision to retain ownership of the Sears Holdings headquarters in Chicago. Lampert’s company also accuses the Sears estate of delaying agreed-upon payments to vendors.

“Transform believes that prompt resolution of these matters is important and necessary at this time to allow the bankruptcy court and creditors to consider the Defendants’ proposed Chapter 11 plan,'' the complaint maintains.

Meanwhile, the Sears estate will be back in court later today for a hearing on its bankruptcy plan.

Democratic presidential hopeful Sen. Elizabeth Warren (D-Mass.) is putting some heat on Treasury Secretary Steven Mnuchin, citing his time on the board of directors of Sears Holdings, as the retailer sold off assets in a bid to stay afloat.

Mnuchin served on the Sears board until 2016, when he resigned to assume a post in the incoming Trump administration. Prior to that, Mnuchin had a close friendship with Sears Chairman and CEO Eddie Lampert and had been Lampert’s college roommate.

Warren accuses Lampert of mismanaging the company and selling off assets when it did not serve the interests of stakeholders. In a letter, Warren, along with freshman Rep. Alexandria Ocasio-Cortez (D-N.Y), accused the corporate leadership of responding to alleged mismanagement by closing more than 3,500 stores and selling some of the company’s most valuable assets.

2018 bankruptcy

After Sears declared bankruptcy in late 2018, Lampert’s hedge fund, ESL Investments, was the successful bidder in gaining control of the retailer’s remaining assets. Lampert stressed that he planned to keep 400 Sears and Kmart stores open but Warren was not impressed.

“While ESL Investments had operational control of the Sears Holding Corporation, the company engaged in questionable financial engineering and other managerial decisions that enriched executives while decimating Sears' long-term growth and sustainability- ultimately resulting in Sears' bankruptcy and tens of thousands of lost jobs,” she wrote.

Warren claims Lampert loaded Sears with large amounts of debt, contributing to its inability to adapt to a changing retail environment. She notes that in Fiscal Year 2005, the company had a net debt-to-equity ratio of -0.04, and by Fiscal Year 2013, the ratio had ballooned to 1.48-1.

Last month Sears Holdings sued Lampert and former board members, accusing them of “stripping Sears of billions of dollars as it collapsed into bankruptcy." The lawsuit accused the members of the board of "assisting" Lampert in "transferring billions of dollars of the Company's assets to its shareholders" at the expense of the company as a whole.

Cites lawsuit

"In their recent lawsuit, Sears creditors accuse you and five other members of the Sears board of 'assisting' Lampert in 'transferring billions of dollars of the company's assets to its shareholders' at the expense of the company as a whole," the lawmakers said in their letter. "In your current role as treasury secretary, you have had the opportunity to intervene on behalf of Sears and in favor of Lampert's interests."

Warren said she is deeply concerned about what she called the “financial engineering” and “potentially illegal activity” that took place at Sears Holding Corporation during Mnuchin’s tenure on the corporate board.

Sears, which narrowly avoided bankruptcy after chairman Eddie Lampert’s $5.2 billion bid to save the chain was approved, is set to open three “Sears Home & Life” stores in May.

The small, 10-15,000-feet stores will be located in Anchorage, Alaska; Lafayette, Louisiana; and Overland Park, Kansas and will sell both large and small kitchen appliances, mattresses, and tools.

Under the court-approved deal to save Sears, the company was able to retain the Kenmore appliances and Diehard battery brands. It also continues to sell Craftsman tools through licensing partners. The new small-format stores will stock an expanded lineup of the company’s DieHard tools, in new categories such as lawn and garden equipment.

The planned small-format locations will also have kiosks where consumers can order items available online and in the stores and have them delivered either to the store or their home.

Back in February, Lampert hinted that future Sears stores would be smaller. He also said he thought Sears could eventually be a public company again.

“Our goal is to continue to shrink the size of our stores,” Lampert told the Wall Street Journal. “If I had my druthers, I’d rather be bigger than smaller. We still have enough of a critical mass.”

