Home Video Archives

Contents


J.C. Penney surprises in Q3
November 10, 2017

Analysis: Macy's makes bottom-line progress, but company needs to move faster
November 9, 2017

Sears may sell off 140 more stores to fund pensions
November 8, 2017

Amazon and marketplaces will play a starring role this holiday season
November 6, 2017

J.C. Penney eliminates key exec role
November 6, 2017

Another 60-plus Sears, Kmart stores set to close in January 2018
November 3, 2017

Retail is hurting. So why does the future of retail look so bright?
November 2, 2017

The future of retail is uncertain, just ask CFOs
November 2, 2017

To the Worsening Troubles At Sears, Add Skittish Suppliers
November 1, 2017

Study: Walmart giving Amazon a run for its money
October 30, 2017

$60 million loan is Sears' 3rd time tapping CEO's pockets this month
October 30, 2017

Department store retailer boosting toys; in deal with Lego
October 30, 2017

Baby boomers, rejoice! Sears is bringing back Wish Book
October 29, 2017

Who Dumped Who - Sears or Whirlpool?
October 25, 2017

Sears makes a wish - and brings back an iconic holiday catalog
October 25, 2017

Sears is bringing back its iconic holiday catalog
October 25, 2017

Retailer heads list of world's best-performing CEOs
October 24, 2017

Where America shops for Whirlpool: After 100 years, not Sears
October 24, 2017

Sears drops Whirlpool
October 24, 2017

Amazon And Walmart Take On Porch Pirates
October 22, 2017

Walmart Courts Lord & Taylor For Its Online Mall
October 20, 2017

Jerry Storch to leave Hudson's Bay Co.
October 20, 2017

Kohl's adds in-store Amazon shops
October 19, 2017

Target CEO says small-format stores twice as productive as traditional
October 19, 2017

Is This a Sign That the End Is Near for Sears?
October 17, 2017

Sears Sinks After Key Investor Berkowitz Plans to Leave Board
October 16, 2017

Sears Sees Its Northern Neighbor Give Up The Ghost
October 11, 2017

Are Walmart's Rosy Predictions Just Hype?
October 11, 2017

Sears: The Customer Is Always Right
October 10, 2017

5 Retailers Struggling as We Head Into the Holiday Season
October 8, 2017

Retailers paying more for holiday help
October 6, 2017

Fast-growing Dutch retailer to bring womenswear store concept to U.S.
October 5, 2017

Chapter 22: Why Some Retailers Emerge from Bankruptcy Only to File Again
October 5, 2017

Sears CEO Edward Lampert opens his wallet, again, with $100 million loan
October 5, 2017

Why Did Sears Holdings Corporation Shares Drop 11% in September?
October 3, 2017

Nordstrom's Woe Exposes A Bargain
October 3, 2017

J.C. Penney: Sell-Off On Nordstrom News Appears Overdone
October 3, 2017

Kohl's CEO to retire in May; successor named
September 26, 2017

Sears Holdings Could Be Impacted By The Bankruptcy Of Toys 'R' Us
September 21, 2017

OVERHEARD ABOUT Kmart
September 15, 2017

2 Terrible Reasons to Buy Sears Holdings
September 14, 2017

Target to hire 100,000 for holiday season rush
September 13, 2017

There's One Reason to Avoid Sears Stock: Eddie Lampert
September 12, 2017

Kohl's to partner with e-commerce giant on in-store shops
September 11, 2017

Nordstrom debuts service-focused store with no inventory
September 11, 2017

Kohl's to partner with e-commerce giant on in-store shops
September 8, 2017

Sears Oakbrook, Illinois Store
September 4, 2017

Shoplifters of TVs held in death of 81-year-old Sears worker
August 31, 2017

Report debunks retail apocalypse: More stores opening than closing
August 30, 2017

Sears: Still Dying
August 30, 2017

Sears: More Closures, No Profits
August 30, 2017

First Look: Target's remodeled store in Minneapolis
August 29, 2017

Macy's - in turnaround mode - reaches out to a top ad shop for marketing help
August 29, 2017

4 Signs Sears Holdings Needs New Management
August 29, 2017

Sears Holdings: A Review Of Q2 2017 Earnings
August 28, 2017

Is Sears circling the drain? No, says Wall Street
August 25, 2017

Sears shuttering more Kmart stores than expected
August 24, 2017

Sears' Q2 sales tumble; will close more stores
August 24, 2017

Analysis: Sears is headed in entirely the wrong direction
August 24, 2017

Sears Holdings Corp (SHLD) Stock Jumps on Q2 Beat, But Don't Blink
August 24, 2017

Macy's consolidates merchandising ops, cuts 100 jobs
August 22, 2017

Sears inks new licensing agreements for two top brands
August 22, 2017

Macy's Hires eBay Executive, Revamps Merchandising
August 22, 2017

Survey: Walmart, Target and Old Navy tops in awareness - and that's not all
August 21, 2017

Where Are All the Shoppers Going? Low-Price Retailers
August 19, 2017

Hudson's Bay Co. taps former Penney exec as CFO
August 18, 2017

Target's New Pricing Helps End Sales Skid
August 17, 2017

Head of Sears Canada steps down to launch bid for troubled retailer
August 16, 2017

Target revs up efforts to transform supply chain with acquisition
August 14, 2017

Analyst: Penney turnaround is a long-term endeavor
August 14, 2017

Sears, Whirlpool win fee reduction in washer lawsuit
August 14, 2017

Penney's Loss Widens on Store Closings
August 12, 2017

Costco appoints new chairman
August 11, 2017

We Just Visited This Discount Retailer That Could Kill Sears From the Inside Out and Were Blown Away
August 8, 2017

Why Sears Holdings Corp (SHLD) Never Had a Chance
August 7, 2017

Retailers: J C Penney Company Inc (JCP) vs. Sears Holdings Corp (SHLD)
August 4, 2017

Amazon Opens Old Wounds for Retailers (Again)
August 2, 2017

Costco co-founder, chairman dies
August 1, 2017

J.C. Penney turns TV show into women's apparel brand
July 31, 2017

4 Reasons J.C. Penney Is a Better Value Stock Than Sears Holdings
July 31, 2017

Sears Holdings Corp (SHLD) Stock Awaits How Canada Unit Bankruptcy Plays Out
July 30, 2017

Sears Canada's biggest shareholders call off bid
July 28, 2017

The Accelerating Death Of Sears Retail
July 24, 2017

Sears sued for holding its stock in retirement plan
July 21, 2017

Sears Holdings Corp Stock Is Going to Zero No Matter What
July 21, 2017

Sears to sell Kenmore appliances on Amazon
July 20, 2017

Online giant in deal with unlikely retail partner
July 20, 2017

Sears sued for holding its stock in retirement plan
July 20, 2017

Home improvement stocks hammered by Sears-Amazon partnership
July 20, 2017

Sears sued for holding its stock in retirement plan
July 19, 2017

Walmart opens massive online center
July 18, 2017

Sears inks $200 million credit line from CEO Eddie Lampert's hedge fund, shares jump 9%
July 17, 2017

Illinois companies, including Sam's Club and Sears, warn off more than 500 job losses in June
July 15, 2017

Sears Canada Lays Off Mike Myers' Brother And 2,899 Other People Without Severance
July 14, 2017

Things looking up at Target
July 13, 2017

J.C. Penney jumps into $20 billion industry with in-store shops
July 13, 2017

What's Next For Sears Holdings Corporation?
July 11, 2017

Target, Walmart tops with these shoppers
July 11, 2017

Penney starts search for a new CFO
July 11, 2017

Sears Holdings Chooses Downsizing Over Bankruptcy (for Now)
July 10, 2017

What's Really Going On At Sears Holdings Corp?
July 10, 2017

Sears CEO Eddie Lampert announces plans to close more Sears, Kmart stores
July 7, 2017

Sears lowers the ax again
July 7, 2017

Former Sears employees worry about lost severance, possible reduced pension
July 6, 2017

Guess Who's About to Overtake Sears in Appliance Sales
July 5, 2017

Does Sears Holdings Care About Its Stores? It Depends Where You Look.
July 3, 2017

Collapsing ceilings and no working toilets: Sears workers describe decay in failing stores
July 1, 2017

Sears Must Think We're Stupid Or Gullible. Here's Why.
July 1, 2017

Supreme Court Case Could Have A Major Impact On Sears Holdings
June 30, 2017

Sears Holdings Corp Is Bedridden, Surrounded by Friends and Creditors
June 27, 2017

More layoffs. More store closures. What's the endgame for Sears?
June 27, 2017

Dead Stock Walking: Sears Holdings Has Nowhere to Go but Down
June 26, 2017

How Sears Canada's Bankruptcy Impacts Sears Holdings Corp.
June 23, 2017

Eddie Lampert's Retail Empire Wobbles With Sears Canada Filing
June 22, 2017

Sears debuts new store concept
June 22, 2017

Sears Canada Plunges After It's Said to Near Creditor Protection
June 21, 2017

This Is Why You Shouldn't Have Gotten Excited By Sears Reporting a Profit
June 19, 2017

Why doesn't Lampert take Sears private?
June 16, 2017

Walmart to acquire Bonobos
June 16, 2017

Sears cuts 400 jobs, no longer qualifies for state tax breaks
June 14, 2017

Sears Holdings Provides Strategic Restructuring Update
June 13, 2017

Sears Canada says "significant doubt" it can continue as cash crunch worsens
June 13, 2017

Sears cutting jobs; key digital exec to leave
June 13, 2017

Sears Is Done, Traditional Retail Is Dying
June 10, 2017

Merger of Department Stores Off the Table for Now
June 10, 2017

Sears' downward spiral continues with more store closings
June 9, 2017

Apparel giant in store closing move amid sales drop
June 9, 2017

Nordstrom Family Mulls Plan to Take Retailer Private
June 9, 2017

Department store giant announces big job cuts as part of major restructuring
June 8, 2017

Sears Holdings: Weak Retail Performance Leads To Continued Service Revenue Declines
June 6, 2017

Penney poised to gain from Sears' decline, Cowen analyst says
June 5, 2017

Sears retirees fear demise of store they loved
June 4, 2017

The Latest Sears Saga: The Company Is Suing Suppliers
June 4, 2017

Sears says that some Kmart stores targets of security breach
June 2, 2017

Wall Street Expert Predicts 25% Of Malls Will Close By 2020
June 1, 2017

Retailers' Troubles Leave U.S. Lenders Largely Unscathed
May 30, 2017

3 Quotes From Eddie Lampert That Show Sears Is Doomed
May 30, 2017

Sears Holdings Stock Soared Despite Dreadful Q1 Earnings Results
May 27, 2017

Children's apparel retailer taps former Sears exec as CEO
May 26, 2017

Sears Could Stay Afloat ... If It Had A Few Dozen More Tool Brands To Sell Off
May 25, 2017

Sears holds wreath-laying ceremony for Gold Star families
May 25, 2017

Sears Turns First Quarterly Profit in Nearly 2 Years on Cost Cuts
May 25, 2017

Sears: 'Better Than Expected' Doesn't Cut It
May 25, 2017

Sears gets breathing room from creditors
May 23, 2017

Sears Holdings Corp Still a Bankruptcy Threat Despite Debt Deal
May 23, 2017

Sears: A Terrible Risk
May 23, 2017

2017 Retail Bankruptcies Are Piling Up (and There's No End in Sight)
May 19, 2017

J.C. Penney checks into its newest business - hospitality
May 19, 2017

Target gets in bed with popular mattress-in-a-box brand
May 18, 2017

Department stores have lost more jobs than coal mines
May 18, 2017

Forget Sears Holdings Corp (SHLD) Stock, Buy Seritage Growth Properties (SRG) Instead
May 18, 2017

Here's How Home Depot Is Trying to Drive One Last Nail Through Dying Sears
May 17, 2017

Sears loses $6 million patent lawsuit to father-and-son company
May 16, 2017

Wary Vendors May Mean the End for Sears Holdings
May 16, 2017

Sears tanks after CEO eviscerates top tool vendor he says is trying to cancel its contract
May 15, 2017

Vendors Could Force Sears Into Bankruptcy
May 15, 2017

Sears CEO's master plan to profit off the demise of his stores is taking a turn for the worse
May 14, 2017

Sears CEO blasts critics for 'harmful' speculation
May 12, 2017

Sears turnaround requires keeping customers
May 11, 2017

Sears CEO: 'We Were Unfairly Singled Out'
May 11, 2017

Sears CEO on Turnaround Try: 'I Am Not in Denial'
May 10, 2017

A Giant's Collapse - The long, hard, unprecedented fall of Sears
May 10, 2017

Sears CEO: 'We're fighting like hell to change the way people do business with us'
May 10, 2017

How Sears CEO Lampert cashes in as stores cash out
May 7, 2017

Coming soon: The Walmart Dash button?
May 5, 2017

Look for remaining Sears and Kmart stores to get smaller
May 4, 2017

Sears Holdings: Sales Decline Offsets Its Cost Cutting Initiatives
May 3, 2017

Eddie Lampert And Bruce Berkowitz, Meet Jeff Bezos
May 3, 2017

Clothes May Help Amazon Kill Department Stores
May 2, 2017

Sears Is Experiencing A Lot Of Pain
Apr. 26, 2017

Sears Holdings Just Offered More Proof That It's Doomed
Apr. 25, 2017

Sears just lost its CFO for the second time in 6 months ahead of a looming financial deadline
Apr. 22, 2017

Sears Holdings updates on restructuring progress
Apr. 22, 2017

Sears Holdings Bankruptcy Filing Expected On July 10 Or Soon After
Apr. 19, 2017

This REIT Is Positioned to Profit From Sears Holdings' Slow Demise
Apr. 18, 2017

Retail Stores Devastated, Suffer Massive Job Losses
Apr. 18, 2017

Should Sears and Kmart Become Online-Only Stores?
Apr. 17, 2017

Judicial Branch Key to Issues Impacting Retail
Apr. 14, 2017

3 Reasons Target Is Not the Next Sears
Apr. 14, 2017

JC Penney postponing store closures and liquidation sales
Apr. 13, 2017

Will Retiree Benefits Survive Sears Liquidation?
Apr. 12, 2017

The Ups and Downs of the Sears Empire
Apr. 12, 2017

Sears Holdings: Rumors Of Its Death Are Greatly Exaggerated
Apr. 12, 2017

Amazon's stock price surges
Apr. 11, 2017

Sears Holdings Could End Up In Ch.7 Bankruptcy
Apr. 6, 2017

Strange, sad days at the Mall of America Sears
Apr. 5, 2017

How Much Damage Would a Sears Bankruptcy Cause?
Apr. 4, 2017

Kmart exec to head up Pier I
Apr. 4, 2017

Report upbeat about retail industry
Apr. 3, 2017

How Sears Ruined Its CEO Eddie Lampert's Hedge Fund
Mar. 31, 2017

For Now, Amazon Store Does Not Pass 'Go'
Mar. 28, 2017

The Sears Holdings Corp CEO Edward S. Lampert Purchases 525,936 Shares
Mar. 28, 2017

Survey reveals retailers with best customer experience
Mar. 27, 2017

Here's Why the Best Is Yet to Come for J.C. Penney
Mar. 26, 2017

Sears And Macy's Need New Thinking - And One Of Them Is Getting It
Mar. 26, 2017

Wal-Mart Buying Spree Irks Some Hipsters
Mar. 25, 2017

Sears once boasted on having everything you need. Those days are long gone.
Mar. 25, 2017

Dear Sears, it's time to hang up your Toughskins
Mar. 23, 2017

What's Killing Sears and Kmart?
Mar. 23, 2017

Sears, once a stalwart, has 'substantial doubt' about future
Mar. 23, 2017

Sears Creates Stir As It Casts Doubt About Its Future
Mar. 23, 2017

Sears Holdings Remains Focused on Long-Term Profitability
Mar. 22, 2017

Sears warns there's 'substantial doubt' about company's future
Mar. 22, 2017

Sears issues dire warning about its ability to survive
Mar. 22, 2017

Sears has 'substantial doubt' about its future
Mar. 22, 2017

Sears warns there's 'substantial doubt' about company's future
Mar. 21, 2017

Sears annual report notes 'substantial' going-concern doubt
Mar. 21, 2017

Fashion retailer credits record online holiday sales to AI
Mar. 21, 2017

Target to open in Macy's backyard in NYC
Mar. 20, 2017

Confusion At Sears Continues: Should Investors Be Worried?
Mar. 19, 2017

JC Penney to Close 138 Stores
Mar. 18, 2017

Confirmed: Walmart acquires another online retailer
Mar. 17, 2017

3 Companies That Need to Kick Their CEO to the Curb
Mar. 17, 2017

RetailNext: Stores not dead but do need to be reinvented
Mar. 17, 2017

Study: Retailers need to empower their workforces, realign skills to succeed
Mar. 17, 2017

Sears Holdings: Profitability Remains A Distant Dream
Mar. 17, 2017

Dollar General beats Street; to open 1,000 stores and hike store managers pay
Mar. 16, 2017

Advice for Sears Holdings From Middle America
Mar. 15, 2017

Amazon is going to kill more American jobs than China did
Mar. 15, 2017

Amazon is going to kill more American jobs than China did
Mar. 15, 2017

J.C. Penney Wants to Keep Gaining From Sears' Losses
Mar. 14, 2017

Macy's next CEO wants to make these 5 big changes at the store
Mar. 14, 2017

Survey: Store retailers leaving money on table
Mar. 13, 2017

Why Sears Is Sinking
Mar. 12, 2017

Here's Why Sears Holdings Corporation Shares Gained 12% in February
Mar. 12, 2017

Sears Hometown and Outlet Stores losses continue in Q4
Mar. 10, 2017

Sears Holdings Corp (SHLD) Soars Amid Potential for More Closings
Mar. 10, 2017

Macy's just signaled the end of department stores as we know them
Mar. 9, 2017

Sears' loss narrows but other problems widen
Mar. 9, 2017

Sears, with eye on spending, limits 4Q adjusted loss
Mar. 9, 2017

Kenmore Deal Is Smart, But It Won't Save Sears
Mar. 7, 2017

Sears Holdings Corp (SHLD) Is Going Bankrupt and Has No Way Out
Mar. 7, 2017

Majority of retailers are ready to invest in IoT
Mar. 6, 2017

Big Lots holds steady; store of the future coming
Mar. 3, 2017

These 5 Retailers Have the Happiest Customers
Mar. 2, 2017

Target Gets a Lesson That Low Prices Matter
Mar. 1, 2017

Target misses bullseye in Q4 as profit, sales fall; gives weak 2017 outlook
Feb. 28, 2017

Leave Sears Holdings Corp (SHLD) Stock to the Savages
Feb. 28, 2017

J.C. Penney extending appliances initiative
Feb. 27, 2017

Big mall owners aim to build traffic via online returns
Feb. 27, 2017

Is There An Upside To The Sears Debacle?
Feb. 27, 2017

J.C. Penney to close up to 140 stores, offer buyouts
Feb. 25, 2017

Sears licenses Kenmore brand grills to Permasteel
Feb. 24, 2017

Store closings are part of the business, but is this business as usual?
Feb. 24, 2017

Sears cutting 130 jobs
Feb. 24, 2017

Home Deport surges amid higher-than-expected sales, profit
Feb. 21, 2017

Can Sears Holdings Afford to Drop Ivanka Trump?
Feb. 20, 2017

Can Eddie Lampert Save Sears Holdings?
Feb. 16, 2017

Sears Holdings: Member Sales And Online Sales Are Declining
Feb. 15, 2017

Retail CEO says Trump meeting 'productive,' despite worries over border tax idea
Feb. 15, 2017

Sears & Kmart Remove 31 Trump Items from Online Product Offerings
Feb. 12, 2017

Sears Holdings Aims To Cut $1 Billion In Costs
Feb. 11, 2017

Sears to cut value of its name by at least $350 million
Feb. 10, 2017

Sears soars nearly 20% on restructuring plans
Feb. 10, 2017

Sears details survival strategy
Feb. 10, 2017

More bad news for department store sector - from Moody's
Feb. 9, 2017

Investors reach $40 million settlement in Sears real estate deal
Feb. 9, 2017

Sears' Mounting Debt Load Signals New Financial Stress
Feb. 7, 2017

Warning Signs Mount on Sears's Path
Feb. 7, 2017

Dick's Sporting Goods to replace closing Sears store at Capital City Mall
Feb. 6, 2017

Saks owner eyes Macy's for takeover
Feb. 3, 2017

Amazon's air cargo hub plan takes off
Feb. 1, 2017

Retailers unite to stop border adjustable tax
Feb. 1, 2017

Stanley Black & Decker's Purchase of Craftsman From Sears May Have No True Winners
Feb. 1, 2017

Sears Holdings Sells Some Of Its Top Remaining Stores At CBL Malls
Feb. 1, 2017

Willis Tower set for $500 million upgrade
Feb. 1, 2017

Sears: A great American tragedy nears its end
Jan. 30, 2017

Macy's sells chocolate brand
Jan. 30, 2017

Sears: The 19th Century Amazon
Jan. 28, 2017

Children's apparel retailer on the hunt for a new CEO
Jan. 27, 2017

Chief merchant of Hudson's Bay and Lord & Taylor leaves for exec role at Stein Mart
Jan. 26, 2017

