The retail apocalypse that has caused the closing of thousands of department stores in the US – not to mention the evaporation of tens of billions of dollars in market capitalization – is moving north: Sears Canada revealed Tuesday that it’s exploring a sale or a possible restructuring as it draws nearer to bankruptcy. In an admission that shouldn’t come as a surprise to anyone who has ever shopped online, Sears Canada said it has “significant doubt” that it can continue to operate for much longer. Meanwhile, its American counterpart announced that it would lay off 400 employees as part of an initiative to produce $1.25 billion in savings after admitting back in March that the future of its business is also in serious jeopardy, as Fortune reported.
Sears Canada’s shares slid as much as 40% on the news.
“The company continues to face a very challenging environment with recurring operating losses and negative cash flows from operating activities in the last five fiscal years, with net losses beginning in 2014,” the company said, according to the Financial Post.
Sales at Sears Canada have fallen sharply since it was spun off from its equally-troubled US-based parent in 2012; the slump coincides with a broader shift in consumer preferences away from brick and mortar retailers and toward e-commerce.
Shares of some of the biggest department and big-box stores have seen double-digit declines this year against the backdrop of a broader market rally. Macy’s, J.C. Penney, Sears and Dick’s Sporting Goods. Meanwhile, Amazon briefly climbed above $1,000.
Department stores were slow to develop strong e-commerce platforms, leaving Amazon to dominate a segment of the market that’s seeing double-digit annual growth. Amazon’s share of the US e-commerce market rose to 43% this year, and its shares briefly climbed above the $1,000 threshold. Ignoring the fact that corporate mismanagement has more or less defined the Sears brand in recent years, Sears Holdings PR team assures readers that – in the grand scheme of things – the cuts to its workforce really aren’t all that significant.
“While the total number of people who are directly affected represents a small fraction of our total headcount, we are conscious of the impact on individual employees,” Sears said.
Those workers who are being handed pink slips can hopefully find solace knowing that the retailer has promised that it will continue to take “all necessary action” to achieve profitability – short of cutting the pay of Eddie Lambert, the company’s CEO, chairman and largest shareholder.
Lambert, as USA Today reported back in March, has extracted “significant value” from the company in recent months, and stands to profit further if the company goes belly up.
Although in a sense, Lambert has already taken a pay cut: Sears’ stock has shed more than 41% over the past 12 months, and is down 25% year to date as well. However, Lambert has managed to protect his investment in Sears – or what’s left of it – from the seemingly inevitable bankruptcy that stands to wipe out the other shareholders – American retirees, to the extent that Vanguard and State Street both own large stakes.
If Sears goes bankrupt, Lambert loses his equity stake, but he remains the company’s principal creditor. Already, Lampert has effectively laid claim to enormous amounts of the company’s assets through loans he’s made. His hedge fund, ESL Investments, also owns large stakes in Lands’ End and a Real Estate Investment Trust that gained control of some of Sears’ best properties in a $2.8 billion deal back in 2015, then leased them back to the company. Lambert owns a stake in that vehicle, too.
In other words, while Sears was floundering, Lambert was busy shielding himself from the worst of the fallout. His former employees will need to make due with the public safety net.