Sears filed for bankruptcy protection in October 2018. Almost two months ago, a bankruptcy judge in New York accepted Lampert’s bid of $5.2 billion to save the struggling retailer’s 425 remaining stores.

Sears chairman and former CEO Eddie Lampert, whose $5.2 billion bid to buy Sears Holdings through his hedge fund ESL investments was approved earlier this month, told the Wall Street Journal that future Sears and Kmart stores will be smaller than they were in the past.

“Our goal is to continue to shrink the size of our stores,” Lampert told the Journal. “If I had my druthers, I’d rather be bigger than smaller. We still have enough of a critical mass.”

In addition to being about a third of the size that they were before the company went bankrupt, Lampert said future stores will have less apparel and more tools and appliances.

Possibility of becoming a public company

Lampert -- who now owns 425 stores in total (223 Sears and 202 Kmart stores) -- also told the Journal that Sears could eventually go public.

“If I am a betting person, which I am, I would say at some point we would be public again,” Lampert said in the interview.

Sears isn’t the first struggling brick-and-mortar retailer to announce that it’s changing its game plan in an effort to stay afloat. Last week, competitor J.C. Penney announced its decision to stop selling appliances as part of a larger home department reorganization.

The retailer said that removing major appliances would help it "better meet customer expectations, improve financial performance, and drive profitable growth."

Some have expressed skepticism over Sears’ post-bankruptcy revival plan.

“They have a shot, but it’s a long shot,” Craig Johnson, president of consulting firm Customer Growth Partners, told the Journal.

A bankruptcy judge in New York has brought the Sears saga to an end, ruling that chairman and former CEO Eddie Lampert’s bid to keep the retailer alive -- accepted by the company on January 17 -- is approved.

Lampert’s offer of $5.2 billion for 425 stores was seen as a way to keep Sears in business while saving at least 45,000 jobs. But the deal quickly faced a legal challenge from the company’s unsecured creditors -- including manufacturers that had provided inventory and landlords who were owed back rent.

These creditors told Judge Robert Drain that they would benefit more if the bankrupt company was forced to liquidate and its assets sold at auction. The hearing went on for several days and, at one point, entered the political realm when Sen. Elizabeth Warren (D-Mass.) voiced objections to Lampert taking control of the company.

While Lampert promoted the job-preserving aspects of his buyout plan, Warren voiced skepticism that his rescue plan would be that beneficial for employees, accusing him of “slashing jobs” during his tenure as Sears CEO.

"If your offer is accepted and approved, Sears will remain open and tens of thousands of American workers will keep their jobs in the short term," Warren wrote in a letter to Lampert. "But I am concerned that under your leadership, Sears may continue to struggle and employees will continue to face uncertainty and anxiety over their future employment and ongoing risks to their benefits and economic security."

Alleged fraudulent activities

Warren also called attention to the suit filed by unsecured creditors to block the sale to Lampert, noting that their 570-page motion alleged fraudulent activities by Lampert and his hedge fund during his tenure as chairman and CEO of Sears.

The creditors got their day in court earlier this week, making one final appeal to the judge to not grant control of the retailer to Lampert and ESL Investments, his hedge fund. They argued that Lampert’s management of the company is one reason it is bankrupt.

In a filing last week, Lampert accused Sears’ unsecured creditors of engaging in efforts intended to “poison the well” against ESL with "page after page of its pleadings with smears and false narratives that are completely irrelevant" to his potential Sears’ takeover.

In the end, Judge Drain sided with Lampert, whose firm will take control of Sears’ remaining stores and assets.

On Monday, Sears’ unsecured creditors will head to U.S. Bankruptcy Court for the Southern District of New York to voice their objections to CEO Eddie Lampert’s $5.2 billion buyout bid.

Earlier this month, Lampert made a last-minute bid to salvage the 126-year-old chain and keep 425 stores open through his ESL hedge fund. However, over the last few weeks, those owed money by Sears who are unprotected by collateral have accused Lampert of using a range of shady tactics over the years, including "stealing assets" and "years of misconduct.”