Here's Why Sears Holdings Corp. Screamed to a New Post-Merger Low
Jan. 26, 2017

Why J.C. Penney's Holiday Sales Decline Was Worse than It Looks
Jan. 25, 2017

Fitch Affirms Sears Holdings at 'CC'; Downgrades Senior Unsecured Notes to 'C/RR6'
Jan. 25, 2017

CEO of women's apparel chain out in abrupt departure
Jan. 24, 2017

Retails Face Rising Shutdowns as Losses Mount (M, SHLD)
Jan. 24, 2017

Analysis: Walmart should focus on its customers to succeed, not try to copy Amazon
Jan. 24, 2017

Sears to replace employee discount program with new points program
Jan. 21, 2017

Mall's Woes Ripple Across Small Town
Jan. 20, 2017

Texas to gain another Amazon fulfillment center
Jan. 19, 2017

Richmond Heights and Akron Sears stores closing this March will cut 178 jobs
Jan. 19, 2017

Sears taps AI to sell tires
Jan. 19, 2017

J.C. Penney's latest in-store partner is...
Jan. 17, 2017

Sears Clings to Catalog Thinking in an Online World
Jan. 17, 2017

Sears Holdings Buys Itself Another Year
Jan. 17, 2017

Sears Holdings CEO Has Put Up $1 Billion Of His Money Over The Past Two Years In An Effort To Keep Company Afloat
Jan. 16, 2017

These 3 Deals Show Just How Desperate Sears Holdings Is
Jan. 14, 2017

Sears is 'one sick puppy,' and there may be no remedy
Jan. 14, 2017

Retail Sales Figures Bear Out America's Online Shopping Shift
Jan. 14, 2017

Survey: Shopping in stores a 'chore' for many consumers
Jan. 13, 2017

Importance Of Knowing Your Investment Boundaries (Sears Mini-Case Study)
Jan. 13, 2017

Is It Time To Short Sears?
Jan. 12, 2017

Amazon to create more than 100,000 full-time jobs in the next 18 months
Jan. 12, 2017

Teen apparel retailer reopens 500-plus stores
Jan. 11, 2017

J.C. Penney anticipating store closures, but emphasizes importance of brick and mortar
Jan. 11, 2017

Chain's Demise Is a Sign of the Times
Jan. 11, 2017

Is Sears CEO Lampert's lifeboat in danger of sinking, too?
Jan. 11, 2017

Inside Sears' death spiral: How an iconic American brand has been driven to the edge of bankruptcy
Jan. 8, 2017

After a harrowing holiday season, struggling department stores reach a 'tipping point'
Jan. 7, 2017

Top Baby-Boomer Shopping Habits Retailers Can't Afford to Ignore
Jan. 6, 2017

Department stores become endangered as Sears, Macy's struggle - Is the core business viable?
Jan. 6, 2017

'We have fallen short': More losses for Sears
Jan. 5, 2017

Lampert's latest bid to prop up Sears: Sell Craftsman
Jan. 5, 2017

Are Malls Secretly Hoping Sears Holdings Goes Bankrupt?
Jan. 4, 2017

Warren Buffett predicted the fall of Eddie Lampert and Sears over 10 years ago
Jan. 2, 2017


 

Breaking News

2017

J.C. Penney surprises in Q3
By Marianne Wilson
Chain Store Age
November 10, 2017

J.C. Penney gave its investors - and the retail industry - some good news on Friday, topping Street estimates and reporting better than expected sales for its third quarter.

Analysts had been expecting the worst: Two week ago, Penney cut its annual forecast and estimated that third quarter same-store sales would inch up 0.6% to 0.8%. But on Friday, the chain reported a 1.7% increase in same-same stores, resulting in a positive two-year stack of 0.9 %.

Penney's total net sales fell 1.8 % to $2.81 billion in the quarter, ended Oct. 28, better than analysts' estimates of $2.77 billion. The decline was attributed primarily the result of the 139 stores closed this year through the end of the third quarter.

Penney, similar to many other retailers, heavily discounted apparel in the third quarter to clear room for holiday merchandise. Those actions, combined with some other charges, took a toll on the company's profit. Penney's net loss rose to $128 million, or a loss of 41 cents per share, from $67 million, or a loss of 22 cents per share, a year earlier. Adjusted earnings came in at a net loss of 33 cents a share. Analysts had expected a loss of 43 cents per share.

"During the third quarter, we took aggressive actions to clear slow-moving inventory, primarily allowing for an improved apparel assortment heading in to the holiday season," said Marvin R. Ellison, chairman and CEO. "While these actions had a negative short-term impact on profitability in the third quarter, we firmly believe it was the right decision for the company as we transition into the fourth quarter and fiscal 2018."

The top performing divisions during the quarter were home, Sephora, footwear and handbags, women's specialty and salon. Geographically, the Gulf Coast and Midwest were the best performing regions of the country.

Ellison continued, "We are encouraged that we delivered positive sales comps for the third quarter. Our growth strategies and new apparel initiatives led to sequential comp sales improvement in nearly all merchandise categories in the third quarter, giving us confidence that our overall strategy and transformation is beginning to take hold. While we have more work to do, we remain focused on two critical factors - to operate the business for growth and deliver positive earnings. We're committed to making the right strategic decisions to ensure we are providing our customers more reasons to shop and experience J.C. Penney."

For the third quarter, cost of goods sold, which excludes depreciation and amortization, was $1.85 billion, or 66.0 % of sales, compared to $1.80 billion, or 62.8 % of sales in the same period last year. This increase was primarily driven by the liquidation of slow-moving inventory, higher shrink rates and the continued growth in the company's online and major appliance businesses.

bloruleshort.gif (618 bytes)

Analysis: Macy's makes bottom-line progress, but company needs to move faster
By Neil Saunders
Chain Store Age
November 9, 2017

Macy's has presented a rather mixed bag of results, with gains on the bottom line overshadowed by the continuing slide in sales. Admittedly, total sales have been affected by the program of store closures, but the comparable number - which worsened since the last quarter - cannot fall back on the same excuse.

In our view, one of the central issues with Macy's is the patchiness of its turnaround program. While there is no doubt that the company has made progress across some areas, change is far from comprehensive or far-reaching. We get the sense that Macy's fixes issues in a piecemeal way and that it lacks a unified vision for the future of the business.

On the ground, this means it is hard for shoppers to see any material change, which is one of the reasons why Macy's continues to suffer from customer defections. None of this is to suggest that there have not been pockets of advancement: in shoes and jewelry, for example, Macy's has enhanced its offer. However, on their own, these are insufficient to swing the top-line into growth.

As a department store, the reinvigoration of Macy's business means it must reinvent not only each department but the way in which all of those individual elements fit together. In our opinion, the company is a very long way from achieving this and, more worryingly, seems to lack the will or the ability to do so. Instead, Macy's is focusing on smaller scale initiatives like the revamping of its loyalty scheme and improved marketing. As much as these things are valuable, they do not address the fundamental issues facing the business.

Indeed, it could be argued that changing marketing is futile if Macy's does not have a fresh and exciting proposition, which appears to be the case across many of its stores. Here, we see a number of obstacles that Macy's needs to overcome.

The first of these is inventory and space. Many Macy's stores carry far too many lines and have an excess of product. This creates a sea of merchandise in which it is very difficult for the shopper to find both what they are looking for and to identify the latest trends. It also means that space is used inefficiently which weighs down on profit.

The second of these is in general shop-keeping standards. Too many of Macy's stores look like a throwback to the early 1980s, which is a function of a lack of investment over the years. The company may be able to get away with this - at least for the short term - if merchandising and displays were top-not; however, they are far from it. There are some stores where even basic cleanliness is lacking. The net result is a dispiriting environment which deters shoppers rather than encouraging them to visit.

Integrating concepts like Backstage into existing stores has helped to take the edge off the decline in trade. However, it is not a sustainable solution and, indeed, we would argue that despite the boost to sales it will likely hinder long-term efforts to rebuild the full price part of Macy's business.

All in all, Macy's has made some progress, especially on the bottom-line where cost-saving initiatives are helping profit. However, the company needs to move further, faster and in a more coordinated way if it is to transform its fortunes.

bloruleshort.gif (618 bytes)

Sears may sell off 140 more stores to fund pensions
By Marianne Wilson
Chain Store Age
November 8, 2017

With its revenue continuing to slide, beleaguered Sears Holdings Corp. has entered into a deal that will allow for another round of store closures.

The retailer on Wednesday pre-announced its third-quarter earnings, reporting a 15.3% drop in same-store sales, one of its biggest declines in recent quarters. It also said it has struck an agreement with the Pension Benefit Guaranty Corp. that would allow for the potential sale of 140 Sears properties in exchange for $407 million of contributions to its underfunded pension plan. (The PBGC is a government oversight organization that guarantees individuals' pensions and acts as a backstop if a company goes bankrupt. It can require that a company put up collateral against underfunded pension plans.)

The agreement provides the company with financial flexibility through the ability to monetize properties, and, in addition, provides funding relief from contributions to the pension plans for the next two years, according to Sears.

"This agreement with the PBGC is another positive step forward which, upon closing, will provide our company with financial flexibility while supporting our commitment to honor our obligations to the associates and retirees covered by the pension plans," stated Edward S. Lampert, Sears chairman and CEO.

Since the 2005 merger of Sears and Kmart, Sears said it has contributed approximately $4.5 billion to the pension plans, to cover what was initially a $1.8 billion deficit.

Sears said it is working to ensure its associates and retirees receive their full pension benefits in either a lump sum or annuity form. It said the number of participants in its pension plans has been reduced from roughly 400,000 to 100,000.

Sears reported total sales of approximately $3.7 billion for the third quarter, down from $5 billion a year ago. Store closures contributed to over half the declines, the company said. (Sears currently has more than 400 stores in operation compared to this time last year. Last week, the retailer announced plans to close 63 more locations, mostly Kmarts, after the holidays.)

Sales were also impacted by a decline in the number of pharmacies open in Kmart stores, and a reduction in consumer electronics in Sears and Kmart stores. Same-store sales fell 13% at Kmart and 17% at Sears

Sears expects a third-quarter net of between $525 million and $595 million, down from a net loss of $748 million loss in the year-ago period.

"Over the past several months, the company continued to focus on streamlining its operations, reducing inventory and operating expenses, and taking actions to further improve performance," Sears stated. But it warned "the retail environment remains challenging, with continued pressures on sales."

Sears said it expects to reach positive adjusted earnings before interest, taxes, depreciation and amortization next year.

bloruleshort.gif (618 bytes)

Amazon and marketplaces will play a starring role this holiday season
By Deena M. Amato-McCoy
Chain Store Age
November 6, 2017

Amazon's influence is encouraging consumers to shop on more digital channels, including marketplaces and social media.

This holiday season, 40% of customers plan to make half of their purchases on the online giant's site. Further, 69% of consumers will choose marketplaces over retailers due to better prices.

This was according to "Competing for Customers During the Holidays and Beyond," a study from Astound Commerce Insights.

According to the data, Amazon's prices, fulfillment and variety are the factors that drive customers to their site. In fact, more than half of shoppers rank Amazon No. 1 for the lowest prices, speed of shipping, and broad assortment, while less than 25% of consumers rank brands and large stores No. 1 for the same categories.

Amazon's popularity only confirms that marketplaces will play a larger role going forward. For example, 63% of shoppers will purchase from Amazon this season, 60% will purchase from Walmart, and 45% will buy goods from eBay.

Meanwhile, loyalty programs, like Prime, also continue to influence purchases. Forty-one percent (41%) of online shoppers will always make a purchase from a particular retailer, given their participation in a loyalty program.

While the main focus for the holidays will be on digital storefronts, other channels like social media will also play a critical role in driving sales. Social media will be a leading traffic driver to e-commerce sites. In fact, 59% of millennials have made a purchase as a result of a social engagement in the past, compared to only 50% of total consumers surveyed. More than half of millennials (55%) will be prompted to visit a website as a result of social media, compared to 45% of total respondents.

Mobility is also on the rise this holiday season. A quality mobile app or web experience will cause four in 10 consumers to make a purchase from a retailer. Nearly 40% of consumers plan to order more products on mobile this year than last year.

Despite the influence of digital channels, 66% of consumers will still go to physical stores to touch and feel products before making a purchase. While in-store, nearly a third (32%) of consumers are highly likely to use touchscreens or kiosks in store for product finders, ordering or delivery, and more than a quarter (27%) will use virtual reality (VR) to assist in product selection (beauty simulation, room planning, etc.).

"Brands and retailers must have a sophisticated set of programs, capabilities and customer service in place to grab their share of consumer dollars during the holidays with innovation always on the horizon," said says Lauren Freedman, senior VP of digital strategy, Astound Commerce. "Marketplaces are well poised to continue their impressive growth, but competitors can leverage their physical stores and social media presence to entice customers to choose them instead."

When it comes to what influences shoppers to make a purchase, price remains the top consideration when selecting a retailer. Over 50% will increase their behavior when it comes to shopping early for price promotions, looking for coupons and discounts, and gravitating towards free shipping, as they focus squarely on price.

There are also three "always" purchase factors that encourage them to purchase from a specific retailer: the "right" price (78%), free shipping (71%), and valuable promotions (60%).

Meanwhile, the top two logistics features that "always" drive shoppers to purchase from a specific retailer are "product is in stock and ready to ship" (73%), and fast delivery (66%). Free shipping is the number one factor outside of price that consumers care about, outranking product assortment, shipping speed, convenience and loyalty programs, the study reported.

bloruleshort.gif (618 bytes)

J.C. Penney eliminates key exec role
By Marianne Wilson
Chain Store Age
November 6, 2017

J.C. Penney Co. is losing one of its veteran executives.

Penney announced that its chief merchant, John Tighe, is leaving the company, and that he will not be replaced. In a statement, Penney said Tighe's departure is part of a company reorganization designed to "streamline decision-making and promote greater agility within its merchandise buying teams."

"Today's executive realignment reflects a growing need to ensure our company remains nimble and flexible amid the constant change and transformation in the retail environment," said Ellison. "I have the utmost confidence in our executive leaders who will continue to drive efficiency across their respective divisions, and will be empowered to make dynamic buying decisions based on real-time customer data. This simplified structure offers greater flexibility, which is critical to ensuring our assortment remains fresh and relevant, and compels more shoppers to choose JCPenney."

Tighe joined Penney in 2002 from May Department Stores. He has been chief merchant and executive VP at Penney since 2015. His departure comes as the chain has struggling, particularly across its apparel divisions. Going forward, the heads of Penney's merchandise divisions will report to Penney chairman and CEO Marvin Ellison.

Last week, Penney cut its 2017 profit forecast and also said it expects a loss of 40 to 45 cents per share in the third quarter as a result of heavy discounting to get rid of excess inventory, primarily in womne's apparel, pre-holiday.

"With a sharper and more disciplined focus on inventory management, we are taking a comprehensive approach to assessing the effectiveness of our inventory positions to make swift, informed decisions that promote faster inventory turn and higher productivity levels," Ellison said in a statement at the time. "Therefore, in the third quarter, we took the necessary steps to accelerate inventory liquidation primarily across all apparel divisions, which increases available funding to invest in new and trending merchandise categories."

bloruleshort.gif (618 bytes)

Another 60-plus Sears, Kmart stores set to close in January 2018
By Mike Snider & Charisse Jones
November 3, 2017

The cost-cutting strategy continues at Sears with another 63 stores targeted for closure early next year.

Emblematic of the struggle facing U.S. department stores, Sears Holdings has already closed more than 350 Sears and Kmart stores this year. An additional 45 Kmart stores and 18 Sears stores will be closing in late January 2018, the company said Thursday.

"Sears Holdings continues its strategic assessment of the productivity of our Kmart and Sears store base and will continue to right size our store footprint in number and size," the company said in a statement. "In the process, as previously announced we will continue to close some unprofitable stores as we transform our business model so that our physical store footprint and our digital capabilities match the needs and preferences of our members."

The 63 stores will remain open during the holiday season and employees at the closing stores will get severance pay and an opportunity to apply for other jobs within the retail chains. "Liquidation sales will begin as early as November 9 at these closing stores," the company said.

The retail industry is reeling as a growing number of shoppers do their buying online and e-commerce giant Amazon becomes the go-to for many consumers. But the decline of Sears has been particularly stark.

The iconic store chain, whose goods once filled American households from the garage to the living room, has struggled to remain relevant as shoppers increasingly bypass it to head to big box giants like Walmart, or specialty retailers like Best Buy and Home Depot instead.

In March, Sears said in a filing with the Securities and Exchange Commission that it had "substantial doubt" about its ability to stay in business unless it could borrow more and generate additional cash from its assets. However, the notification was required because of a rule change that mandated businesses be more transparent about potential risks they face within a year of their reported financial statements. Independent auditor Deloitte said at the time that it believed Sears Holdings was still viable.

The company has initiated a turnaround plan this year that aims to slash $1 billion in costs annually, and cut the company's debt by $1.5 billion. Shedding low-performing stores has been key to the restructuring, but Sears also sold Craftsman, one of its most valuable brands, to Stanley Black & Decker for roughly $900 million.

In another move that could boost the company's balance sheet, Sears announced in July an agreement to sell its Kenmore appliance brand on Amazon. And the company has been increasing the perks available to its most frequent shoppers.

Just this week, Sears and Kmart launched a nearly month-long sale for members of its "Shop Your Way" loyalty program to woo customers during the all-important holiday period. Sears shoppers will get discounts ranging from 10% to 50%, and Kmart shoppers will see sales of 10% to 40% on all items through Nov. 25.

Some of the changes, while not increasing profits, do appear to be stemming the financial bleeding. While the company reported a net loss of $251 million for its second quarter that ended July 29, that was down from a loss of $395 million during the same period last year, and also beat S&P analysts projection of $266 million.

Still, there are continuing signs that Sears is no longer the dominant player it once was. Last month, it announced that for the first time in more than 100 years, it would no longer sell Whirlpool appliances because the two companies could not reach an agreement on price.

bloruleshort.gif (618 bytes)

Retail is hurting. So why does the future of retail look so bright?
By Matt Joe
Chain Store Age
November 2, 2017

It's time to say goodbye to the shopping malls of old and hello to an exciting future of retail innovation.

Successful retailers already know consumer expectations, fueled by our increasingly digital-first lifestyles, are changing rapidly. They are well aware of the fact that shopping malls are not how people actually want to shop.

Customers see fast, easy and personalized online shopping as the norm. It can be hard to meet these expectations in the real world, but it is something that must be done. Consider a recent global study by Avanade and EKN, which found that 56% of retailers surveyed expect their store formats will evolve into fulfillment centers by 2020.

Technology is enabling this transformational shift in retail, breaking down traditional barriers and unlocking new potential. The industry is primed for experimentation and innovation through technology. Here are five examples that could soon reshape the shopping experience and forge enduring, loyal customer relationships in the process.

Making Connections, Everywhere

The Internet of Things (IoT) and radio-frequency identification (RFID) are enabling a world of connected devices and objects with enormous potential in retail. The fusion of these technologies will lead to a smarter, more integrated shopping experience benefitting consumers.

Imagine a store with RFID tags on every item and every shopping bag, all of it connected to a wireless network. Suddenly, shoppers don't have to seek out a clerk to buy their items. They simply take what they want and the transaction occurs electronically.

This human-centric approach could lead to dramatically different retail form factors dictated by how people want to shop instead of how retailers want them to shop. And the technology of course offers substantially improved inventory quality control because retailers will be better positioned to track analytics on returns, theft, and fraud issues.

Non-Human Intelligence is Getting Smarter

Artificial Intelligence (AI) has already made strides among consumers at home, particularly through virtual assistants like Amazon's Echo, featuring the Alexa assistant. These gadgets also happen to be incredibly intuitive system agents.

As we expand into an AI-first world, brands will soon be able to better learn and predict consumer behavior, leading to deeper and more relevant shopping experiences both online and offline.

Imagine a store of tomorrow paired with AI and real people. This leads to a more sustainable workforce management approach where retailers know exactly when and where extra store associates are needed to best serve customers during a surge in demand.

This smarter approach helps retailers better know their customer wants and needs, before they even step foot inside a store. This leads to better inventory management and customer engagement focused on the idea of transforming retail locations into fulfillment centers. This new AI-powered awareness is a largely untapped retail opportunity that could open up a more approachable, informed and long-lasting customer relationship.

Chatbots

With chatbots, we're not literally talking about a robot roaming your store, yammering away. These digital conversation interfaces simply help consumers quickly obtain the information they need, without having to wait for assistance from an in-store employee. Instead, they have intuitive, natural interactions with virtual assistants embedded throughout the store.

The reality of chat bots is that they are already a compelling technology investment in wide use as a self-service tool. Already, retailers have deployed SKU scanners in their shopping aisles to give customers quick info on pricing. Replacing scanners with a chat bot could take the value proposition even further, giving retailers a way to provide more nuanced help about related items and offers through a simple, directed conversation.

Data (Not Time) Is Money

If data is the new currency of the retail economy, analytics is your financial planner. Simply storing data is a fatal mistake.

