The owner of Sears and Kmart is closing almost a third of its remaining stores just months after buying the struggling retailer out of bankruptcy.
Transform Holdco’s shutdown of 96 locations will leave just 182 outlets for the company, which was once the nation’s biggest department store chain. The merchant “has faced a difficult retail environment and other challenges” and is “pruning operations that have struggled due to increased competition and other factors,” Transform said in an emailed statement late Thursday.
The company is getting $250 million of new capital from its owners, led by Eddie Lampert’s hedge fund ESL Investments Inc., along with a third-party investor.
Some observers were not optimistic that the move would save the chain.
“This is an acceleration of the death march that Eddie Lampert began when he combined Sears and Kmart over a decade ago,” said Burt Flickinger, managing director of the retail advisory firm Strategic Resource Group. “It is a classic illustration of how most Wall Street types have a deficient understanding of what’s required for a Main Street retail company to be effective.”
The announcement shows that Sears, which narrowly escaped liquidation after its 2018 bankruptcy, is withering as consumers move on from the chain, Flickinger said. Lampert bought Sears’ assets out of bankruptcy earlier this year, expressing faith in its future and vowing to preserve jobs, but it’s still facing the same fundamental problems that led it to seek court protection last year.
“We will endeavor to create and deliver value through a strategic combination of our better performing retail stores and our service businesses, brands and other assets, and expect to realize a significant return on our extensive portfolio of owned and leased real estate,” the company said. It listed the Kenmore and DieHard brands among its assets.
ESL can recoup some of its investment in Sears through the sale of properties it closes, but the hedge fund may need some help, according to Jim Sullivan, an equity research analyst at BTIG who follows the commercial property industry.
“To develop these assets and maximize the returns you really need to be working with one of the major established retail real estate developers,” Sullivan said.
Lampert bought Kmart out of Chapter 11 in 2003 and merged it with Sears two years later. But the combination of the two ailing retailers lagged behind ascendant merchants such as Walmart Inc., Target Corp. and Amazon.com Inc., and the company spiraled into a decline that produced almost $11 billion in losses until it finally filed for bankruptcy protection in October 2018.
Lampert’s vision for the new company involves smaller locations emphasizing appliances and other home items. To that end, he bought the remaining stake in Sears Hometown and Outlet Stores Inc. that he didn’t already control, bringing the unit spun off in 2012 back under his oversight. The smaller Hometown stores feature appliances and lawn and garden merchandise and are located in areas not served by full-size Sears stores.
Gabriella Santaniello, founder of retail consulting firm A Line Partners, said that she’s not surprised by the latest round of store closures from Sears, and that it makes more sense for the company to focus on the Sears Hometown chain.
Sears has “lost so much of their footprint and their relevance with the American consumer,” Santaniello said. “It’s not that crazy of a strategy for them to just focus on [appliances],” she said, adding that “in terms of apparel and being a competitor in that space, that ship has sailed completely.”
After the latest round of closings, Sears will be about the size of a regional grocery chain.
The department store behemoth once blanketed the U.S. and Canada with more than 4,000 stores and sold everything from ready-to-assemble houses to Christmas trees, billing itself as “Where America Shops.” Now, with only 182 stores, Sears’ scale will be on par with the likes of Weis Markets Inc., which owns grocery stores in Pennsylvania and New York, and quirky specialty retailers like Crocs Inc.
The sharp reduction of store count exacerbates doubts about whether the company can compete — not just with merchants like Walmart and Target, but also with the likes of Home Depot Inc. and Lowe’s Cos., which have muscled into the appliance space Sears used to dominate.
“From a logistics perspective, supply chain, buying power, sourcing — all of that — it’s going to be even harder to maintain optimal competitiveness, brand competitiveness, but also price competitiveness,” said Michael Osborne, chief executive and president at consulting firm SmarterHQ.
To pull off a comeback, “you’d really have to have a store experience that was unbelievable so that folks wanted to seek out your store, like a real showroom and real high-end experience,” he said. “They don’t have that either. And they haven’t for decades, really.”