“The tortured story of Sears reads like a Shakespearean tragedy, playing out over five acts,” the unsecured lenders said in a complaint filed one week after Lampert made his winning bid. The creditors’ committee argued that the bid shouldn’t be approved because Lampert’s control gave him "undue influence to siphon value" on favorable terms.

A hearing regarding the matter is expected to take place on February 4 and February 6, during which time Judge Robert Drain will hear these objections and decide the fate of the company.

Drain has previously “shown a propensity for pushing Lampert and Sears to draft a deal that would save jobs, having twice granted the parties more time in order to craft a resolution when it seemed like they had reached a breaking point,” according to CNBC.

Saving jobs

In a filing last week, Lampert accused Sears’ unsecured creditors of engaging in efforts intended to “poison the well” against ESL with "page after page of its pleadings with smears and false narratives that are completely irrelevant" to his potential Sears’ takeover.

Lampert and his legal team emphasized that the proposed acquisition will save 45,000 jobs. However, creditors argue that Lampert’s motivation to save the company may not be entirely pure.

Opponents of the proposed deal say it’s "nothing but the final fulfillment of a years long scheme to rob Sears and its creditors of assets and employees of jobs while lining Lampert's and ESL's own pockets."

Lampert noted in court documents that ESL is committing more than $300 million in cash to fund the offer, including buying out other senior debt holders, and at least $193 million in credit.

"ESL therefore has much to lose if [its] go forward business plan is not successful," the documents stated.

A spokesperson for ESL said the company is confident Sears Holdings can be salvaged under the bid.

“Subject to its approval by the court, our going concern proposal will deliver a total consideration in excess of $5.2 billion and save tens of thousands of jobs,” the spokesman said in an email to ConsumerAffairs. “It will also fund certain severance costs incurred by Sears during bankruptcy and reinstate severance benefits for eligible employees in a new company.”

If the television networks ever run out of material for soap operas, maybe they can just televise the Sears bankruptcy saga, which has so far been filled with plot twists.

Former Sears Holdings CEO Eddie Lampert and the hedge fund he controls, ESL Investments, finally prevailed with a $5 billion offer to take over what’s left of the company and keep 400 Sears and Kmart stores open.

But not everyone is happy. The unsecured creditors who are still owed money have filed a motion in bankruptcy court, asking for an open hearing where they plan to air their grievances. The creditors claim Sears’ downfall was precipitated by Lampert’s and ESL Investment’s mismanagement of the company over the last few years.

"This is a matter of significant public interest and should be heard entirely in open court," the creditors said in their motion.

Ignoring the objection

ESL Investments is moving forward, essentially ignoring the objection from the unsecured creditors. A spokesman for the hedge fund said the company is confident Sears Holdings will successfully emerge from bankruptcy, saving one of the most famous names in American retail.

“Subject to its approval by the court, our going concern proposal will deliver a total consideration in excess of $5.2 billion and save tens of thousands of jobs,” the spokesman said in an email to ConsumerAffairs. “It will also fund certain severance costs incurred by Sears during bankruptcy and reinstate severance benefits for eligible employees in a new company.”

The spokesman said the takeover agreement will also honor commitments to customers who purchased products with extended warranties and support affected vendors.

“At every stage in this process, ESL has worked tirelessly to help Sears re-emerge from bankruptcy, including by enhancing our offer several times, because we believe Sears has a future as a profitable company that can succeed in today's competitive retail landscape,” the spokesman said.

Hearing early next month

The bankruptcy judge has scheduled a hearing for February 1, at which time the creditors’ objections will be heard.

In particular, the unsecured creditors have been highly critical of some of the financial transactions Lampert made while running the company. The deals include the spinning off of Lands’ End in 2014 and other spin-offs of some real estate.

After extensive negotiations, ESL reached agreement with Sears Holdings this week to acquire 425 Sears stores and other company assets for $5.2 billion.