With analytics, the immense amount of digital exhaust - the structured and unstructured data about shopper behaviors, trends, their likes and dislikes - becomes a virtual goldmine. Retailers just have to know where to dig.

With the right tools, retailers can harness this data to predict and create a more personalized experience that builds customer loyalty for each shopper in their ecosystem. It can also shed a brighter light on the supply chain, adding greater precision to the ordering process while reducing waste and inefficiencies.

Data integration becomes the key ingredient used in every aspect of retail. It's not just taking a look and last week's sales report - it's knowing what customers are going to do, buy or experience next.

Will That Be Cash Or Check (Or Neither?)

Integrated payment systems are an emerging way to deliver quick and easy checkout for in-store customers. From RFID sensing shopping bags, to mobile payment systems, an integrated and convenient experience with purchases, returns and exchanges will be key.

These solutions offer some immediate business benefits. They save money through more automated transactions, they improve financial accuracy by removing humans from the equation, and they improve forecasting by boosting financial visibility.

Beyond these obvious considerations, integrated payment systems can help retailers turn records and transactions into relationships. Brands can use this technology to nurture purchase intent and give customers more freedom to check out on their own terms with a trusted partner.

All of these technologies are a mandate to experiment and reimagine the world of retail. Where does a retailer put their front door? Does the shopper leave the buying experience with products that day? Does it even matter?

The true future of retail is about the valued and trusted brand relationships - augmented by technology - that can be made with consumers.

bloruleshort.gif (618 bytes)

The future of retail is uncertain, just ask CFOs
By Lauren Hirsch
CNBC
November 2, 2017

Traditional retailers are struggling to predict their own fortunes.

The percentage of retailers that beat their earnings estimates dropped roughly 20 percent since 2010 on a rolling 12-month basis, according to Bespoke Investment. They reached a 15-year low in 2015 and are seeing miss rates last seen at the beginning of the Great Recession.

Retailers' off-base forecasts demonstrate just how quickly the sector is changing and how little ability executives have to plan for it, let alone manage it. The misses are important because executives need to be able to understand their business if they want to make the investments necessary to save it.

Retailers are closing hundreds of locations, but they don't know the impact that store closings and liquidations will have on their revenues. They are investing in e-commerce, but they don't know how many people will buy online and what that means for their in-store purchases. They are promoting in-store pickup, but they don't know whether shoppers will take them up on it and save them from expensive shipping costs.

These themes reverberated throughout the latest rounds of earnings calls. They will be tested in the upcoming circuit.

"Quite candidly, it was very difficult to forecast [the liquidation of] 127 stores and the financial impact when we had no history to really lean on," J.C. Penney's CEO Marvin Ellison said on the company's second-quarter earnings call.

"It is almost impossible to truly break out digital from store. ... If somebody is using a mobile phone in store, having just worked with a sales associate, is that store or digital? Or the returns [and so forth]," Macy's CFO Karen Hoguet said in the company's first-quarter earnings call.

"It's actually a pretty complex model that we are getting our arms around," said former CEO of Hudson's Bay, Gerald Storch.

Scale no more

In the new environment, retailers must gauge the value of their investments in digital, partnerships and "experiences" they are creating to draw customers in.

The retail business model is no longer predicting how many more sales a single store will do this year compared with last year, the language its current club of executives is used to speaking. Retailer leaders largely came up through the ranks when the solution to most problems was building more stores or reinvesting in old ones.

"For many years it's been about scaling and optimizing - they all know each other and they really haven't had to look outside their industry as much as they probably should have to navigate the changing tides," said Margot McShane, a partner at executive recruiting firm Russell Reynolds.

Retail companies, by and large, do not force executives who rise through the ranks to work in different departments - like operations or finance - as other industries do. That means those who have risen to the top may have done so only working in areas like merchandise, the job of picking out goods for shoppers months in advance.

That planning skill set is likewise being challenged as shoppers' wants now change on a whim. Today, celebrities and Instagram influencers can drive trends in the time it takes to post a photo of a Reformation dress. Fast fashion has trained shoppers to view trends by the week, not the season. Subscription services like Stitch Fix ship clothing boxes monthly, through data-driven personal shopping.

J.C. Penney saw shares drop to an all-time low last month, when it slashed 2017 profit and comparable-sales forecasts, partially because it had to slice prices of inventory - primarily women's apparel - to move items that were proving unpopular with shoppers.

"It's like playing a different pool table, but it's a completely new table and all the angles are different, and everybody is having to adapt to that," said Josh Chernoff, a managing director in the Parthenon-EY practice of Ernst & Young.

bloruleshort.gif (618 bytes)

To the Worsening Troubles At Sears, Add Skittish Suppliers
By Suzanne Kapner
The Wall Street Journal
November 1, 2017

Shoppers hunting for this holiday season's hot toy, the L.O.L. Surprise, may have trouble finding it at Sears or Kmart stores. Worried about the financial health of the retail chains, the company that makes the toy, a ball that children unwrap to reveal small dolls, has reduced shipments to Sears Holdings Corp.

"We cut their credit line and shortened payment terms," said Isaac Larian, chief executive of toy maker MGA Entertainment Inc. "If they pay one day late, we will cut them off."

Sears once dominated American retailing and helped build famous brands, including Whirlpool appliances, Craftsman tools, Schwinn bicycles and Allstate insurance. Now, bleeding cash and losing shoppers, the 124year-old firm is scrambling to keep suppliers- the lifeblood of any retail chain-from bolting.

To guarantee shipments from LG Electronics Inc. and Samsung Electronics Co., Sears is paying them cash up front for some goods, said people familiar with the matter. Levi Strauss & Co. has stopped supplying women's jeans to the chain, said another person. At Clorox Co., "We have certainly adjusted our payment terms," said CEO Benno Dorer.

A months long feud between Sears and Whirlpool Corp. burst into the open last week when the sides couldn't agree on terms to keep their century-old partnership going. Earlier in 2017, Sears sued two longtime manufacturers of its Craftsman tools to keep them shipping merchandise to stores.

The supplier turmoil is the sharpest sign yet of Sears's decline. It has lost more than $10.4 billion since 2011. Annual sales over that period have collapsed to $22.14 billion from $41.57 billion as the company has spun off divisions, closed hundreds of stores and attracted fewer shoppers to its 1,250 remaining Sears and Kmart locations.

Employee ranks, above 300,000 a decade ago, have dropped by more than half. Sears is looking to lease out part of its headquarters space, and some amenities that once dotted the six-building campus, including a bank branch and optical shop, have closed.

Though Sears is slashing costs, credit analysts say it needs to raise about $1.5 billion a year to fund its operations. On Monday, S&P Global Ratings downgraded Sears's debt further into junk territory, on concerns the firm could find it hard to repay or refinance $1 billion in loans coming due next year.

Analysts say Sears still has assets to sell to keep it afloat. And as long as it continues to pay on time, suppliers are unlikely to abandon it. Many say they want Sears to stay in business but have taken the harder position on payment terms to protect themselves.

A Sears spokesman said the company has taken a number of steps "to remain a viable competitor," including closing unprofitable stores, negotiating "with vendors to reduce their risk in doing business with us," investing in its customer-loyalty program and reducing costs.

The spokesman, Chris Brathwaite, added that "inaccurate assertions and negative speculation about Sears and its future" have "had a very detrimental impact on the company through mere repetition." He didn't reply to specific questions, including about MGA, LG, Samsung and Levi Strauss.

After this article published on WSJ.com, Sears said it continues to have strong relationships with thousands of vendors. "Any changes to our agreements over the years have been part of the normal discussions between retailers and vendors," it said in a blog post.

At the center of the storm is Edward S. Lampert, the 55year-old financier who rescued Kmart from bankruptcy and then combined it with Sears, Roebuck & Co. in 2005. Partly through his hedge fund, ESL Investments Inc., in which he is the primary investor, the money manager turned CEO is also Sears's largest shareholder, with 54%. Through ESL, he also oversees a big creditor, holding just under half Sears's $3.5 billion or so in long-term debt.

Sears has been selling real estate and brands to raise cash and Mr. Lampert has pumped in money through short-term loans from his hedge fund.

In weekly management meetings, Mr. Lampert pushes executives to drive harder bargains with suppliers, arguing that the vendors need Sears as much as it needs them, people familiar with the matter said.

"There have been examples of parties we do business with trying to take advantage of negative rumors about Sears to make themselves a better deal—a deal that is unilaterally in their interest," Mr. Lampert, who declined to be interviewed, wrote in a May blog post. "In such a case, we will not simply roll over and be taken advantage of."

Spin Cycle

Sears no longer has the clout to play hardball. In 2002, it accounted for a fifth of Whirlpool's revenue. That was down to 3% of Whirlpool's sales in a recent tally.

In the negotiations this year, Whirlpool wanted to reduce its exposure even further by lowering the amount of goods it ships to Sears and raising prices, according to people familiar with the discussions. When the sides couldn't agree, Whirlpool executives told their Sears counterparts in May they would stop shipping products. In October, Sears notified employees it would no longer carry Whirlpool, Maytag and other brands made by the manufacturer, according to an internal Sears memo.

"It's not a whole lot" of business, Whirlpool CEO Marc Bitzer told analysts.

Electrolux AB was once so beholden to its largest customer it paid for Sears executives to fly business class to Asia on factory visits, even though its own executives flew coach, a person familiar with the arrangement said. In recent years, Electrolux has minimized its exposure to Sears by courting other chains, such as Home Depot Inc. and Lowe’s Cos., the person said.

"There is a significant sort of reshaping of the North American retail landscape, and that requires us to focus a lot on the right channels," Electrolux CEO Jonas Samuelson said in April.

"We see no viable path for Sears to succeed as a retailer,"said Bill Dreher, a financial analyst with Susquehanna Financial Group LLC, one of the few who still follow the company on Wall Street. "I'm concerned that the vendors are starting to lose patience, because that is what put Kmart in bankruptcy in 2002."

To keep products flowing, Sears is paying vendors in one month, on average, compared with two months for Target Corp., Mr. Dreher said. The shorter payment terms tie up working capital, forcing Sears to borrow more and making it harder for the retailer to carry the right levels of merchandise at the right time of year.

There might have been no Sears at all if Richard Sears, a 19th-century railway agent, hadn't received a shipment of watches from a local jeweler who didn't want them. He sold them to station agents up and down the line and then teamed up with Alvah Roebuck, a watchmaker. The two formed Sears, Roebuck in 1893.

Thanks to Mr. Sears's flair for copy writing, their new mail-order company was soon selling all manner of goods to rural America, including a "Stradivarius model" violin for $6.10, men's suits for $9.95 and $1,000 kit houses, making luxuries once the province of the city rich available to a wide swath of the population.

Sears was one of the earliest and biggest customers of Schwinn bicycles; in the 1920s it bailed out the appliance maker that became Whirlpool.

As rural people began moving to cities, Sears began opening large stores, which by the arrival of the post-World War II boom were filled with washing machines, lawn mowers, television sets and other accouterments of middle-class life.

Socks and Stocks

By the end of the '60s, Sears's annual sales were just shy of 1% of the nation's gross domestic product with the breadth of an Amazon.com Inc. It operated Sears Auto Centers, owned the Kenmore, Craftsman and DieHard-battery brands, and had a financial-services unit that by the '80s included Allstate Insurance Co., the Dean Witter brokerage, Coldwell Banker real estate and Discover credit card. Sears no longer owns any but the auto centers, Kenmore and DieHard.

Sears was an early internet mover, forming the Prodigy online service with International Business Machines Corp. "The issue really isn't success or failure," Sears then-chairman Edward Brennan said in 1989, according to the "The Attention Merchants," a book about media and marketing. "It's really a question of how big a success we're going to be." Beneath that bravado, Sears was already in decline, facing competition from the likes of Wal-Mart Stores Inc. and Home Depot.

Mr. Lampert, who started his hedge fund in 1988 at age 25, took control of Kmart in 2003 out of bankruptcy and then used its stock to acquire Sears. He had some early success when he raised prices and reduced marketing costs, a counterintuitive strategy that boosted profits, said a former senior executive. That led him to believe he could run a chain better than traditional retail executives, the person said.

His unconventional approach included minimal investment on store upgrades. Instead, Sears has spent $6 billion repurchasing shares since 2005, at prices as high as $180 a share. The stock now hovers around $6. The result is stores sometimes missing chunks of flooring and with empty shelves.

"The stores are creepy," said shopper Chris Angelos, with few customers, a limited selection and whole sections closed off in the cavernous location near her home in Gurnee, Ill. The 69-year-old said she shops there anyway because it lets her avoid crowds and park near the front door.

In a 2007 letter to investors, Mr. Lampert explained his strategy this way: "Unless we believe we will receive an adequate return on investment, we will not spend money on capital expenditures to build new stores or upgrade our existing base simply because our competitors do." Ten years later, after breaking off pieces such as Craftsman and the Canadian division, which filed for bankruptcy in June and is being liquidated, Mr. Lampert is undeterred. In October his hedge fund lent Sears another $140 million, bringing its total borrowings from ESL to roughly $1.6 billion.

"People have often asked me why I am still committed to the company and why I continue to invest a significant amount of my own money in its 'transformation,'" Mr. Lampert wrote in a May blog post. "The answer is that I firmly believe we will succeed."

Mr. Lampert keeps his own counsel. He doesn't go to Sears headquarters more than a couple of times a year, people who have worked with him say. Instead, executives make quarterly treks to Florida, where Mr. Lampert lives on the exclusive Indian Creek Island in a $42 million home.

The CEO—who was kidnapped for money in 2003 and held in a Days Inn motel room in Connecticut for 28 hours- rarely visits stores and has urged executives to adopt a similar policy, arguing they can collect more data more quickly by connecting with store managers over videoconferences, former executives say.

In recent years, middlemen known as factors have stopped providing vendors with insurance on payments for their shipments to Sears. Many suppliers, even big ones that don't use factors, have pushed to shorten payment terms to cut their risk.

When LG's contract came up for review in 2015, the companies worked out new terms over nine months. Under the final deal, Sears would pay LG cash upfront before receiving some goods, said people familiar with the situation. In return, Sears gets a small discount.

MGA, when it renegotiated its contract last year, cut in half the amount of time Sears has to pay, to 30 days.

"We want them to stay in business," said Mr. Larian, the supplier's CEO. "But not at risk to MGA."

-Andrew Tangel, Theo Francis and Jim Oberman contributed to this article.

bloruleshort.gif (618 bytes)

Study: Walmart giving Amazon a run for its money
By Deena M. Amato-McCoy
Chain Store Age
October 30, 2017

Amazon may be the current online price leader, but it is starting to lose its lead.

The online giant's prices are typically 11% lower than Walmart, Target and Jet, but Walmart is rapidly closing the gap, according to a report from Profitero. Walmart's were prices found to be only 3% more expensive on average than Amazon across all categories studied. (By comparison, a 2014 Profitero study, which found Walmart's pricing to be 9% higher than Amazon on average.) (Target was found to be 17% higher than Amazon on average, and Jet 12% higher.

The report, "Price Wars: A Study of Online Price Competitiveness," analyzed the prices of more than 52,000 exactly matched, in-stock products across 13 categories including beauty, toys & games, electronics and pet supplies, at Amazon.com, Walmart.com, Target.com, Jet.com and specialty retailers. Data was collected daily between June and August 2017.

According to the data, Walmart is also making the largest strides to compete with Amazon in the beauty category, with products found to be 1% lower than Amazon on average. In Profitero's 2014 study, beauty products were priced 10% higher than Amazon.

Electronics is one of Walmart's least competitive categories to Amazon, with products priced 7% higher on average than the online giant.

Target was found to be the most expensive of the major retailers, and 17% more expensive than Amazon. This marks a shift in price competitiveness from the 2014 Profitero study, which found Target pricing to be 10% more expensive than Amazon.

Specialty retailers, such as Staples, Best Buy and Home Depot, still struggle to compete with Amazon on price. Staples was found to be the most expensive specialist retailer to Amazon (products were 49% higher than Amazon on average), while Chewy.com had the closest pricing (its average prices were just 7% higher than Amazon).

While the study revealed that Amazon remains the online price leader, it's clear that Walmart is on the offensive, with prices just 3% more expensive than Amazon - a significant change from our 2014 study when prices were shown to be 9% more expensive than Amazon," said the report's author, Profitero senior VP of strategy & insights, Keith Anderson. "While lower prices are good news for shoppers, suppliers and retailers will inevitably feel the pressure as we head into peak holiday season, as this price war is only set to intensify."

bloruleshort.gif (618 bytes)

$60 million loan is Sears' 3rd time tapping CEO's pockets this month
By Lauren Zumbach
Chicago Tribune
October 30, 2017

Sears Holdings has borrowed millions of dollars from affiliates of its CEO for the third time this month.

The struggling Hoffman Estates-based retailer disclosed a $60 million loan in a regulatory filing Monday.

Earlier this month, Sears borrowed $100 million from affiliates of Sears CEO Edward Lampert's hedge fund, ESL Investments. ESL agreed to lend up to $100 million more by Dec. 1 if Sears identified additional collateral to secure the loan.

Sears borrowed $40 million of that second $100 million on Oct. 18 and drew the remaining $60 million exactly one week later.

The loan has an 11 percent annual interest rate and is secured by Sears' retail properties.

"We continue to focus on actions to provide the company with additional financial flexibility to generate liquidity and demonstrate our ability to manage our business while meeting all of our financial obligations," Sears spokesman Howard Riefs wrote in an email.

bloruleshort.gif (618 bytes)

Department store retailer boosting toys; in deal with Lego
By Marianne Wilson
Chain Store Age
October 30, 2017

J.C. Penney is going big on toys this holiday season.

In July, the retailer announced it was opening toy shops in all its stores, with an expanded assortment available online. Penney on Monday said it is expanding the assortment, and has entered into a partnership to add products from the popular Lego brand in some 875 locations, with a wider selection featured online starting in December.

Penney said it is adding 40% more toys, games and plushes from a host of leading brands to its toy assortments. Additionally, the chain has quadrupled its online selection of toys since last holiday.

"By working with the best toy brands in the industry, J.C. Penney continues to differentiate itself from the competition, giving more families a reason to visit our stores and discover the amazing selection available at JCPenney.com," said John Tighe, executive VP and chief merchant. "By partnering with a toy icon like the Lego brand, J.C. Penney is well-positioned to capture a greater share of revenue within the toy industry, during the busiest shopping period for gifts."

Penney's online site now boasts four times more toys than last holiday season with additional brands and categories planned throughout December, the company said. Based on customer feedback, the company has expanded its assortment of toys for all ages, ranging from motorized ride-on vehicles and bicycles to outdoor trampolines and electronic learning toys.

bloruleshort.gif (618 bytes)

Baby boomers, rejoice! Sears is bringing back Wish Book
By USA Today
October 29, 2017

Sears, the iconic retailer that has been struggling with slipping sales and fading relevance, is tapping into nostalgia to woo back shoppers - with a modern twist.

For the first time in six years, shoppers can browse the Sears catalog known as the "Wish Book" to compile their holiday lists. The catalog, which debuted in 1933, has been updated to include a digital edition available on tablets, laptops and smartphones.

"We heard story after story about the Wish Book and about peoples' memories," said Kelly Cook, chief marketing officer for Sears and Kmart. Shoppers "wanted it back, but also wanted a feature that would allow their children to share lists as they're constantly using their phones and tablets to browse the Web and engage with brands."

A digital connection was also critical to grab as many shoppers as possible.

"The holiday season is a hugely critical time for us as a retailer," she says. "The interactive digital 'Wish Book' provides shopping convenience this holiday season letting members shop wherever, whenever and however they choose."

Still, many members of the store's loyalty program will get the printed version sent to their homes, or be able to get the catalog at a nearby Sears store.

The book recalls the glory days of Sears when the catalogs were as much a part of American home life as visits from the Avon Lady and glass milk bottles left by the back door. Sears was a one-stop retailer where shoppers could go for items ranging from sofas to sewing machines.

The original holiday guide, dubbed the "Sears Christmas Book," launched during the Great Depression. It featured such gifts as the "Miss Pigtails" doll, Lionel electric trains, a toy car that ran on a battery and even live, crooning canaries. Except for two years in the mid-90s, the catalog was released annually for nearly 80 more years.

Dolls and cars are still on display in this year's catalog along with a "Virtual Santa Kit," a toy tiger that reacts to sounds, and a combination air hockey/ping-pong table.

In recent years, the nation's one-time biggest retailer has struggled to make a profit as it competes with online giants like Amazon and big-box merchandisers like Walmart and Best Buy that offer similar merchandise, often a more appealing shopping experience and sometimes lower prices.

In March, the chain's parent company Sears Holdings said in a filing with the Securities and Exchange Commission that it had "substantial doubt" about its ability to stay in business if it couldn't borrow more or glean extra cash from assets.

Last week, Sears told its stores that they would no longer sell the Whirlpool appliances that have filled sales floors for more than a century because the company couldn't work out an acceptable price arrangement with the manufacturer.

