Sears Canada Melts Down
Sears Canada Melts Down by Wolf Richter – Wolf Street
Goes Bankrupt. Lays Off 2,900 People. Shareholders rue the day.
Sears Canada and its subsidiaries, which operate 95 department stores, 29 Sears Home stores, 71 Hometown stores, 16 Outlet stores, 69 Sears Travel offices, and 32 Corbeil appliance stores, and thus lease a lot of mall space, filed for bankruptcy protection today. It will also close a slew of stores and fire 2,900 people.
The company was partially spun off from similarly struggling Sears Holdings in the US in 2012, which still holds a 12% stake, and whose CEO Eddie Lampert owns a 45% stake in part via his hedge fund, ESL Investments.
In the announcement, Sears Canada said that it has applied to the Ontario Superior Court of Justice for protection under the Companies’ Creditors Arrangement Act (“CCAA”), in order to restructure its debts. It doesn’t plan to liquidate.
In a later release today, the company said that it was granted an “Initial Order” from the Court. Among other things, the order authorizes Sears Canada to obtain prearranged debtor-in-possession (DIP) financing of C$450 million. This is expected to provide the company with enough liquidity to keep some of its doors open through the bankruptcy proceedings.
Only some of the doors because Sears Canada will shutter 20 full-line locations, 15 Sears Home stores, 10 Sears Outlet stores, 14 Hometown stores, and lay off “approximately 2,900 people across its retail network and at its corporate head office in Toronto.” Timing of the store closings “has not yet been finalized,” it said.
The initial release claimed, “Sears Canada Reinvention Continues.” Despite sales having plunged for years, it points at its “brand reinvention,” how it “rebooted its customer experience and service standards,” and how its “newly designed site built in-house by a new technology team” and some other factors are going to make this work.
But retail businesses are notoriously difficult to restructure because they have so few assets and so much debt once they get to this stage, and because the collateral isn’t worth much. Most end up being liquidated. To stay alive over the years, Sears Canada has sold off most its real estate holdings, so the most valuable assets are already gone.