Although it’s a new year, the same old struggles at the iconic Sears brand haven’t slowed down. The century-old retailer is closing an additional 150 stores and selling its flagship Craftsman tools brand to Stanley Black & Decker for $900 million in yet another desperate attempt to raise cash.
Sears Holdings has been hemorrhaging money since Kmart acquired Sears in 2005; the massive operation of nearly 3,500 combined stores has dwindled to approximately 1,400 after the latest closures. And the latest revenue numbers aren’t any more promising: same store sales at Sears and Kmart for the first two months of Q4 have declined in the range of 12% to 13%.
“The decision to close stores is a difficult but necessary step as we take actions to strengthen the company's operations and fund its transformation,” said Edward Lampert, Chairman and CEO of Sears Holdings in a statement. “Many of these stores have struggled with their financial performance for years and we have kept them open to maintain local jobs and in the hopes that they would turn around. But in order to meet our objective of returning to profitability, we have to make tough decisions and will continue to do so, which will give our better performing stores a chance at success.”
CEO Lampert Lends To Keep Sears Afloat
To help reach its goal of $1 billion in liquidity, Sears has secured a $500 million loan backed by its real estate holdings, which are valued at more than $800 million. The retailer also obtained a secured standby letter of credit loan for an initial $200 million, with the option to expand the amount to $500 million. This type of loan comes with a guarantee on behalf of the lenders that Sears' suppliers will be paid should the company default on its debt. Affiliates of Lampert’s hedge fund, ESL Investments, are providing the loan.
Prior to this latest round, Lampert and his hedge fund had loaned Sears more than $800 million over the past two years. Lampert has made numerous attempts to both cut costs and acquire new cash in recent years, spinning off the Lands’ End and Sears Hometown and Outlet businesses.
The financial woes hampering Sears are perhaps the biggest example of a big box/department store brand taking a hard fall in the new era of omnichannel retailing. Brands such as Macy’s and JCPenney have experienced similar troubles during this decade — although the latter has curbed its losses — as large portions of brick-and-mortar real estate have become unprofitable. Consumers are simply taking their business elsewhere, whether that may be other brick-and-mortar retailers or online, and these traditional brands are paying the price.
Under the terms of the Craftsman deal, Stanley will pay $525 million at closing and $250 million after three years. Stanley Black & Decker also will make annual payments on new Craftsman sales for 15 years. Craftsman has long been a staple of the Sears offering since the retailer acquired the brand in 1927, and it remained one of the only strong assets Sears had as it continued its slip.
Sears will continue to carry Craftsman products at its stores. Presently, approximately 10% of Craftsman-branded products are sold outside of Sears, and the agreement allows Stanley to increase Craftsman sales in other channels.