Sears has said that it plans on shuttering more than 300 Sears or Kmart stores to pare costs. And earlier this year, when it kicked off a restructuring program to slash $1 billion in costs annually, Sears sold one of its most valuable brands, Craftsman, to Stanley Black & Decker.

bloruleshort.gif (618 bytes)

Who Dumped Who - Sears or Whirlpool?
By Cathaleen Chan
The Street
October 25, 2017

Breaking up is not so hard to do, it seems. The retailer and appliance maker are ending a 100-year relationship.

Sears Holdings Corp. and Whirlpool Corp. seem to be caught in a he-said, she-said kerfuffle this week.

The smattering of investors and analysts who still follow Sears were befuddled Monday. Oct. 23, when news broke that the ailing department store would cease to carry Whirlpool products after a relationship of more than 100 years.

"Whirlpool has sought to use its dominant position in the marketplace to make demands that would have prohibited us from offering Whirlpool products to our members at a reasonable price," Sears said in an internal memo, first reported by the Wall Street Journal.

But Whirlpool CEO Marc Bitzer said in an earnings call Tuesday morning, Oct. 24, less than 12 hours after the story broke, that it was the appliance maker that decided to cut the cord with Sears.

"We did inform Sears in May that we would no longer supply Whirlpool branded products as we simply could not reach terms that were acceptable to both parties," he said in the call. "In terms of the impact of shifting that, to be honest it's not a whole lot."

Carrying Whirlpool brands such as Maytag and KitchenAid, Sears represents 3% of the manufacturer's total global revenue, Bitzer added.

Sears, based on the language in the memo, seems to be accusing Whirlpool of overpricing its products. Whirlpool itself said in the earnings call that raw material inflation had caused lower operating margins. The appliance giant is behind Sears' exclusive line Kenmore, which will continue to be sold in Sears and on Amazon.com.

Still, many found Sears' announcement confusing, given Sears' already declining appeal to customers. Sears used to have up to 40% of market share on appliances, industry experts said. Now, it has 15%-if that.

"It just doesn't add up," said Bill Dreher, an analyst at Susquehanna Financial Group, the only remaining analyst covering Sears listed on Factset. "Sears is not investing in their stores. The shopping experience is dreadful. Customers are beginning to figure this out, and as Sears continues to lose marquee brands like Whirlpool, they're going to lose customers," he told TheStreet.

Whirlpool may have been preparing to phase Sears out for a while now, according to Jennifer Joiner of the retail consulting firm North Highland. "They may have seen Sears as a declining retailer and figured out that they could easily find replacement retailers to carry their products," she said.

Another possibility, according to Dreher, is that Sears made the final break when it realized that the premium products under Whirlpool are simply too pricey now for the average Sears shopper. "Sears has always had a duality of their customer base. Those who go for apparel are more moderate, whereas the customers that buy appliances are wealthier," he said. "It could be that there is an increasing reluctance for wealthier customers to go to Sears now."

Whirlpool shares fell nearly 11% Tuesday, while Sears dipped about 8.5%.

Regardless of who initiated the breakup, watchers all agree that Sears has more stake in it than Whirlpool.

bloruleshort.gif (618 bytes)

Sears makes a wish - and brings back an iconic holiday catalog
By Charisse Jones
USA Today
October 25, 2017

Sears, the iconic retailer that has been struggling with slipping sales and fading relevance, is tapping into nostalgia to woo back shoppers - with a modern twist.

For the first time in six years, shoppers can browse the Sears catalog known as the "Wish Book" to compile their holiday lists. The catalog, which debuted in 1933, has been updated to include a digital edition available on tablets, laptops and smartphones.

"We heard story after story about the Wish Book and about peoples' memories," said Kelly Cook, chief marketing officer for Sears and Kmart. Shoppers "wanted it back, but also wanted a feature that would allow their children to share lists as they're constantly using their phones and tablets to browse the Web and engage with brands."

A digital connection was also critical to grab as many shoppers as possible.

"The holiday season is a hugely critical time for us as a retailer," she says. "The interactive digital 'Wish Book' provides shopping convenience this holiday season letting members shop wherever, whenever and however they choose."

Still, many members of the store's loyalty program will get the printed version sent to their homes, or be able to get the catalog at a nearby Sears store.

The book recalls the glory days of Sears when the catalogs were as much a part of American home life as visits from the Avon Lady and glass milk bottles left by the back door. Sears was a one-stop retailer where shoppers could go for items ranging from sofas to sewing machines.

The original holiday guide, dubbed the "Sears Christmas Book," launched during the Great Depression. It featured such gifts as the "Miss Pigtails" doll, Lionel electric trains, a toy car that ran on a battery and even live, crooning canaries. Except for two years in the mid-90s, the catalog was released annually for nearly 80 more years.

Dolls and cars are still on display in this year's catalog along with a "Virtual Santa Kit," a toy tiger that reacts to sounds, and a combination air hockey/ping-pong table.

bloruleshort.gif (618 bytes)

Sears is bringing back its iconic holiday catalog
By Lauren Thomas
CNBC
October 25, 2017

Sears just announced it's bringing back its iconic holiday catalog, something the department store chain hasn't done since 2011.

This year, Sears said it's "reinvented" the 120-page gift guide, which includes holiday decor, home furnishings, games and toys, appliances, apparel, and more. There will also be a digital version available on Sears.com, and one on the retailer's app.

The first Sears Wish Book was known as the Sears Christmas Book catalog when it was rolled out in 1933, right in the midst of the Great Depression. In it, shoppers would flip through to find battery-powered cars, Mickey Mouse toys, fruitcakes and even live canaries.

"In an era when print media reigned supreme, Sears dominated the rural retail market through its huge catalog, an amazing work of product advertising, consumer education, and corporate branding," Vicki Howard, author of "From Main Street to Mall: The Rise and Fall of the American Department Store," wrote.

"Sears taught Americans how to shop," she added.

The original holiday books were thick - easily more than 400 pages. Decades ago, parents and children alike could single-handedly craft their holiday wish lists from Sears' offerings alone.

In 2017, a slimmed-down digital version of Sears' catalog will allow shoppers to click into pages and add items to a wish list by selecting a "heart" icon.

To get your hands on a physical copy, you need to be considered one of Sears' "best members," or a participant of the company's Shop Your Way loyalty program. Tangible copies of the look book will be limited, according to Sears.

"Our members told us they missed the Wish Book, so we had to bring it back, but in a special way that lets you share more joy wherever you are," Kelly Cook, chief marketing officer for Sears and Kmart, said in a statement.

A holiday catalog comeback could be one way for Sears to stir up excitement in shopping its brands during the all-important November and December months.

A new survey by Deloitte found that online spending during the 2017 holidays is slated to exceed in-store shopping for the first time. In tune to this, e-commerce giant Amazon is launching its own handmade gift shop, in an attempt to steal a bigger share of shoppers' spending around special occasions.

That leaves companies such as Sears, Macy's, J.C. Penney and Kohl's looking for ways to lure shoppers out of their homes and into brick-and-mortar retail, especially on key days such as Black Friday.

Sears Holdings has faced struggles of its own of late. As overall same-store sales decline, the department store chain has been shuttering unprofitable Sears and Kmart stores in an attempt to cut costs and round up additional liquidity.

Sears Chief Executive Eddie Lampert has also lent the company some money from his hedge fund, ESL Investments, to make it through the holidays.

bloruleshort.gif (618 bytes)

Retailer heads list of world's best-performing CEOs
By Marianne Wilson
Chain Store Age
October 24, 2017

The chief executive of a fast-fashion global powerhouse tops the list Harvard Business Review's annual list of the 100 best-performing CEOs.

Pablo Isla, head of Spanish apparel retailer Inditex, best known for its flagship brand Zara, is No. 1 on the list, which is different from other leader rankings in that it measures performance for the entire length of a chief executive's tenure. The only other retailer to crack the top 25 was Bernard Arnault, CEO of LVMH.

Isla, who ranked No. 3 in last year's list, has led Inditex on a global expansion since becoming CEO in 2005, increasing its market value sevenfold and making it Spain's most valuable company. It operates 7,300 stores under eight different banners in 93 countries.

Measured on financial returns alone, Isla comes in #18 in the ranking. But Inditex's strong environmental, social, and governance (ESG) performance, which makes up 20% of each CEO's ranking, propelled him to the top spot, according to HBR.

To compile the list, Harvard Business Review looked at CEOs of the S&P Global 1200 as of April 30, 2017, and calculated overall shareholder return and increase in market capitalization over their entire tenure. It also factored in two separate ratings of corporate ESG performance.

Interestingly, if Harvard Business Review judged CEOs solely on the basis of financial performance - as it did prior to 2015 - the top-ranked leader would be Amazon's Jeff Bezos, who topped the list in 2014 and has been the best financial performer in every subsequent year. He currently is No. 71.

Here are some ranking statistics from the 2017 list:

• On average, the world's 100 best CEOs have generated a 2,507% overall return on their stock (adjusted for exchange-rate effects), for a 21% annual return.

• Eight of the top 10 CEOs run European companies.

• 32 CEOs on the list have an engineering degree and 29 have an MBA.

• On average, they became CEO at age 44 and have been in office 17 years.

• For the second year in a row, Marillyn Hewson of Lockheed Martin and Debra Cafaro of Ventas are the only women on the list - reflecting the persistent underrepresentation of women at the top.

bloruleshort.gif (618 bytes)

Where America shops for Whirlpool: After 100 years, not Sears
By CBS News
October 24, 2017

Whether U.S. shoppers are still looking for the softer side of Sears may be debatable, but there's one line of merchandise consumers will no longer find at the department store: Whirlpool appliances.

The department store is ending a business relationship that dates make more than 100 years. In a note sent to its stores last week, Sears said that Whirlpool (WHR) was making demands that would've made it difficult to sell its appliances at a competitive price.

Sears (SHLD) has been ravaged by new competition for years, however, from stores like Home Depot and also from Amazon.com and other online retailers. The department store's sales have continued to plummet, with second-quarter sales declining 11.5 percent at stores open at least a year. The chain is restructuring its operations and shedding underperforming stores, but the loss of a major draw like Whirlpool may add to its challenges in drawing shoppers through its doors.

The end to the partnership is effective immediately and includes the larger appliances and small kitchen appliances of Whirlpool subsidiaries like Maytag, KitchenAid and Jenn-Air.

Sears said that it would sell off the remainder of its Whirlpool inventory. Its stores will now only sell its Kenmore products and other brands like LG, Samsung, GE, Frigidaire, Electrolux and Bosch. Sears recently struck a deal with Amazon to sell smart Kenmore appliances.

Fifteen years ago, Sears sold about four out of every 10 appliances in the U.S., although its market share has declined since then, according to The Wall Street Journal.

bloruleshort.gif (618 bytes)

Sears drops Whirlpool
By Crain's Chicago Business
October 24, 2017

After 100 years, Sears will no longer sell Whirlpool appliances, the Associated Press reports, telling its stores that Whirlpool was making demands that would've made it difficult to sell its appliances at a competitive price.

bloruleshort.gif (618 bytes)

Amazon And Walmart Take On Porch Pirates
By Shep Hyken
Forbes
October 22, 2017

One thing that can make for a terrible customer experience is when merchandise is ordered but never delivered. Or maybe it was delivered, but somehow mysteriously disappeared. The cause of this disappearance? Simple ... it was stolen.

A few months ago, I read an article about how Amazon was testing the concept of delivering merchandise to the trunk of a customer's car. The person making the delivery would have one-time access to open the trunk.

There was another recent article about Walmart delivering merchandise inside a home, even with no one present to open the door. Again, the person making the delivery would have one-time access to drop the merchandise just inside the front door or, if the item needed to be kept cold or frozen, even placed in the refrigerator.

Is this all about convenience? Absolutely yes ... but there is more.

This concept is about reducing the theft of packages left on the front porch of a customer's home. The criminals who steal these packages are referred to as "porch pirates." Shorr Packaging Corp surveyed 1,000 consumers and found that 31% have had a package stolen, and 41% of those surveyed said they do not buy certain products online because they fear that the items will be stolen if left outside their front door.

Natalie Berg, an analyst at Planet Retail RNG, told CNBC, "Unattended delivery is the least desirable of the last-mile fulfillment options as it leaves the package exposed to all kinds of risk."

However, there's more to the issue than just the risk of theft, or even bad weather ruining a package left outside. For the consumer, it's a hassle - the inconvenience of making a claim, having to reorder, and then waiting again for the merchandise to arrive. For the brand, it is a risk to their reputation.

Sure, it's not Amazon's fault or Walmart's fault that the package was stolen, but who does the customer call? The company that the item was ordered from.

Berg says, "It's not just the financial cost, but also the impact that a failed delivery can have on brand reputation and customer loyalty. Nothing makes shoppers more irate than missing a delivery."

CNBC recently reported that Amazon is working with Phrame, a company that makes "smart license plate frames" that fit around a license plate and securely hide the trunk key. The delivery drivers use an app on their smartphones to gain one-time access to the key.

And Walmart has been working with a "smart lock" company, August Home, to allow delivery drivers one-time access to a customer's home.

My take on this is that I love it when big companies have to answer to shareholders when it comes to ideas that are highly customer-focused. This is done in order to eliminate problems and build confidence; and at the same time, as mentioned above, it creates a better customer experience through convenience. The degree of trust must increase at every level.

First, there has to be a high level of trust in the company in order to buy from it in the first place. Amazon and Walmart have done well to establish that they are trustworthy retailers. Then, the customer has to trust that they will ship the ordered items in a timely manner that meets expectations. Again, no problem here for these brands.

Finally, and this is the big one, the customer has to trust the person delivering the package enough to allow access to the inside of their car or home. Whoever is making that delivery (be it a direct employee of Amazon or Walmart, a private delivery company or a USPS, FedEx or UPS employee) is representing the brand, regardless of the company they work for.

Delivering amazing customer service is more than just doing things the right way. It's also about being proactive about fixing things that go the wrong way. Amazon and Walmart understand that. While stolen packages are not the fault of the company that delivers them, a great company will do everything in its power to fix the problem. Or in this case, make sure the problem never happens.

Shep Hyken is a customer service and experience expert, keynote speaker and New York Times and Wall Street Journal bestselling author.

bloruleshort.gif (618 bytes)

Walmart Courts Lord & Taylor For Its Online Mall
By PYMNTS
October 20, 2017

They say the enemy of my enemy is my friend - and in a world where Amazon seems dedicated to eating everyone else's lunch, a host of unlikely friendships are blooming.

Most recently, according to Wall Street Journal reports, Walmart and Lord & Taylor have struck up just such a friendship. According to reports, the two name-brand retailers are considering combining their powers, with Lord & Taylor digitally moving to a dedicated space on Walmart's website.

It's like a new update on an old expression: if you can't beat Amazon, join Walmart.

And Lord & Taylor is reported to be a first step, with the bigger vision being an online mall where Walmart is the front door and shoppers have options to choose from like Bonobos, Jet.com and ModCloth (all firms that have been part of Walmart's big online buying spree of the last year and a half.)

Representatives for Walmart and Lord & Taylor had no comment on the reports.

Walmart, through its CEO, has also signaled that the acquisitions are likely to continue - likely led by Marc Lore, the head of Walmart U.S.' digital business. Walmart also continues to up its talent game - having recently brought in former Saks executive Denise Incandela to head its fashion business.

These efforts come as Amazon continues to go after the fashion brands - Nike is already there, and struggling mall brands like Gap, Inc. have made it clear they are thinking about it.

An online Walmart mall would cement the company's position as an alternative to Amazon - and Lord & Taylor is looking for ways to up its digital presence in an area of falling foot traffic.

bloruleshort.gif (618 bytes)

Jerry Storch to leave Hudson's Bay Co.
By Marianne Wilson
Chain Store Age
October 20, 2017

The owner of Saks Fifth Avenue, Lord & Taylor and Hudson's Bay is on the hunt for a new chief executive.

HBC on Friday announced that Gerald L. (Jerry) Storch is stepping down as CEO, effective November 1, 2017, to return to his advisory firm, Storch Advisors. The department store retailer said it has retained an executive search firm to recruit a CEO "to further enhance HBC's strategies and take the company to its next phase of development and growth."

Storch, one of the industry's most well-known executives, has served as CEO of HBC since January 2015. Prior to that, he served as chairman and CEO of Toys "R" Us. He also served as vice chairman of Target.

Richard Baker, governor and executive chairman of HBC, will serve as interim CEO. Baker, who had previously served as CEO of HBC, will be supported by the executive leadership team.

In August, Reuters reported that Hudson's Bay was planning to review its options following pressure from an activist shareholder. In September, sources told CNBC that Baker is trying to raise equity to potentially take the company private.

"The board and I are grateful for Jerry's contributions over the past three years, including enhancing our all-channel strategies, recruiting key talent, leading our cost-cutting efforts, and working to address the challenges for our banners in the fast-evolving retail environment," said Baker.

In a statement Storch said, "HBC has a long, successful history, with talented people, assets, geographic reach and digital infrastructure. I have great confidence in the company and the executive leadership team's ability to take the right actions to position HBC for leadership in the retail industry as it evolves into the future. I'm looking forward to returning to my advisory firm to work with a range of companies during this transformational time for the retail industry."

HBC operates more than 480 stores around the world. Its leading banners across North America and Europe include Hudson's Bay, Lord & Taylor, Saks Fifth Avenue, Gilt, Saks Off 5th, Galeria Kaufhof, the largest department store group in Germany, and Belgium’s only department store group Galeria INNO.

bloruleshort.gif (618 bytes)

Kohl's adds in-store Amazon shops
By Melanie Lawder
Milwaukee Business Journal
October 19, 2017

Amazon.com products are now available in select Kohl's stores in the Chicago and Los Angeles areas.

Menomonee Falls, Wisconsin-based Kohl's Corp. (NYSE: KSS) on Wednesday rolled out in-store Amazon (AMZN) shops - officially dubbed the Amazon Smart Home Experience - at 10 of its locations in a play to boost brick-and-mortar traffic.

Announced in September, the shops are staffed by Amazon employees, carve out 1,000 square feet of space in Kohl's stores and are specifically designated for Amazon products like the Amazon Echo, Echo Dot, Amazon Fire TV, Fire tablets and more.

"The new store-within-a-store concept is an example of how Kohl's is taking a unique approach to drive traffic and is innovating to deliver a one-of-a-kind shopping experience that really stands out for our customers," the company said in a statement Wednesday.

The Amazon Smart Home Experience is just one facet of Kohl's relationship with Amazon. The Wisconsin department store chain operator has also agreed to a partnership that allows shoppers to return their Amazon products, for free, at 82 Kohl's stores in the Los Angeles and Chicago areas.

That initiative is also starting to be implemented at various Kohl's locations, including the 10 stores that now have the designated Amazon shopping zones.

bloruleshort.gif (618 bytes)

Target CEO says small-format stores twice as productive as traditional
By Richa Naidu
Reuters
October 19, 2017

Sales per square foot at Target Corp's 44 small-format stores are "easily double" that at traditional stores, Target Chief Executive Brian Cornell said on Thursday, after the retailer announced 11 new small-format stores opening this week.

Target said it recorded an average of $300 in sales per square foot across its stores, compared with at least $600 in sales per square foot from its small-format stores.

Target's more than 70 newly remodeled stores have seen an average 2-4 percent increase in sales since being renovated, Cornell said at a news briefing on Thursday to launch the latest small-format store opposite the Macy's Inc headquarters in Manhattan, New York.

He added, however, that the unexpected success of the small-format and renovated stores would not affect previously announced full-year expected adjusted earnings of $4.34-$4.54 a share, saying these stores still represented a small percentage of overall sales.

Cornell said Target aims to operate 130 small-format stores by the end of 2019.

Like other retailers, Target has struggled in recent years to boost traffic amid changing consumer habits and competition from e-commerce giant Amazon.com Inc.

Still, Target shares have surged more than 10 percent since August, when it reported an increase in second-quarter comparable-store sales after four straight negative quarters, driven by improved online traffic and demand across all businesses except groceries.

The retailer has since slashed prices on thousands of items, from cereal to baby formula, and pledged to increase its minimum hourly wage this year by a dollar to $11.

"The fact that we're investing while others are backing away, it's hard to put into a forecast, but I know it's improving team engagement," Cornell said.

Retailers, including Sears Holdings Inc and Macy's, have announced plans this year to close hundreds of stores as they struggle with increasing competition from Amazon.com and fast-fashion retailers such as Forever 21.

bloruleshort.gif (618 bytes)

Is This a Sign That the End Is Near for Sears?
By Jeremy Bowman
The Motley Fool
October 17, 2017

What has two thumbs, a billion-dollar hedge fund, and is bailing on Sears Holdings Corporation?

Bruce Berkowitz, the investor who's been Sears' biggest supporter for much of the last decade. The Founder and Chief Investment Officer of Fairholme Capital Management, a $3.1 billion hedge fund that is Sears' second-biggest shareholder after Sears' own CEO Eddie Lampert, said he would step down from Sears' board of directors at the end of the month.

Sears shares crumbled on the news, falling as much as 15% yesterday as the market seemed to think that one of the retailer's biggest backers has lost faith.

The reasoning behind Berkowitz's departure wasn't immediately clear. In a filing, Sears simply stated that Berkowitz's decision "was not the result of any disagreement with the Company on matters related to the Company's operations, policies or practices."

In a statement, Berkowitz said, "I wish the company and its associates all the best as Sears Holdings continues to execute on its strategic priorities."

In addition to serving on the retailer's board and controlling a fund that holds 27% of Sears's outstanding shares, Berkowitz had been one of the stock's biggest boosters in recent months.

Back in June , the stock rallied as Berkowitz said Sears' real estate was worth between $90 and $100 a share, arguing that Amazon 's acquisition demonstrated the value of brick-and-mortar retailers like Sears. However, his decision to relinquish is board seat seems to indicate he no longer sees that kind of value in the stock. Berkowitz's fund, however, has not yet reduced its stake.

The Grim Reaper lurks

Sears shares approached an eight-month low on the news, which confirmed ongoing doubts about the company's future. In its annual report issued in March, management said, "Our historical operating results indicate substantial doubt exists related to the company's ability to continue as a going concern." The retailer hasn't posted an annual operating profit since 2010, and revenue has been fallen by half since then.

Last year, it posted an operating loss of $2 billion. Its Canadian franchise, Sears Canada , declared bankruptcy in June and said it would liquidate earlier this month as it couldn't find a buyer for its assets. Sears Holdings itself, which also owns Kmart, will close at least 350 stores this year from a total of about 1,400 at the beginning of the year.

Sears has done backflips in recent years to stay afloat, including selling or spinning off brands like Craftsman and Lands' End , borrowing from Lampert's own hedge fund, and converting a portion of its real estate into Seritage Growth Properties (NYSE: SRG) , but the company continues to bleed cash; it lost $1.5 billion in free cash flow last year. The climate in the department sector also does the company little help as even profitable peers like Macy's (NYSE: M) are seeing their share prices plunge as they struggle to adjust to changing consumer habits.

By continuing to downsize and sell off real estate, Sears is delaying its seemingly inevitable demise, but vendors are already getting nervous. The retailer has lost some smaller suppliers who fear they won't get paid by the company and can't afford the high price of insurance that covers Sears' debt in the case it goes bankrupt. In June, Sears sued two suppliers to ensure they would continue shipping Craftsman tools to the company, and Lampert railed against vendors in a blog post in May, accusing them of using negative media attention to get better terms.

That lack of supplier confidence leads to a vicious cycle of empty shelves and shabby stores, which inevitably drive even more customers away. This sort of supplier squeeze often precipitates retail bankruptcies, as the retailer has trouble stocking merchandise and meeting terms such as cash paid upfront for their orders.

With the holiday season around the corner, Sears will survive to see 2018, but Berkowitz's move casts even more doubt on the retailer's prospects. As a board member and one of its biggest investors, Berkowitz has special insight into the company. If even Sears' biggest cheerleader is turning in his pom-poms, it could soon be game over for the retail dinosaur.

bloruleshort.gif (618 bytes)

Sears Sinks After Key Investor Berkowitz Plans to Leave Board
By Lauren Coleman-Lochner
Bloomberg
October 16, 2017

Bruce Berkowitz, the largest outside shareholder at Sears Holdings Corp., is leaving the retailer's board, a move that sent the stock tumbling on Monday.

Berkowitz, the chief investment officer and founder of Fairholme Capital Management, will depart down Oct. 31, about 20 months after he joined the board. Concern that one of Sears's biggest backers is reducing his involvement sent the shares on their worst intraday slide since March.

Berkowitz first reported a stake in Sears in 2005 and held more than 27 million shares, or about a quarter of the total, as of Oct. 12, according to data compiled by Bloomberg. Long a passive investor, Berkowitz signaled he'd get more involved in a December 2015 regulatory filing.

Sears has been kept afloat in recent years by Chief Executive Officer Edward Lampert, who has used his own money to prop up the company.

Berkowitz's departure signals that "these guys could be on different sides of the fence," said Bloomberg Intelligence analyst Noel Hebert. The precipitous decline in retail real estate values may also have given Berkowitz pause, Hebert said.

Shares of Sears, based in Hoffman Estates, Illinois, plunged as much as 15 percent to $5.75 on Monday. The shares had dropped 27 percent this year through Friday's close.

Berkowitz's decision to leave the board wasn't the result of any disagreement over the company's operations, policies or practices, Sears said in an emailed statement.

"Mr. Lampert and Mr. Berkowitz have a longstanding partnership and continue to have great respect for each other," the company said.

Sears has lost almost $11 billion in the past six years, prompting the company to sell or spin off assets such as its Lands' End clothing business. The retailer's continued cash burn "does not build confidence or trust," Berkowitz said on a February 2016 investor call, noting nonetheless that Sears investors "own valuable assets at historic discounts."

He said earlier this year that there is still value in the traditional retail industry. Commenting on Bloomberg Television after Amazon.com Inc. announced it would buy Whole Foods Market, Berkowitz said that deal "says to me there is a need for physical space in retailing." Additional mergers make sense because department stores, supermarkets and malls occupy prime real estate with infrastructure already in place, he said.

Asked if he thought Amazon should buy Sears, he said: "That would be an intelligent move," though he said he had no reason to believe that would happen.

bloruleshort.gif (618 bytes)

Sears Sees Its Northern Neighbor Give Up The Ghost
By Dan Caplinger
The Motley Fool
October 11, 2017

Finally, shares of Sears Holdings fell 7%. The company's Sears Canada counterpart, in which the U.S. retailer has a minority interest, said that it will look to the courts to approve a plan to liquidate its remaining assets and wind down its operations.

Sears Canada has been bankrupt since early summer, and the company expects its liquidation efforts to be mostly complete by the beginning of 2018. For Sears Holdings investors, the news isn't surprising, but it still seems to foretell the eventual likely outcome of the brand's U.S. retail locations as well. If the end-of-year high season for shoppers falls short of hopes, then it could be the breaking point for Sears Holdings.

bloruleshort.gif (618 bytes)

Are Walmart's Rosy Predictions Just Hype?
By Walter Loeb
Forbes
October 11, 2017

Suddenly, conservative Walmart management predicts that next year online sales will jump 40%. They are estimated to increase another 40% in fiscal 2019. As a result of this news, shares have spiked to a two-year high. These estimates were announced just a few hours before an investor meeting in Bentonville, Ark. So, these major projections represent the battle cry of Walmart’s management in its latest challenge to upset The Big Gorilla - Amazon.

Marc Lore, the president and CEO of Walmart e-commerce U.S., is an aggressive fighter whose ambition is to beat Amazon with aggressive pricing, two-day free delivery, bigger discounts, and even discounts when you return on-line purchases to the store. I think that those 40% increases are doable, though ambitious. I would prefer that the company beat estimates and deliver sound earnings at the same time.

Right now, I have a feeling that Marc Lore is trying to achieve strong top line growth to catch up with Amazon. And, he's taking action on several fronts to make that happen. Corporate capital expenditures for fiscal 2018 and fiscal 2019 will hit $11 Billion and management indicated that a lot will be spent on digital growth. Then, there's his acquisition activity. The recent acquisitions of Bonobos, ModCloth, Moosejaw and Shoes.com present a somewhat questionable strategy, as I am not sure what growth the will contribute. But, they do prevent Amazon from grabbing them and they do strengthen the Walmart e-commerce platform.

Here are some other initiatives also underway by Walmart:

1. To facilitate shopping, the company has partnered with Google so that customers can shop by voice on the new Google Express. This will offer faster service and quicker delivery of hundreds of thousands of Walmart products. While Kohl's, Target and Ulta Beauty have also partnered with Google, they do not make their full assortments available as Walmart will do.

2. Next year, voice shopping will be available in all 4,700 domestic Walmart stores as well. According to Lore, the customer experience of voice does not currently exist within a store shopping experience and this will be a differentiator, facilitating the ability to pick up an order in store or use voice shopping for fresh groceries.

3. Walmart is developing a pop-up concept that will be tested in early 2018. While it is likely to be hardline oriented, and give the company the flexibility to showcase new products in that segment, it could be hardline products or even a new fashion trend that gets featured. In any case, it directly responds to customer interest in "the thrill of discovery" that has been proven to drive traffic in other stores. It is obvious that loyal frequent shoppers will appreciate the changes that will occur in store.

4. We should also ask, what will Andy Dunn do for Walmart? The purchase of Bonobos was a surprise. Yet, I think that the transaction was so important because the CEO of Bonobos, Andy Dunn, is a digital whiz and will add to the savvy of the online management. He is very disciplined and knowledgeable.

5. Walmart is about to streamline its return process so that customers can complete the activity quickly. The goal is 30 seconds compared to the five minutes found to be needed earlier this year. It is estimated that 15-30% of online purchases, along with a somewhat smaller percentage of in-store purchases (less than 10%), are returned to stores so the impact and benefit could be significant. And, certain household items will not even have to be returned for credit under this new program.

Walmart had a substantial exposure to the four hurricanes that devastated the South this fall. This will hurt sales in the third quarter, although one can suspect that business will rebound as the November and December sales will be very strong because of planned promotional activity and we should expect to see online sales grow rapidly as management finally confronts Amazon.

bloruleshort.gif (618 bytes)

Sears: The Customer Is Always Right
By Research & Investment
Seeking Alpha
October 10, 2017

Investment Thesis

Due to bankruptcy, common shareholders of Sears Canada may have essentially lost their entire investments (the stock is trading at literally a penny). At the same time, Sears Holdings is trading at close to an all-time low of $7. Sears Holdings operates in two segments, Kmart and Sears Domestic; the company has been losing more than a billion dollars every year, with double-digits negative revenue growth. Because the major shareholders' interests don't align with those of individual investors, I would stay away from this stock.

Financials and Growth

As with Sears Holdings, Sears Canada's revenue growth has been declining steadily; for the last three years, the company has posted losses of around $300 million per year, and Sears holdings has posted losses of around $1 ~ $2 billion per year.

Sears Canada's executive chairman is trying to convince the board of directors to accept his revised bid to buy out the company before an October 13 deadline. If this deal doesn't go through, we can expect court hearings and liquidation of assets. Lenders feel that they would gain more through liquidation.

Lack of Promotional Activities

When I look at the Sears website, I noticed that there are few promotional activities, as compared to, say, JCPenney or Wal-Mart. When I buy something, I quickly compare the price on each store's website before even I go to the store. It takes barely minutes to decide. And price differences between Wal-Mart and Sears can be huge. Some say that Amazon is taking over the market; but we can't entirely blame Amazon; you have to be competitive to sustain your revenue growth.

Disadvantage of Lender cum Shareholders

Sears Holdings is borrowing money from Chairman Lampert once again. He will collect 11% annual interest for a recent loan of $100 million. The total loan is about half a billion and is secured by assets. For example, if the company doesn't perform well (current situation), the company may liquidate assets. If that is the case, the lenders would get the most, including the assets, while common shareholders would get nothing. This is the reason that lenders' interests may not align with common shareholders' interests.

Conclusion

Failure to adapt to changing consumer trends and poor management decision making, as well as lack of web promotion, put Sears Canada into the bankruptcy. Facing the competition may be difficult, but it's easy to wreck a company by failing to respond to changing customer habits.

Sears Canada's stock is still trading on the OTC markets (I don't think it has any value). Even though Sears Holdings is trading at $7, it is worthless because there is no equity left for the shareholders. To conclude, I would avoid both.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

bloruleshort.gif (618 bytes)

5 Retailers Struggling as We Head Into the Holiday Season
By Natalie Walters
The Motley Fool
October 8, 2017

The holidays are meant to bring peace and rest.

But for certain retailers , the last three months of 2017 are bringing anxiety about the possibility of failing to bring in necessary sales.

Brittain Ladd , a global strategy and supply chain consultant based in Seattle, said the holidays can be a make-or-break period for retailers. With Ladd's help, I've come up with this list of five retailers that aren't expected to have a rosy holiday sales season: David's Bridal, Neiman Marcus, Sears Holdings (SHLD), Nine West, and Claire's Stores.

For struggling Sears Holdings, the holidays are a particularly stressful time as it will most likely not be able to deliver the earnings report that investors are hoping for to indicate that it is on the uptrend.

"Some retailers are dreading announcing numbers that are so bad they will send signals to Wall Street that they have no chance of survival," said Ladd. "People and analysts abandon those brands and it accelerates their demise."

What do the five retailers on this list have in common? They failed to understand their customers and their competitors and now they're playing catch-up on trends instead of leading, according to Ladd. These stores, for instance, failed to adapt to online retail early enough to become a household name in the e-commerce space like Amazon or Zara.

Last holiday season, retailers brought in $122.9 billion in non-store sales (e-commerce and catalog), which represented a 12.6% jump from the previous year, according to the National Retail Federation . Meanwhile, overall sales increased a more modest 4% year-over-year to $658.3 billion.

These five retailers are scrambling to get an online presence, but it seems to be too late as Amazon gobbles up online market share. Digital marketer NetElixir predicts that Amazon's share of holiday online sales will jump to 34% this year, up from 30% in the 2016 season.

Because these retailers took so long to change, they're simply not relevant anymore, and that's their biggest issue, Ladd explained. Even if these stores make big changes or create new services, they don't have enough customers to test those out on anymore. "Once you lose relevancy, it's almost impossible to get it back," Ladd said.

1. David's Bridal

Founded in 1950, David's Bridal now has over 300 locations in the U.S., U.K. and Canada. The chain offers wedding and bridesmaid dresses for affordable prices and claims to dress about 60% of all brides in the U.S.

The struggling bridal company will need to pay about $500 million in loans in 2019, Reuters reported in August. Lenders to David's Bridal have hired investment bank Rothschild to begin debt restructuring talks ahead of the loan due date as a way to avoid a future debt default.

2. Neiman Marcus

High-end department store Neiman Marcus is being weighed down by a $4.8 billion debt load. The company has suffered a number of setbacks since the last holiday season, including the loss of CFO Donald Grimes after just 17 months on the job.

Neiman Marcus was in takeover talks with Hudson's Bay, owner of Saks, but the company said in June that its 42 stores were no longer for sale. That same month, Neiman Marcus reported a drop in same-store sales for the third straight quarter.

3. Sears Holdings

Sears Holdings has become a punching bag for retail critics. In the latest round of bad headlines, the struggling retailer announced in June that it would close 72 Sears and Kmart stores, in addition to the 180 closures that were announced earlier in the year.

Reuters reported in August that Sears was having trouble attracting vendors due to the risk of working with a company that could file for bankruptcy protection at any moment.

Same-store sales at Sears fell 11.5% in the latest quarter , which was significantly worse than the expected 7.1% drop. Revenue of $4.37 billion also fell short of the expected $4.21 billion.

4. Nine West

Women's shoes, handbag, and accessory retailer Nine West has about 250 stand-alone stores in addition to selling its merchandise at other wholesale retailers. The retailer's strong brick-and-mortar presence hasn't been helpful in the age of online shopping.

In May, Nine West, owned by private equity firm Sycamore Partners, announced that investment bank Lazard would help it restructure its debt. The retailer also said that it had enough liquidity ($160 million as of Dec. 31 2016) to continue on its course in the meantime.

5. Claire's

You can probably guess the problem with Claire's. The store that specializes in low-cost jewelry for teens is known for its brick-and-mortar locations, not its online presence.

Claire's, which also owns accessories brand Icing, had about 2,700 stores worldwide as of April 2017, in addition to 901 concession store locations and 647 franchised shops. The company closed 166 stores in 2016.

While Claire's posted net income of $53.9 million last year, much of its money has to go to paying off its nearly $2.17 billion in outstanding debt.

The holiday shopping season is just around the corner. We'll have to wait and see how shoppers treat these chains and whether 2017 closes with cheer or gloom, but they certainly aren't starting from positions of strength.

bloruleshort.gif (618 bytes)

Retailers paying more for holiday help
By Marianne Wilson
Chain Store Age
October 6, 2017

As the holiday season kicks into gear, retailers' seasonal hiring plans are coming into focus.

Fifty percent retailers are hiring seasonal employees, on par with last year (49%), according to a survey conducted by Harris Poll on behalf of CareerBuilder. Retailers are becoming more competitive in terms of what they are willing to pay seasonal workers. Two-thirds (66%) of retailers who are hiring holiday workers will pay them $10 or more per hour, a big jump from 53% in 2016 and 43% in 2015.

"Our survey is pointing to a significant year-over-year gain in permanent hiring and a smaller boost in seasonal hiring in Q4, though the short-term effects of hurricane damage on the U.S. mainland remain to be seen," said Matt Ferguson, CEO of CareerBuilder and co-author of The Talent Equation. "One of the most telling trends from our research is the fact that many employers are willing to increase pay for both permanent and seasonal staff. This speaks to the sharpening competitive dynamic among employers that we have seen throughout 2017."

The survey also found that the percentage of employers who are transitioning seasonal employees into permanent staff has reached a new high (70%) and has grown at an accelerated rate over the last few years. Looking across industries, 35% of employers are planning to have extra hands on deck to help with increased demands over the holidays, wrap up the year or ramp up for 2018.

bloruleshort.gif (618 bytes)

Fast-growing Dutch retailer to bring womenswear store concept to U.S.
By Marianne Wilson
Chain Store Age
October 5, 2017

Suistudio specializes in suits - but it's not dressing men.

Based in the Netherlands, the online women's apparel retailer is set to open its first U.S. store at the end of October, in New York City. The merchandise mix will emphasize no-fuss silhouettes that promise an "impeccable" fit and put a modern twist on the notion of power suiting - with in-store, while-you-wait tailoring available. In addition to suits, the mix includes shirts, dresses, and evening wear.

Suistudio is the little sister of Suitsupply, which was founded online in 2000, and has since expanded into brick-and-mortar, with 84 menswear stores across the globe, including approximately 25 in the U.S. The vertically integrated company launched the dedicated womenswear concept online in spring 2017. To date, Suistudio has opened two standalone stores, in Amsterdam and Shanghai.

"We've been asked consistently for a long time to make a women's collection," said Suitsupply founder and CEO Fokke de Jong. "After years of preparation, I think we finally nailed it. A perfect fit that our customers are excited to wear. Our brand is about bringing high-quality product for attainable price points."

bloruleshort.gif (618 bytes)

Chapter 22: Why Some Retailers Emerge from Bankruptcy Only to File Again
By David Berliner
Chain Store Age
October 5, 2017

As of August 31, 16 retailers have filed for Chapter 11 bankruptcy in 2017. Four of those sixteen retailers are filing for "Chapter 22", meaning this is their second time declaring bankruptcy. Chapter 22 cases show that the first bankruptcy failed and that the firm and its advisors were too optimistic regarding the firm's viability out of bankruptcy...

In all of these Chapter 22 cases (American Apparel, Radio Shack, Wet Seal, Bob's Stores/EMS), the companies' attempts to improve core operations were not successful. The restructuring of these companies after the Chapter 11 filings did not go far enough to address their various operational problems - instead the efforts focused on improving the appearance of their balance sheets. This was likely due in part to the secured creditors' desire to expedite the Chapter 11 process to minimize costs.

Inability To Adapt

One of the central reasons why these firms were unable to improve operations was their inability to adapt to changing consumer preferences and competitive landscapes, while still being overburdened with debt. Radioshack's product assortment was generally antiquated and did not match the products sought by their customer base. American Apparel, Wet Seal and Bob's Stores did not draw enough foot traffic to return to profitability, in part because competitors offered more desirable products at a better value.

Closing unprofitable stores without changing the underlying economics and developing a consumer-focused strategy is an ineffective way to emerge from bankruptcy for retailers. Inefficient supply chains with slow design, manufacturing and shipment processes make retailers unable to quickly change their products to match current trends.

The typical 4-wall EBITDA analysis views the historical results of each store in a vacuum and does not fully consider changing competitive dynamics that could affect future results - like if a competitor recently opened or plans to open a location near a historically profitable store. Also, the 4-wall EBITDA analysis does not consider what is happening with other primary drivers of traffic within the shopping center. For example, customer traffic and future profits would likely be lower if a large department store or other tenants close stores in a mall.

Short Lease Renewal Time

Currently, bankrupt retailers have only an initial 120 days to assume or reject leases and can only receive one additional 90-day extension without landlord approval. One reason why retailers have to rush their decision as to which stores should assume or reject leases is the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BACPA).

Before BACPA, bankrupt retailers could essentially seek as many extensions that a Bankruptcy Court would approve. This enabled bankrupt retailers to keep stores open through at least one holiday season and take their time to determine if these stores should continue operating. Bankrupt firms were able to wait until after the holidays to decide which stores to close so that the sales associated with holiday season spending could be used in their analysis. BACPA, however, eliminated this option to continue to extend the decision as to whether to assume or reject leases.

In addition to the short lease renewal timeline, retailers typically face pressure from secured lenders who force shorter rejection timelines to ensure that their collateral, often their inventory, is liquidated before the 210 days. Without current sales data from an additional holiday season, retailers are unlikely to properly forecast the future operating results of all their locations, and may end up with the wrong mix of stores as well as more underperforming stores than expected.

As the saying goes, history tends to repeat itself. With this in mind, potentially bankrupt retailers should learn from the mistakes of previous Chapter 22 filings. Aggressive restructuring of operations, including revamping the product assortment, fixing supply chains and implementing a well-planned lease rejection strategy prior to filing are essential to improve the prospects for a successful restructuring.

Unless the retailer is prepared to adequately address the core operational issues that led to the original bankruptcy filing, expediting the process to quickly emerge from Chapter 11 increases the likelihood that the restructuring will fail, thereby resulting in a Chapter 22 filing in the near future.

David Berliner is partner and leader of BDO's business restructuring & turnaround services practice. BDO is an international network of public accounting, tax, consulting and business advisory firms.

bloruleshort.gif (618 bytes)

Sears CEO Edward Lampert opens his wallet, again, with $100 million loan
By Lauren Zumbach
Chicago Tribune
October 5, 2017

Sears Holdings is getting another cash infusion from CEO Edward Lampert in the run-up to retail's key holiday season.

Sears borrowed $100 million from affiliates of Lampert's hedge fund, ESL Investments, which also agreed to lend up to $100 million more by Dec. 1.

Sears tapped funds made available through a January agreement that gave the company access to up to $500 million, backed by mortgages on 61 Sears properties.

Sears borrowed all $500 million, leaving that line of credit fully tapped, according to a regulatory filing. But the Hoffman Estates-based retailer repaid about $100.5 million after selling real estate, freeing up funds for the $100 million loan disclosed Thursday.

However, Sears can't get the other $100 million from affiliates of Lampert's hedge fund unless it identifies additional collateral to secure the loan.

Any new loans under the agreement are due April 3, 2018, and carry an 11 percent interest rate, unlike the original loans under the January agreement, which carry an 8 percent interest rate and are due in July 2020, according to a regulatory filing.

The National Retail Federation is predicting holiday retail sales will be up 3.6 to 4 percent in November and December, citing steady economic momentum, strong consumer confidence and an extra weekend day in the shopping season.

Consumers loosening their wallets would be welcome news for Sears. In August, the retailer said its second-quarter loss narrowed to $251 million, but the retailer continued to struggle with falling sales. Sales at stores open at least a year were down 11.5 percent across Sears and Kmart stores.

Earlier this year, Lampert accused vendors of exploiting unfair coverage of the company's finances, undermining a turnaround attempt.

"We continue to focus on actions to provide the company with additional financial flexibility to generate liquidity and demonstrate our ability to manage our business while meeting all of our financial obligations," Sears spokesman Howard Riefs said in an email.

bloruleshort.gif (618 bytes)

Why Did Sears Holdings Corporation Shares Drop 11% in September?
By Daniel B. Kline
The Motley Fool
October 3, 2017

The company keeps moving in the wrong direction, and there's little reason to believe that will change.

Like a rock rolling downhill, Sears Holdings (SHLD) has moved steadily toward the bottom. Sure, there are occasional bumps that slow that progress, but nothing looks likely to stop the company's negative momentum.

What happened

Sears reported Q2 results on Aug. 24, and the numbers were as lousy as you might expect, given the chain's direction in recent years. The company, which owns Sears and Kmart, saw total revenue drop from $5.7 billion a year ago to $4.4 billion this year. Sears blamed that mostly on store closings and the closing of pharmacies in some stores, but comparable-store sales did drop by 11.5%. Kmart actually fared better, with comp sales dropping by 9.4%, while Sears stores fell by 13.2%.

So what

Investors have steadily lost faith in Sears and its CEO, Eddie Lampert. Shares in the company closed August at $8.21 and then dropped to $7.30 to close September. That's an 11% drop, according to data from S&P Global Market Intelligence.

Lampert, however, remains convinced that his plans remain on track, or at least that's the face he presents to the public. The CEO has been relentless when it comes to defending his moves and has been critical of any suggestions that Sears may not survive:

"The comprehensive restructuring of our operations is delivering cost efficiencies and helping drive improvements to our operating performance. While the third quarter has historically been our most difficult quarter over the past several years, we are working toward making meaningful improvement in our performance this year as a result of the restructuring actions we have put in place, and our continued focus on the expansion of our Shop Your Way ecosystem."

That's hard to see in the chain's numbers, but the CEO also said he believes the company is well on its way back toward profitability.

Now what

Sears has been closing stores and selling assets to fund its continued operations. If it hopes to survive, it needs to find a bottom for its decline where it can operate profitably.

Lampert believes that balance exists. For that to happen, Sears would need to reverse it sales losses and stop the decline in comparable sales at its stores. In both cases, there has been little reason to believe that stability will occur. The chain seems likely to keep rolling downhill, eventually reaching its inevitable conclusion.

Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

bloruleshort.gif (618 bytes)

Nordstrom's Woe Exposes A Bargain
By Spencer Jakab
The Wall Street Journal
October 3, 2017

Nordstrom started out the year by displeasing the self-proclaimed "king of debt," and also the most powerful man in the world, about how it had treated his daughter Ivanka.

Those who held on for just a few weeks through the end of February were well rewarded with a total gain of nearly 10%. The company's own difficulties with the debt market may provide a similar buying opportunity in its shares.

The upscale department store chain saw its shares tumble by over 6% Monday following media reports the Nordstrom family's plan to take the company private with the assistance of private- equity firm Leonard Green & Partners is faltering. Lenders may be nervous about backing a retailer in the wake of the rapid demise of Toys "R" Us, which filed for bankruptcy protection.

But, even if a deal fails to materialize, Nordstrom looks like a gem in a mostly troubled industry. Unlike Macy's , Dillard's , Kohl's or J.C. Penney, analyst forecasts for earnings in the current fiscal year are basically unchanged from a year earlier.

Nordstrom looks like a relative bargain. It trades at a 15% discount on forward earnings and a 60% discount on a multiple of enterprise value to revenue compared with the average of TJX and Ross Stores.

Meanwhile, a successful buyout, even if the premium is more modest, would be a nice bonus with the stock trading just 8% above its level on June 7, right before deal talk turned serious.

Whatever happens, this sale probably won't last long.

bloruleshort.gif (618 bytes)

J.C. Penney: Sell-Off On Nordstrom News Appears Overdone
By Elephant Analytics
Seeking Alpha
October 3, 2017

Department stores have been hammered by the news that Nordstrom (JWN) is having challenges finding financing at a reasonable cost for its attempt to go private. While it makes sense that Nordstrom's stock would take a significant hit, it does not make sense that J.C. Penney's (JCP) stock would tumble given that it is not seen as a candidate for being acquired or going private.

There is still considerable uncertainty about J.C. Penney's ability to regain positive comps, but this significant share price decline on news that doesn't really affect J.C. Penney represents at least a short-term trading opportunity in my opinion.

Department Stores And Acquisitions

The rationale for the share price decline for department stores is that there is a decreased chance that an acquisition or go private transactions can be consummated. Assuming a low-$50s transaction price for Nordstrom, the market was pricing in around a 60% chance of a deal going through if the market valued Nordstrom at around $40 as a public company (it traded around $40 prior to the June news about exploring going private). Nordstrom's decline makes sense in that context if the market believes that the deal is significantly less likely to proceed now.

Macy's decline also makes sense to a certain degree. While I believe that Macy's is a decent value at its current price, it has also been subject to acquisition speculation in the past. Nordstrom's financing issues highlights the challenges facing any department store deal involving a significant amount of debt, reducing the chance that someone like Hudson's Bay could put together a bid for Macy's.

J.C. Penney is not considered an acquisition target, so its stock should not have been significantly affected by the Nordstrom news. Perhaps J.C. Penney was affected due to concerns over future debt refinancing, but as I've discussed before its nearer-term 2018 to 2020 debt maturities should be easily dealt with, and beyond that it doesn't have unsecured debt maturing until 2026.

The Nordstrom Deal

Nordstrom reported $1.648 billion in adjusted EBITDA in 2016 and appears to be forecasting fairly similar results for 2017. Reports indicated that Nordstrom was looking to finance the deal with approximately $6.5 billion in net debt. This would be approximately 4x its adjusted EBITDA, while Leonard Green's potential $1 billion contribution for preferred shares would be another 0.6x adjusted EBITDA.

Nordstrom's sales performance has been pretty solid, but apparently banks are quite wary about retailers adding too much debt given how Toys R Us's 2005 leveraged buyout hampered its competitiveness and eventually led to its bankruptcy.

While J.C. Penney needs to continue to work on reducing its debt, its leverage is less than what the Nordstrom deal was contemplating. If J.C. Penney's adjusted EBITDA stalls out at around $800 million, its net debt would probably be around 3.5x adjusted EBITDA at the end of 2019 (the time period just prior to its $400 million in 2020 debt becoming due).

Notes About Retail Performance

It appears that August was likely a solid month for department stores and apparel retailers. US government data indicates that department stores sales were only down modestly year-over-year in August 2017. The retailers that release monthly sales reports (such as L Brands, The Buckle and Zumiez) have indicated that adjusted August comparable store sales are similar to or slightly better than Q2 2017 comparable store sales. Based on that information, J.C. Penney's August comparable store sales performance was potentially around +1% to -1%. There has been a fair amount of month-to-month variation in sales performance though, so it is too early to predict what Q3 2017 sales will be like.

Conclusion

J.C. Penney's stock took a significant hit on the news that Nordstrom's go private plans were running into difficulties. However, this doesn't make much sense since J.C. Penney hasn't been the subject of acquisition or go private speculation, and thus its share price shouldn't have any related premium incorporated into it. As there hasn't been any significant change in J.C. Penney's situation, I believe that its share price decline on the Nordstrom's news represents at least a short-term trading opportunity.

bloruleshort.gif (618 bytes)

Kohl's CEO to retire in May; successor named
By Marianne Wilson
Chain Store Age
September 26, 2017

Kevin Mansell, chairman, CEO and president of Kohl's, will retire in May 2018 at the end of the company's annual shareholders meeting. The 35-year Kohl's veteran has served as its chief executive for nearly 10 years.

Michelle Gass, currently Kohl's chief merchandising officer and customer officer, will assume the CEO role upon Mansell's retirement. Sona Chawla, Kohl's COO, will assume the role of president. The Kohl's board said it plans to appoint one of its independent members as chairman to replace Mansell in that role.

Gass joined Kohl's in 2013 as chief customer officer, with responsibility for marketing and the e-commerce business. In 2015, her role expanded to also include chief merchandising officer. Prior to Kohl's, Gass spent nearly 17 years at Starbucks where she held a variety of leadership. She began her career with Procter & Gamble.

Chawla joined Kohl's in 2015 as COO. Previously, she spent seven years with Walgreens in a variety of senior leadership roles including president of e-commerce and president of digital and chief marketing officer. Prior to joining Walgreens, she was VP of global online business at Dell.

In the 35 years that Mansell has been with Kohl's, the company has grown from a local Milwaukee-area retailer with a dozen locations to a national retailer with more than 1,100 stores across 49 states, with annual sales of $19 billion. During Mansell's tenure as CEO, the company, among other accomplishments, significantly expanded its brand portfolio and grew its e-commerce business to $3 billion. Most recently, he led the retailer into a closer relationship with Amazon.

"I look forward to this last year of my career, building on the positive momentum we have going into the holidays, furthering the development of our operational excellence and traffic-driving plans and ensuring a seamless transition for our associates, partners and shareholders," said Mansell.

In his remarks, Mansell praised his newly appointed successor.

"Michelle has been an instrumental leader in shaping the future at Kohl's - one where we continue to put the customer first, focus on innovation, speed and agility and remain dedicated to the long-term financial health of the business," he said. "Michelle's leadership of our merchandise and marketing organizations has proven her talent, passion, vision and readiness to lead our organization. The retail industry is going through a transformational amount of change and Michelle is extremely well qualified and positioned to lead Kohl's through this evolution."

In assuming the role of president, Chawla will maintain her responsibilities for the company's omnichannel operations including all store operations, logistics and supply chain network, information and digital technology, and e-commerce strategy, planning and operations.

"Sona's leadership has significantly impacted our ability to become a best-in-class omnichannel retailer," said Mansell. "She has been laser-focused on delivering a seamless omnichannel customer experience, leveraging technology to make us more productive, and amplifying the role and relevancy of our stores as our biggest strength."

bloruleshort.gif (618 bytes)

Sears Holdings Could Be Impacted By The Bankruptcy Of Toys 'R' Us
By WYCO Researcher
Seeking Alpha
September 21, 2017

The Ch.11 bankruptcy filing of privately held Toys "R" Us could have a significant psychological impact on Sears Holdings (SHLD) vendors, investors, even Eddie Lampert. This new retail bankruptcy filing and other news releases associated with Sears has had a negative impact on SHLD stock price the last few days.

Toys "R" Us Bankruptcy

Toys "R" Us filed for Ch.11 bankruptcy on September 19. The declaration by CEO David Brandon gave a chilling insight into how fast Toys "R" Us imploded after a September 6 article was published about a possible bankruptcy filing:

The impact on the Company's supply chain was fast and furious. Within a week, 40 percent of the Debtors' supply chain refused to ship product and 10 days later, practically all of the Debtors' vendors had refused to ship without cash on delivery. The Company lost its access to product during the critical shipping period to build inventory for the holiday season.

A Reuters article about the timing for the bankruptcy could just have well applied to SHLD, but it seems that investment managers that own Toys "R" Us have better investment sense than Eddie Lampert.

The chain could have avoided bankruptcy for another two years but "it would have delayed the inevitable," according to Tuesday court testimony by David Kurtz of Lazard, an investment bank advising Toys 'R' Us. He said the company's board realized it should file now, raise significant cash and reverse years of underinvestment.

Toys "R" Us bankruptcy illustrates the problem weak retail stores have with foreign vendors. As Toys "R" Us CFO Michael Short stated:

"Foreign Vendors around the globe, who generally view all bankruptcy processes as liquidations, may take a variety of adverse actions against the Debtors, causing the Debtors' worldwide operations to grind to a halt."

Over $1.5 billion in the toy retailer's annual sales was merchandise from foreign vendors. The company has over 150 foreign vendors (This figure does not include U.S. companies with foreign manufacturing facilities.) and many are not large financially sophisticated international corporations.

They could find themselves in financial difficulties if they do not get paid under the terms of the original order. Mr. Short explained, "I am advised that foreign vendors often have skeptical reactions to the United States bankruptcy process because many of them are unfamiliar with the unique debtor-in-possession mechanism that is at the heart of a chapter 11 proceeding."

They are trying to pay their foreign vendors as bills become due under a proposed interim order using funds from DIP financing, including bills from both pre-petition and post-petition filing in order to continue the inventory flow prior to the Christmas shopping season.

What should SHLD investors learn from the Toys "R" Us bankruptcy?

1) A credible article about an imminent bankruptcy filing or retaining bankruptcy legal counsel has a brutal and immediate impact on vendor inventory flow, which makes it difficult to continue current operations.

2) Foreign vendors are usually unsophisticated about U.S. bankruptcy proceedings, especially DIP financing. They are thinking immediate liquidation of assets and are reluctant to ship new merchandise.

3) Instead of consuming capital to avoid bankruptcy, the prudent action may be to file for Ch.11 bankruptcy now. Delaying the inevitable is not a credible business decision.

Sears already had issues this year with some of their vendors. There has even been litigation with specific vendors. Based on the merchandise payables to merchandise inventories ratio, the vendor problem is getting worse. The 2Q 2017 ratio was just 0.195 compared to 0.287 in 2Q 2016. It also dropped from 0.265 in January 2017. A lower ratio indicates vendors want to get paid quicker and are less willing to ship merchandise on credit.

Recent Sears Holding News

*Another Executive Leaves

On September 12, an 8-K was filed announcing that Sean Skelley, President of Sears Home Services, is leaving effective immediately. This is an addition to the long list of executives that have left over the last two years.

*Sears Canada Not Filing Financial Report

Sears Canada (SRCSQ) announced on September 18 that it would not file financial reports that are required to be filed by a September 27 deadline. Sears Canada went into bankruptcy this summer under Canada's Companies Creditors Agreement Act and if they do not file the documents, the Ontario Securities Commission is expected to issue a "cease trade order" for the shares. These financial reports are unaudited so they are not saving that much money by not filing, so there may be other reasons for not filing.

Why Sears Did Not File For Bankruptcy In July

I expected Sears to file for bankruptcy in July, but a Supreme Court case may have impacted any bankruptcy filing decision…A potential reclassification of Lampert's "insider" secured loans to Sears as equity, which has a very low priority in bankruptcy for recovery, could have made Lampert re-think about filing for bankruptcy until the case was decided.

On August 10, the writ of certiorari for PEM Entities LLC v. Levin was "dismissed as improvidently granted" after the petition was granted on June 27. No specifics were stated for the dismissal. Could it be that the court was influenced by numerous reports that the case could have a major impact on the debt market and that the court had no intention of issuing a broad scope ruling?

Since this case is now moot, does it leave the door open for a bankruptcy filing?

The second reason for not filing was a July 10 Third Circuit Court ruling regarding when goods are considered "received." This ruling was actually a positive for Sears and other retailers because it reduces the anxiety for vendors about being paid when merchandise is being shipped and a company files for bankruptcy. The ruling stated that goods are "received" when the company gets physical possession and not just shipped, even if "free-on-board."

Under Section 503(B)(9) of the Bankruptcy Code, goods "received" within 20 days prior to filing for bankruptcy are classified in bankruptcy proceedings as administrative claims, which have a high priority for recovery, instead of a low priority claim class of general unsecured creditor.

Because of this new circuit court ruling, it remains to be seen if vendors will be more comfortable about dealing with Sears. Some foreign vendors may not be able to understand the significance of this ruling and how it impacts them. It may have, however, given Lampert some hope. It also may have influenced him not to file in July, but wait instead to see how the ruling impacts his relationship with vendors.

Conclusion

The bankruptcy of Toys "R" Us is just another example of the problems in the retail industry. Eddie Lampert may finally listen to respected restructuring experts such as David Kurtz of Lazard and face the inevitable. While the recent circuit court ruling regarding an important vendor issue helps Sears, it most likely is not enough to alleviate the vendor problem that has plagued Sears for some time.

The vendor issue could force Sears in filing for bankruptcy. Even though Lampert holds a major position of SHLD stock, I would not expect any meaningful recovery for shareholders under a reorganization plan. SHLD is rated a sell.

Disclosure: I am/we are short SHLD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

bloruleshort.gif (618 bytes)

OVERHEARD ABOUT Kmart
By The Wall Street Journal
September 15, 2017

Kmart is trying something new, but will it be fabulous?

The chain is renaming "plus size" clothing for women—generally anything above a size 12-as "fabulously sized," according to the publication Women's Wear Daily.

It certainly is a large demographic. A study says the average American woman is now a size 16 to 18.

While it is too soon to say if the move will work, something needs to stick.

Kmart parent Sears Holdings reported last month that its same-store sales plunged by 11.5% in the quarter through July 29 and that it would shut down 28 more Kmart locations on top of 150 Sears and Kmart stores already slated for closure.

All the stress has taken a toll.

Sears Holdings has shrunk from a size $30 billion to less than a size $1 billion in the past decade.

bloruleshort.gif (618 bytes)

2 Terrible Reasons to Buy Sears Holdings
By Daniel B. Kline
The Motley Fool
September 14, 2017

The chain is in a long fight for its survival.

Sears Holdings has been in a highly public struggle for survival.

The chain has closed stores, sold its Craftsman brand, and gotten much smaller as it tries to remain relevant in an increasingly digital world. While the company and its CEO Edward Lampert will tell you that the plan to turn the company around will work, results show otherwise.

Negative trends continued in Q2 2017 when Sears reported total revenues of $4.4 billion, down from $5.7 billion in the prior year quarter. Much of that (about $770 million) came due to store closures, but open stores saw comparable sales fall 11.5% compared to Q2 2016.

Those results are typical for what the company has experienced over the last few years. It's also part of an overall retail trend that has caused a number of bankruptcies and store closures.

If you believe in Lampert's plan for Sears, then it makes sense to buy shares. If you don't believe the chain will turn around, don't buy just because of the following reasons.

1. The dead cat bounce

While Sears stock has been on a steady downward slide, it has had little recoveries a few times over the past few years. On many occasions this has happened after a statement from Lampert where he expresses optimism. For example, when the chain reported its Q2 results on Aug. 24, its CEO made the following upbeat statement.

"We are making progress on the strategic priorities we outlined earlier this year and remain focused on returning our company to profitability. The comprehensive restructuring of our operations is delivering cost efficiencies and helping drive improvements to our operating performance. While the third quarter has historically been our most difficult quarter over the past several years, we are working toward making meaningful improvement in our performance this year as a result of the restructuring actions we have put in place, and our continued focus on the expansion of our Shop Your Way ecosystem."

That sounds really encouraging and after that release came out, shares rose as much as 12.4%. That gain was short-lived however with the stock closing down for the day at $8.55, after it opened at $9.06 and climbed as high as $9.63.

Optimism has tended to send Sears shares higher. That's perhaps a tribute to Lampert's persuasiveness, but there's no guarantee that will happen next time. In reality, share performance always reverts back to the underlying success of the brand. If sales keep dropping and stores keep closing, then any stock gains are not going to stick.

2. You expect a buyout

Sometimes when a chain struggles with its stock price, it still has a fundamentally sound business. That's arguably the case with Nordstrom, a chain that has seen its shares suffer even while it is still making money. That makes it a logical candidate to go private and no longer be judged by comparable store sales growth and the other metrics investors look for.

Sears, however, is not Nordstrom. The chain has been steadily losing money and its only positive quarters over the last five years have come from sales of assets like Craftsman.

It's possible that Sears gets bought in a fire sale, but it won't be taken private at a premium over the current share price. The company's assets roughly equal its debts and there are no signs losses will turn around any time soon.

Buy what you believe in

While I have no faith that Sears will find a bottom or that its digital strategy will work, there are some people who disagree. In the case of any stock, it's important to purchase based on the long-term prospects for the business.

If Sears stabilizes, its share price will rebound. If it doesn't -- and it likely won't -- the end will come eventually. Buying shares based for a gimmick reason is more like buying a lottery ticket than investing.

Daniel Kline has no position in any of the stocks mentioned. The Motley Fool recommends Nordstrom.

bloruleshort.gif (618 bytes)

Target to hire 100,000 for holiday season rush
By Sruthi Ramakrishnan and Gayathree Ganesan
Reuters
September 13, 2017

Target Corp said on Wednesday it would hire 100,000 workers for the holiday season, up 43 percent from last year, as the retailer pulls out all the stops to build on its recent uptick in sales.

The company's shares rose 3.4 percent as the move, coming off four years of flat seasonal hiring, cheered investors in a gloomy retail landscape where companies are shutting hundreds of stores and cutting jobs.

"I think (Target) sees an opportunity to take market share in an environment where we have so many store closures in the specialty apparel and department store space," said Retail Metrics analyst Ken Perkins.

Retailers including Sears Holdings Inc and Macy's Inc have announced plans to close hundreds of stores as they struggle with increasing competition from Amazon.com and fast-fashion retailers such as Forever 21.

Target's increased store staffing looks to be aimed at preventing loss of sales from customers walking out because of busy checkout lanes or lack of assistance while making purchases, Moody's analyst Charlie O'Shea said.

Moreover, Target last week lowered prices on thousands of items, a move that could bring in more traffic.

"I think they have the potential to have a (better) holiday season than any of their competitors," Perkins said.

Seasonal hiring plans give a glimpse into retailers' holiday sales expectations as the companies make nearly a third of their annual sales during the period, which starts a day after Thanksgiving and continues into early January.

With other major holiday season employers such as Amazon, Macy's and Kohl's Corp yet to announce hiring plans, analysts were divided on whether these companies would emulate Target's hiring spree.

"I would be stunned if we see other retailers increasing their seasonal hiring by 43 percent for the holiday season," Perkins said.

Wal-Mart has been spending more on paying higher wages and acquiring online retailers and so is unlikely to boost seasonal hiring to the same extent as Target, he said.

Other major seasonal employers such as Macy's and Kohl's have focused on cutting costs.

Moody's O'Shea, however, said he expects retailers looking to cut costs to hire more temporary workers during the holiday season.

"There's a lot of flexibility in the workforce when you (hire temporary workers)... Hiring seasonal employees is a way to test what you really need."

Retailers could also boost in-store staffing this year as they are now tasking workers with more activities such as manning shipping and pickup from stores, said Brendan Witcher, principal analyst at Forrester Research.

Target also said it would hire 4,500 people for the holiday season at its distribution and fulfillment centers, which supply products to its 1,816 stores and fulfill online orders.

The company had hired 7,500 workers at the centers last year as it required additional staffing for three new facilities.

bloruleshort.gif (618 bytes)

There's One Reason to Avoid Sears Stock: Eddie Lampert
By Laura Hoy
InvestorPlace
September 12, 2017

Lampert has consistently made questionable management choices in his efforts to revive Sears stores. His tie ups with the firm's debt make it difficult to believe he has shareholders' best interests at heart.

Sears Holdings Corp (NASDAQ:SHLD) has had a rough ride during the past few years as the company struggled to stay afloat in an increasingly choppy industry. Major department stores have been rocked by customers' shift toward online shopping, and Sears is no exception. SHLD stock has fallen 85 percent during the past five years.

Sears has a lot of problems that make it a poor investment choice, but the biggest red flag for SHLD stock is the company's CEO, Eddie Lampert. As things went from bad to worse for Sears, Lampert shelled out loan after loan to keep the beleaguered department store going. On the surface that might look like the actions of a CEO who loves his firm, but when you look a little bit closer it's clear Lampert is looking out for himself. If you haven't already headed for the exit, it's time to do so, because SHLD stock is going down and shareholders will likely be left with nothing.

Lampert the Creditor

One of the only reasons Sears is still standing today is because of Eddie Lampert's funding. Together with his hedge fund, ESL Investments, Lampert owns nearly half of the firm's secured debt. So when Sears finally declares bankruptcy, a conclusion that most agree is on the horizon, Lampert will be first in line to collect on what's left of the business.

The reason that's troubling is that it blurs the line between managing the company and recouping losses. Shareholders can't be sure whether Lampert the CEO or Lampert the creditor is calling the shots right now. However, considering the state of affairs at Sears right now, you can assume that the latter is influencing some of the business decisions.

Lampert the Real Estate Mogul

Not only does Lampert have a ticket to the front of the collections line when things go south for SHLD, but he has also been benefitting from the store's weak position. In order to stay afloat, Sears had to sell off its real estate assets, and Lampert bought many of them to create an REIT called Seritage Growth Properties (SRG).

In order to stay out of trouble with regulators, Lampert had to keep SHLD going until at least July 10, as that marks two years after the real estate sale. Bankruptcy law might have seen Lampert's sale of Sears' real estate to himself as a way to get assets off the books and avoid turning them over to creditors if Sears had filed within two years. However, now that the required time period has passed, Lampert is free to file without being scrutinized.

Nothing Left

The reason it's hard to believe that Lampert is truly trying to orchestrate a turnaround is that his decision making has left Sears with very few growth prospects. In order to keep the company going, SHLD has had to sell off its assets- some of which might have been the company's only lifelines.

The firm has systematically sold off its most profitable assets- first opting to sell some of its most valuable brick-and-mortar locations, then spinning off Lands' End, Inc. (LE) in 2014. More recently, the firm sold its Stanley Black & Decker Inc. (SWK) brand of tools to bring in an additional $900 million. While there's no debating that SHLD had to do something, Lampert's asset sales decisions are questionable because they've left Sears without a path to profitability.

This year, when the firm decided to part with SWK at a time when home improvement retailers like Home Depot (HD) were bucking the retail slump, it raised a few red flags. Did Lampert really see a future for SHLD like he claimed, or was he just trying to make it past the July 10 deadline? Without Black & Decker, Sears had very little chance of ever turning a profit.

What About Amazon?

Sears stock has risen nearly 10% over the past three months, and a lot of those gains were made after the firm announced its decision to sell Kenmore appliances through Amazon.com Inc. (AMZN). The deal will almost certainly boost Kenmore sales, and it will probably help Amazon build out its appliance business, but what it won't do is help SHLD investors.

There's little reason to believe Kenmore will see an astronomical increase in sales just because the firm has started making its products available on Amazon. Amazon's sales only make up a small fraction of the overall appliances market, so although selling through the e-commerce giant will probably expose new customers to the brand, it's unlikely to boost Kenmore sales enough to make a meaningful contribution to Sears' profit problems.

More troubling is that selling through Amazon will likely take away from sales that might have otherwise been made directly through Sears. It might even be the final straw for Sears as a retailer- Kenmore was one of the few weapons left in the firm's arsenal. So, while an Amazon partnership will make Kenmore stronger, it won’t do the same for SHLD.

The Bottom Line

SHLD investors won't see any benefit from the Kenmore/Amazon partnership, but Sears' creditors probably will. A strong Kenmore brand will be one of the assets used to payoff creditors when Sears files for bankruptcy, and guess who will be first in line to cash in on Kenmore's success when Sears finally files?

Eddie Lampert is bad news for SHLD investors, so even if you can overlook the firm's underwhelming financials, he is one big reason to jump ship.

As of this writing, Laura Hoy was long AMZN.

bloruleshort.gif (618 bytes)

Kohl's to partner with e-commerce giant on in-store shops
By Kristen Schorsch
Crain's Chicago Business
September 12, 2017

Calling all small businesses with a Blue Cross & Blue Shield of Illinois plan through the Obamacare public health insurance exchange: Look out for an email this week informing you that the state's largest insurer is officially leaving the online marketplace.

That leaves small employers looking for an exchange plan for 2018 with one option: downstate Health Alliance. Chicago-based Blue Cross, which has a dominating market share in Illinois among consumers and small businesses alike, still plans to woo small employers with plans off the exchange.

To be sure, the so-called Small Business Health Options Program, or SHOP, where small businesses nationwide can buy coverage on the federally-run online marketplace HealthCare.gov, never gained steam for a host of reasons. For one, small employers prefer trusted brokers instead of using their time to navigate the incredibly complex world of health insurance.

In Illinois, 738 businesses, covering 3, 512 workers has a plan through SHOP as of January. For the roughly three dozen states that use HealthCare.gov, a total of 7,554 companies covering nearly 39,000 people signed up.

bloruleshort.gif (618 bytes)

Nordstrom debuts service-focused store with no inventory
By Marianne Wilson
Chain Store Age
September 11, 2017

As retailers consider how to best use their physical spaces in a digital world, Nordstrom is going "local," debuting a small-format retail concept that offers all sorts of personal services, but has no dedicated inventory.

The department store giant will unveil Nordstrom Local on Oct. 3, in West Hollywood, Calif. With a 3,000-sq.-ft. footprint, the new format is much smaller than an average 140,000-sq.ft. Nordstrom. It will offer such services as on-site tailoring, manicures, buy-online-pick-up in store, and easy returns. It will even boast a beverage bar.

In addition, customers will be able to consult with "personal stylists," making an appointment online, over the phone or in person to take advantage of the free service. Along with giving styling tips, the associates can transfer requested merchandise from Nordstrom stores (or its website) to Nordstrom Local for shoppers. The rooms surround a central meeting space where customers can sit and chat with a stylist.

"As the retail landscape continues to transform at an unprecedented pace, the one thing we know that remains constant is that customers continue to value great service, speed and convenience," said Shea Jensen, Nordstrom senior VP of customer experience who led the Nordstrom Local initiative. "We know there are more and more demands on a customer's time and we wanted to offer our best services in a convenient location to meet their shopping needs. Finding new ways to engage with customers on their terms is more important to us now than ever."

The full list of services available at Nordstrom Local includes:

• Personal stylists;

• Alterations, with on-site tailors available;

• Manicure services;

• Same-day delivery for completed alterations or purchases, with items ordered by 2 p.m. delivered directly to a customer's home on the same day;

• Buy online, pick-up in store, with items ordered before 2 p.m. available for pick-up on the same day;

• Curbside pickup for items that are altered or for buy online, pick-up in-store orders;

• Customers can meet a Trunk Club Stylist, or pick up and/or return a trunk. On-site tailors will help customers select the right fabrics or create a Trunk Club Custom garment that suits their needs; and

• Refreshments, with a full-beverage menu that includes beer, wine, juices and coffee.

In addition, Nordstrom Local will debut "Style Boards," is a new tool that allows salespeople and personal stylists to create digital boards filled with personalized fashion recommendations, which customers can view on their phone and purchase directly through Nordstrom.com. Customers can get the advice of a salesperson or personal stylist by having a conversation with them through the app.

Nordstrom Local is located at 8401 Melrose Place, on the corner of Melrose Place and Melrose.

bloruleshort.gif (618 bytes)

Kohl's to partner with e-commerce giant on in-store shops
By Marianne Wilson
Chain Store Age
September 8, 2017

Yet another traditional retailer is partnering with Amazon, as the online behemoth continues to expand its presence in brick-and- mortar stores.

Kohl's plans to add an Amazon "smart home experience' in-store shop, or "zone," in 10 select Kohl’s locations across the Los Angeles and Chicago areas starting in October. The spaces will allow shoppers to try out and purchase Amazon devices, accessories and smart home devices and services directly from the online retailer.

"We are thrilled to offer a unique new way for customers to try out our lineup of Alexa-enabled Amazon devices, learn more about our smart home services from Amazon experts and then buy those items directly from Amazon - all within Kohl's stores," said Dave Zimmer, VP, sales and marketing, Amazon Devices. "Teaming up with Kohl's provides an incredible opportunity to pair world-class customer and shopping experiences."

The 1,000-sq.ft. smart home space in Kohl's will provide a hands-on experience where customers can interact with a variety of Amazon devices, including Amazon Echo, Echo Dot, Amazon Fire TV, and Fire tablets. The experience will showcase how smart home products - many powered by Alexa - can modernize and simplify home management, entertainment, security and more. It will be staffed by Amazon sales associates.

Customers will be able schedule an Amazon expert to come to their home, evaluate their needs and install smart home products. The in-store zones will also promote Amazon Home Services, which offers access to vetted local services professionals to help with everything around the house from cleaning to plumbing.

"We believe in the power of our store portfolio and know that our future as a best-in-class omnichannel retailer will be driven by how inventive, compelling and unique we can make our store experience," said Michelle Gass, Kohl's chief merchandising and customer officer. "Kohl's and Amazon share a customer obsession and we've joined together to leverage each other's strengths and deliver a great experience customers can only find at Kohl's."

Amazon's partnership with Kohl's comes several months after Sears announced it would sell its Kenmore brand appliances on Amazon.com.

bloruleshort.gif (618 bytes)

Sears Oakbrook, Illinois Store
Sears Press Release
September 4, 2017

Sears will temporarily close its Oakbrook Center location by early September to remodel the store and make it dramatically smaller.

Sears is moving out of all but the lower level of the existing three-story, 250,000-square-foot store, said Sears spokesman Howard Riefs. The store is expected to reopen in summer 2018, with an entrance from the Oak Brook mall's north parking lot near the AMC movie theater.

The selection of merchandise for the store, which will be about 30 percent of its current size, is still being determined but will include appliances, tools, mattresses, sporting goods, grills and lawn and garden items, Riefs said.

The Oakbrook Center store is one of 12 locations the Hoffman Estates-based department store chain leases from a joint venture between mall operator GGP and Seritage Growth Properties, Sears' real estate investment trust spinoff. Sears sold 235 Sears and Kmart stores to Seritage in 2015.

Sears announced plans to cut the size of its Oakbrook Center store and close its auto center there last year. The auto center will remain open until March 2018, when it will close permanently.

In March, GGP said part of the space currently occupied by Sears will be filled by KidZania, a children's entertainment business with miniature cities where kids can play at pretend jobs. It will be one of the first two U.S. locations for KidZania, which currently has 24 locations worldwide, and is expected to open in 2019.

bloruleshort.gif (618 bytes)

Shoplifters of TVs held in death of 81-year-old Sears worker
By Associated Press
August 31, 2017

COLUMBIA, S.C. - An 81-year-old Sears sales associate was killed by two men who shoved him down while stealing television sets from a South Carolina store, authorities said Wednesday.

Sheriff Leon Lott said he charged "two punks" with murder as well as strong-arm robbery when Duaine Hamilton died, four days after his head hit the store's concrete floor.

"It wasn't a struggle. They just struck him. He's 81 years old. He attempted to stop them by standing in front of them and they just attacked and knocked him down. And they still stole the TVs," Lott said at a news conference.

Jeffrey Simmons, 58, was arrested Friday, and Jason Randolph, 40, was taken into custody Wednesday after a traffic stop, deputies said.

The blow to the head on Aug. 22 killed Hamilton, who "should have been home playing with his grandchildren," Richland County Coroner Gary Watts said.

Hamilton was an Air Force veteran who retired from AT&T and then went to work for Sears 13 years ago, the sheriff said. Although he was initially identified as a worker whose job was to prevent shoplifting, Sears spokesman Howard Riefs said Hamilton was a sales associate in the store's home appliance department.

Lott said the attack was caught on the store's security cameras, but his spokesman, Lt. Curtis Wilson, said that out of respect to the victim's family, the sheriff didn't want to release the recordings Wednesday, since they were holding the man's funeral.

Simmons and Randolph have long criminal records, including nine shoplifting convictions for Simmons alone, Lott said. It wasn't known whether either man had a lawyer.

"They are used to going into wherever they want to go in and stealing stuff and getting away with it," the sheriff said.

bloruleshort.gif (618 bytes)

Report debunks retail apocalypse: More stores opening than closing
By Marianne Wilson
Chain Store Age
August 30, 2017

Don't believe the hype - physical retail is still growing, particularly in three key segments.

Retailers are opening 4,080 more stores in 2017 than they are closing, according to a new research report from IHL Group, and they plan to open over 5,500 more in 2018. Mass-merchandisers, including off-pricers and value chains, are the fastest-growing retail segment (+1,905 stores), followed by convenience stores (+1,700 stores) and grocery retailers (+674 stores).

The research for the report, "Debunking the Retail Apocalypse," reviewed more than 1,800 retail chains with more than 50 U.S. stores in 10 retail vertical segments. It found that for every chain with a net closing of stores, 2.7 companies showed a net increase in store locations for 2017.

In one of the report's most interesting findings, just 16 chains account for 48.5% of the total number of stores closing. And five of these 16 retailers (RadioShack, Payless ShoeSource, Rue21, Ascena Retail and Sears Holdings) represent 28.1% of the total closings.

"The negative narrative that has been out there about the death of retail is patently false," said Greg Buzek, president of IHL Group. "The so-called 'retail apocalypse' makes for a great headline, but it's simply not true. Over 4,000 more stores are opening than closing among big chains, and when smaller retailers are included, the net gain is well over 10,000 new stores."

Highlights of the research include:

• The total net increase of stores for 2017 is 4,080, including retail and restaurants. Core retail segments will see a net gain of 1,326 stores, while table-service and fast-food restaurants are adding a net of 2,754 locations. In total, chains are opening a net 14,239 stores and closing 10,123 stores.

• 42% of retailers have a net increase in stores, only 15% have a net decrease, and 43% report no change.

• Specialty apparel retailers are seeing the largest number of closings, with a net loss of 3,137 stores. Yet, for every chain closing stores, 1.3 chains are opening new stores.

• "Without question, retail is undergoing some fundamental changes. The days of 'build it and they will come' are over," added Buzek. "However, retailers that are focusing on the customer experience, investing in better training of associates and integrating IT systems across channels will continue to succeed."

bloruleshort.gif (618 bytes)

Sears: Still Dying
By Daniel Jones
Seeking Alpha
August 30, 2017

One thing I keep wondering is how long does Sears Holdings have before it could possibly declare bankruptcy. Of course, there are other paths that could be taken, such as a buyout by Eddie Lampert or Fairholme, but absent that happening, the future does not look kind for shareholders of the firm. In what follows, I will cover some more recent data and give my thoughts on what it all means for the company and its shareholders moving forward. My general conclusion is that the picture here is anything but nice.

Is this the progress we've heard about?

Earlier this year, the management team at Sears announced that it had plans to reduce costs by $1.25 billion. This was up from the prior guidance of a $1 billion cut. At first glance, this kind of strategy sounds great and, indeed, it could help to save the company. That said, my fear when writing about this news was that Sears' definition of cutting costs might actually be cutting costs by allowing sales to fall. That's the easy way to trim expenses and post a pretty headline, but it does nothing of substance for the retailer or its shareholders.

Sadly, my fears appear to be coming true. In the first half of this year, the company's costs, relative to sales, have not really improved at all. In fact, the gross margin of merchandise sales has worsened, falling from 17.9% in 2016 to 16.5% this year. Services and other costs have done better, rising from 40.8% of sales to 43.6%, but this only makes up 20.1% of revenue. As a result of this, the sum of merchandise and services and other sales has actually dipped only very modestly from 22% of sales to 21.9%. According to management, (in the selling, general, and administration costs) these expenses in the first two quarters of this year have averaged 30.4% of sales, up from 27% of sales in 2016.

Some of you may be saying that by including first-quarter results, a time when Sears was still just rolling out their cost-savings plan (they announced it in February), the data might be skewed. (However), the results for just the second quarter of this year are similar to the year-to-date numbers. This was even after management announced, in April of this year, that it had "actioned" $700 million of what would now be a $1.25 billion cost reduction.

The truth of the matter is that Sears' cost reduction plan has been meaningless thus far. Sales of the company in the second quarter of this year were down 22.9% compared to the same quarter of 2016. This was driven not only by store closures but also by comparable store sales plummeting. In the second quarter, comps fell by 11.5% year over year.

Sears stores led the drop, falling 13.2%, while Kmart posted a sizable drop of 9.4%. It's easy to see costs fall when sales are plummeting. I reckon I could take another $1 billion off its expense line if I just allowed sales to fall by a similar amount.

Some investors might point out the fact that, so far this year, management has reported a net loss of only $7 million for Sears. This is far better than the $866 million seen the same half of 2016. However, what matters most is not earnings, which have been affected by asset sales. Rather, we should pay attention to Sears' operating cash flow. In the table below, you can see two different measures of operating cash flow that deserve attention.

The first of these is pure operating cash flow as defined by GAAP. This is actually the accurate number to look at, which shows that operating outflows this year have been $1.138 billion compared to an outflow in 2016's first two quarters of $640 million. That said, one issue about cash flows, in my opinion, is that temporary changes in current assets and liabilities can affect this metric. To adjust for this, I stripped out cash flows that were driven by changes in these categories. What I came up with is that the adjusted operating cash flow this year has been -$1.069 billion, which is a bit better but is still worse than 2016's $958 million in outflows.

This doesn't mean nothing is happening

It is possible that I am being a bit harsh on Sears. After all, while there are problems at the firm and the cash flow picture is downright scary, management appears to be trying to improve some things. Take, for instance, their decision to close or sell underperforming stores.

So far this year, between stores that have been sold/closed and those that are slated to be sold/closed, investors can count on the retailer having 358 fewer locations in operation than they had at the end of 2016's fiscal year. Proceeds from asset sales already this year have totaled $460 million and another $160 million has taken place subsequent to the second quarter.

Some of these proceeds have been used toward debt reduction. Right now, total debt and lease obligations stand at $4 billion. This is down from the $4.16 billion seen as of the end of 2016's fiscal year, but is far higher than the $3.55 billion seen at the end of the second quarter of last year. I suspect that further asset sales will work some of this debt down moving forward, but at the end of the day, the cash outflows will kill the retailer if nothing is done to improve margins over just "cutting costs".

There have been other steps taken by management recently. One of these is their announcement that they are able to exercise lease terminations that will save an estimated $52 million per year. In addition to this, the company struck a deal with Amazon to include Alexa into its Kenmore products that will now be sold on amazon.com. Earlier this month, management also announced that it struck another licensing deal for its Kenmore and Diehard brands, but it's uncertain how much this, or its deal with Amazon, might help its financial condition on the whole.

Takeaway

Based on the data provided, I must say that I fear for Sears. While the company has an interesting asset base that may deliver attractive returns for anybody who ends up owning them, its cash flow issues are still a problem. Falling sales are pretty much offsetting cost reductions, comparable store sales are falling, and the company is selling off as many of its stores as it can. Overall, I don't have any real faith in the company's ability to survive the long haul at this stage, but I pray, for the sake of shareholders, that I am proven wrong.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

bloruleshort.gif (618 bytes)

Sears: More Closures, No Profits
By David Butler
Seeking Alpha
August 30, 2017

Sears' announced more store closures recently; following second quarter results that continued a trend of losses. I've been pessimistic about the company for a while. It resides within an ever changing retail market, where those bringing the best customer experience (i.e. nice stores) get the business. My contention has been, and will remain, that Sears exists now merely so that CEO and indirect owner Eddie Lampert can recoup as much of his losses as possible through asset sales etc; making it a terrible stock to own.

The company's stock had an insignificant blimp in pricing when the company announced second quarter results that beat estimates. If you waited a few days after the announcement, the market quickly corrected the insignificant jump, keeping Sears well below $9 a share. The quarter may have beaten expectations; but let's face it, those expectations were not very high.

Second quarter revenue came in at $4.365 billion. That's well below the $5.663 billion the year prior. I suppose a high point for the sales were a reduced operating loss of $106 million compared to $269 million in Q2'16. If you go off of Sears' adjusted EBITDA, the company reported a loss of $251 million vs. $395 million the year prior. Cutting through all the bull, Sears’ diluted loss per share (GAAP) was $2.34; an improvement on 2016’s $3.70 loss for the same quarter.

Putting it simply, Sears' is losing money when they don't have much money to lose. Shares continue to increase, diluting value and also hiding the actual impact of losses. The streamlining of business through closings at ineffective store locations was supposed to bring Sears back to profitability. Apparently, after closing hundreds of stores, they still haven’t found their magic number yet. Sears recently announced the planned closing of an additional 28 Kmart stores. At some point you have to ask yourself whether store closures are going to do the trick.

Down to 1250 locations, the company has shut down 21% of its stores in a year without producing profits. Same store sales fell 11.5%, with no end in sight. That's all the more you need in terms of red flags. Restructuring plans require sales improvements to work.

Critics of my Sears skepticism may jump to the first quarters reported "earnings" of $244 million. Let's clear that one up real quick. That money came from the sale of the Craftsman brand. To me, the sale of the brand made Sears more reliant on apparel. Retail apparel is getting absolutely decimated by eCommerce, and the generally large number of competitors within the industry. The sale proves the desperate state of the situation. You don't sell a useful asset like that unless you're in trouble.

Another thing critics of my viewpoint might point out is Sears' collaboration with Amazon to sell their Kenmore line of appliances online. The stock jumped after that announcement, and quickly returned to its unimpressive self. While I admit that attempts to create a more effective online presence are a wise move, it's too little too late in my opinion. J.C. Penney has brought appliances back into their stores in an attempt to diversify their portfolio. This will bite directly into Sears' market. Amazon sales of Kenmore appliances also run the risk of cutting into Sears' in store sales. They're also directly competing with Home Depot which has been the absolute juggernaut of appliances lately.

It's really simple. Within the retail industry, the only stocks that are going to do well right now are those leading the pack. Traditional brick and mortar over-expanded in the early 2000's, and eCommerce has burst the bubble. The balance has clearly not been re-calibrated yet, and it makes no sense to invest in the losing players.

Sears is fighting to maintain its dominance. Macy's is wisely restructuring itself. J.C. Penney is in a much better situation than Sears and their future still look dicey. A Sears turnaround just doesn't seem to be coming to fruition. They're in the wrong industry at the wrong time. It doesn't make sense to put your investment money in that kind of situation.

The only one seemingly gaining any benefit from Sears' problems is CEO Eddie Lampert. His hedge fund owns a ton of Sears; and appears to be trying to save losses by funneling its real estate holdings into a real estate holding company that he holds substantial stock in. This is another sign that he doesn't plan on keeping the company together.

If I could leave you with one final reason not to buy Sears' stock, it's the increasing difficulty the company is experiencing in stocking its inventory. Default risk is scaring some vendors into avoiding Sears. The ones that are left are having trouble covering the high costs of vendor insurance. Lampert's own hedge fund had been investing millions of dollars in vendor insurance put contracts through 2013 and 2014, but has since ceased doing so. This is an incremental sign that his hedge fund ESL Investments Inc is not going to keep footing these expenses.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

bloruleshort.gif (618 bytes)

First Look: Target's remodeled store in Minneapolis
By Marianne Wilson
Chain Store Age
August 29, 2017

Target has given its two-level store at Nicollet Mall in downtown Minneapolis a $10 million top-to-bottom overhaul that combines the best of the retailer's digital and technology upgrades, elevated merchandise presentations and fulfillment services, with a goal to making the shopping experience fast, efficient and fun.

The Nicollet Mall store is just steps away from Target's headquarters and is the first in the Twin Cities area to feature its next generation of design elements. The location is one of 45 remodels the retailer has completed to date, with 65 more stores on track be renovated throughout the fall.

The overall look of the remodeled Nicollet Mall store is more modern, and features concrete floors, wood-plank walls, LED lighting, and elevated product displays. An oversized custom mural, designed by local artists and located on the second floor, showcases historic moments and landmarks from Minneapolis - including a nod to the Dayton family, who founded Target's predecessor, The Dayton Company.

In other key highlights:

• Merchandise is displayed in "shops" throughout the store. The beauty department, complete with huge digital screens, looks more like a specialty shop, and home products are displayed in lifestyle settings.

• The remodeled food and beverage department was moved to the front of the store for customer convenience. The redesign features a market of fresh produce and grab-and-go items, and items cross-merchandised so shoppers can quickly pull together meals.

• The retailer is testing a "Made in MN" product collection near the second floor entrance, which includes a variety of products from local businesses and makers.

"We're always thinking about the different ways a guest might want to shop on any given day," stated Joe Perdew, VP, store design, Target, who heads up the chain's 175-person design team. "Sometimes, they only have 10 minutes and want to grab an order quickly using Order Pickup. Other times, they have 45 minutes - time to grab a coffee at Starbucks and browse the aisles. And sometimes, they want to shop online from the comfort of their couch. Our goal is to make it a great Target experience no matter which way they choose to shop."

By the end of 2019, Target expects to have remodeled more than one-third of its 1,800 stores.

bloruleshort.gif (618 bytes)

Macy's - in turnaround mode - reaches out to a top ad shop for marketing help
By Lewis Lazare
Chicago Business Journal
August 29, 2017

Macy's has gone majorly blue chip on the marketing front as it seeks to pull out of a sales slump that has severely hit the iconic department store chain and many brick-and-mortar retailers nationwide.

Late Thursday Macy's said it has tapped BBDO New York, sibling shop to Chicago's Energy BBDO, as the department store chain's new ad agency of record. Both shops are part of the Omnicom Group (NYSE: OMC) global agency holding company.

BBDO has a long history of working with some of the nation's most revered brands, including PepsiCo, Visa and Bank of America among many others. But more than most shops, BBDO has put a premium on doing smart, compelling advertising, no matter the client.

Now BBDO will be charged with developing a brand positioning for Macy's as it seeks to drive more traffic into the chain's stores nationwide.

Macy's has been struggling along with many other retailers in the Chicago market. Earlier this year Macy's put the top half of the company's huge flagship State Street store in Chicago up for sale and began talking of significantly downsizing the store footprint in the remaining space.

Meanwhile, BBDO is expected to put some of its top creatives on the new Macy's account, said to be worth as much as $700 million in annual billings. The team may even include Dave Lubars, BBDO's respected chairman and chief creative officer.

But what is most exciting about the Macy's win for BBDO is that it will give the agency's creatives a chance to display their full creative abilities on a relatively sexy piece of business. And that's a good thing at agency long known for it's ability to turn out attention-grabbing creative - that is, when given the green light to do so by the client.

Still unclear is whether BBDO will unveil a brand image campaign for Macy's right out of the gate later this fall or focus instead on advertising aimed at moving merchandise as the holiday season approaches.

Macy's will - sooner rather than later - need both kinds of advertising to help turn around the company's fortunes.

bloruleshort.gif (618 bytes)

4 Signs Sears Holdings Needs New Management
By Leo Sun
Seeking Alpha
August 29, 2017

Eddie Lampert's disastrous plan for Sears has cost investors a lot of money.

Sears Holdings is arguably the poster child for retail devastation. Shares of the company, which owns Sears and Kmart, plunged nearly 95% over the past decade as mall traffic plunged, superstores and e-tailers took over, and the company's insular culture prevented it from countering those threats in a timely manner.

That mess was exacerbated by the merger of Sears and Kmart in 2005, which merely proved that two wrongs don't make a right. That deal was engineered by hedge fund manager Eddie Lampert, who became Sears Holdings' CEO in 2013.

Sears has lost nearly 80% of its market value since Lampert took over. Lampert can't be removed from power -- he's the chairman and owns almost half of the company's stock -- but the ailing retailer could certainly benefit from some fresh leadership. Let's take a look at four signs that indicate that it's time for Lampert to step aside.

1. Its store closure strategy can't last forever

Lampert's main strategy has been to close stores. Between fiscal 2012 and 2016, Sears reduced its total store count (Sears, Kmart, and specialty stores) by 44% to 1,430 locations. During that same period, rival JC Penney cut its store count by just 8% to 1,013 locations.

Sears' store count dropped to 1,250 in the first half of 2017, and it plans to close another 150 stores during the current quarter. That strategy might make sense if Sears reinvested the savings back into renovating its stores. Instead, Lampert used that cash to buy back stock and pay off Sears' debt. This self-consuming cycle can't last forever, and Sears will eventually run out of stores to liquidate.

2. Selling real estate and brands won't generate sustainable returns

Instead of improving its stores, Sears focused on monetizing its real estate -- through sales of its stores and its spinoff of the REIT Seritage Growth Properties -- and the sale of its Craftsman brand to Stanley Black & Decker. It's currently exploring similar deals for its Kenmore and Diehard brands.

Simply put, Sears is burning all its furniture to stay warm when it should have invested in a radiator. That strategy might postpone Sears' imminent death, but it can't possibly generate sustainable sales and earnings growth.

3. Non-existent revenue and earnings growth

There's no indication that the company's revenue declines will stop, or that it will ever achieve profitability. Sears' revenue plunged 23% annually to $4.37 billion last quarter, which represented its steepest decline in nine quarters. Wall Street expects Sears' revenue to drop 24% this year, compared to a 12% decline last year.

Sears' comps fell 11.5% during that quarter, with a 13.2% drop at Sears and a 9.4% decline at Kmart. Sears noted that the reduction of its consumer electronics and in-store pharmacies exacerbated those declines.

Those numbers are terrible compared to those of other "struggling" department stores -- JC Penney's comps fell 1.3% last quarter, while Kohl's dipped just 0.4%. If Sears simply spent more money turning around its businesses or pivoted them toward better-protected niches like off-price retailing, it might be reporting similar results by now.

Sears' adjusted net loss narrowed from $2.03 per share in the prior year quarter to $1.16, but analysts still expect its annual losses to widen over the next two years.

4. Uninspiring turnaround strategies

While other retailers are busy investing in e-commerce channels, streamlining stores, and securing store-in-store partnerships with major brands, Sears' "turnaround" plans are uninspiring.

It recently signed a deal with Amazon to sell Kenmore products online, added Time magazine subscriptions to its 'Shop Your Way' memberships and built a concept appliance and mattresses store -- which would presumably be better protected against e-tailers.

But none of those moves address the elephant in the room: fewer people are visiting Sears' dated brick-and-mortar stores, and the company refuses to make bold investments in improving them.

Is it too late to save Sears?

In an ideal world, Lampert would step aside and allow an outsider -- preferably an executive from a successful e-tailer, superstore, or off-price retailer -- to take over.

Unfortunately, Lampert can't be replaced, and he remains focused on propping up the stock with store closures and brand sales. That isn't a sustainable strategy investors should invest in -- even if the stock looks ludicrously cheap at 0.04 times sales.

Leo Sun owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon.

bloruleshort.gif (618 bytes)

Sears Holdings: A Review Of Q2 2017 Earnings
By Elephant Analytics
Seeking Alpha
August 28, 2017

Sears Holdings reported its Q2 2017 earnings recently. This report showed that Sears has made good progress in terms of cost cutting, resulting in a significant improvement in adjusted EBITDA. However, Sears comparable store sales decline remains in the double-digits, and that rate of sales decline will quickly end up offsetting the cost cuts. Cost cutting activity (including reducing advertising) is also likely to reduce Sears's chances of being able to substantially reduce its comps decline.

Sears's operational cash flow remains quite negative, as store closing and severance costs impacted the quarter, while Sears is not gaining as much benefit from inventory reductions due to tightening vendor terms. However, Sears is likely able to do enough through cost cutting and asset sales to survive until at least 2018.

Large Comps Declines, But Improved Adjusted EBITDA

Sears Holdings reported -11.5% comparable store sales during Q2 2017, which was its third consecutive quarter of double digit declines. This represented only a 0.4% improvement compared to Q1 2017's -11.9% comps, while other department stores typically improved their comps by around 2% to 3% versus Q1 2017.

On the positive side, Sears has managed to cut costs by a large amount, with adjusted selling and administrative expense falling by $325 million, which is a 23% reduction from Q2 2016. As well, Sears's adjusted gross margin improved by around 1.9% as its apparel margins improved and there were fewer clearance markdowns in non-closing stores.

The cost cutting and improved margins helped Sears Holdings improve its adjusted EBITDA from negative $191 million in Q2 2016 to negative $67 million in Q2 2017. Sears also mentioned that it delivered positive adjusted EBITDA in July.

Sales Declines Force Sears Into Perpetual Cost Cutting

Although Sears Holdings has reported significantly improved adjusted EBITDA, it will give back most of that improvement as long as it continues to have substantial comparable store sales declines. For example, another 10+% decline in comps for Q2 2018 would likely reduce adjusted EBITDA by around $100 million, which is around 75% of the improvement that it reported between Q2 2016 and Q2 2017.

This would force Sears Holdings to continue cutting costs in order to prevent its adjusted EBITDA from getting worse. Sears did manage to cut costs by much more than its sales declined in Q2 2017, but I don't know how much more it can realistically cut (other than through store closures).

From reading the 10-Q notes, it appears that Sears significantly slashed advertising in Q2 2017, without replacing it with Shop Your Way promotional activity (as shown by gross margins increasing). This would help Sears's financial results in the short-term, but increases the chances of continued double-digit comparable store sales declines.

Operational Cash Flow Remains Quite Negative

While the cost cutting may benefit Sears in the long-run if it can mitigate its comparable store sales decline, Sears is still dealing with very negative cash flow from operations for now. Sears's cash flow from operations was negative $258 million in Q2 2017 and negative $1.138 billion in the first half of 2017 despite a large number of store closures.

Cash flow from operations has been affected in the short-term by store closing costs, while vendor concerns about Sears's viability are eroding Sears's ability to use inventory reduction as a source of cash. Sears's merchandise payables as a percentage of merchandise inventory fell from 28.7% in Q2 2016 to 19.5% in Q2 2017 as vendors demand shorter payment terms. Thus despite a $1.251 billion year-over-year reduction in inventory, Sears's cash flow only benefited by $576 million as merchandise payables fell by $675 million.

Survival Until 2018 Likely

Sears will likely use up a huge amount of cash in Q3 2017 (cash flow from operations was negative $768 million in Q3 2016), although its Q3 inventory build will probably be lower this year due to the large amounts of store closures. Sears has another 150 stores that are scheduled to close by the end of Q3 2017, plus also announced another 28 Kmart closures.

Sears should be able to survive through to 2018 with its available liquidity and continued asset sales though. Sears mentioned that it generated nearly $160 million in cash proceeds from asset sales that were executed after the end of Q2 2017. It would not be surprising if Sears made a few hundred million more from asset sales by the end of Q3 2017.

Conclusion

Sears has cut costs by a large amount, resulting in a significant improvement in adjusted EBITDA in Q2 2017. Sears's cash flow from operations remains heavily negative though, as Sears has large store closing costs to deal with now, while tighter payment terms are affecting its ability to benefit from inventory reductions.

Theoretically Sears should see the benefit of cost cutting in future quarters while store closure and severance costs are short-term items (although there are frequent rounds of closures). However, if Sears keeps delivering double-digit comps declines, the effect of the cost cutting will be offset by total gross margin declines. Sears could then attempt to cut costs even more in order to improve its financials, but some of its cost cutting efforts (advertising reductions, minimal capital expenditures) are detrimental to its ability to reduce its sales decline rate. I think it will be very difficult for Sears to cut its way to profitability without reducing its comps decline.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

bloruleshort.gif (618 bytes)

Is Sears circling the drain? No, says Wall Street
By Charisse Jones and Nathan Bomey
USA Today
August 25, 2017

Sears Holdings said Thursday that it would close another 28 Kmart locations as it continues its cost-cutting campaign, once again making it the poster child for the precipitous decline of the American department store.

The company also posted declining sales and profits, but the results were better than analysts expected and led to a brief surge in its stock price before closing unchanged for the day, down 0.2%.

The Kmart closures add to a list of 330 Sears or Kmart locations shuttered or set to be closed later this year as the retailer seeks stability.

The latest batch closing stores, as disclosed on a list that Sears Holdings released later, stretch from Allentown, Pa. to Bellflower, Calif.

The company, which will still have more than 1,200 stores after the closures, said in a public filing earlier this year that it believes it has at least another 12 months of cash to continue operating.

Sears is betting on a customer loyalty program called Shop Your Way to help lead a turnaround. In addition to new ways for members to earn points, Sears will analyze the members' past purchases and preferences in order to tailor its suggestions. The company also won investors' favor with a deal announced in July to sell its Kenmore appliance brand on Amazon.

After rising then dipping, Sears shares closed at $8.55, down 2 cents.

"We will continue to right-size our store footprint to ensure we are positioned to meet the realities of the changing retail environment,'' Rob Riecker, Sears Holdings' chief financial officer, said in a call with investors.

Sales at Sears and Kmart stores open at least a year, a key metric in the retail industry, tumbled 11.5% for the period, the company said Thursday. S&P Global Market Intelligence analysts had estimated that those sales would decline of 7.1%.

With many major retailers shuttering stores as shoppers increasingly browse online, Sears' latest round of closures was not unexpected, analysts said.

It "strikes me more as good store hygiene rather than a foreshadowing of another round of mass closures," said Greg Portell, lead partner in the retail practice of A.T. Kearney, a global strategy and management consulting firm. "It is good for a retailer to always be challenging their footprint.''

But Neil Saunders, managing director of GlobalData Retail, sees the continuing store closures as more ominous.

They "signal that Sears is broken and that increasing numbers of people do not want to shop there,'' Saunders says, adding that the company needs the money generated by sales of its real estate to stay afloat. "This is much deeper than getting the footprint right or adapting to the modern era of retail. It's surgery to remove dead or dying parts of the organization.''

Pharmacy, grocery, household goods and consumer electronics sales fell sharply at Kmart. Home appliances, apparel, consumer electronics and lawn and garden sales tumbled at Sears.

The company posted a net loss of $251 million for its fiscal second quarter ended July 29, but that was down from a loss of $395 million in the same quarter a year earlier. It also beat S&P's projection of $266 million.

Fewer stores helped lead to revenue dropping 23% to $4.37 billion. Still, that was better than S&P's predicted $4.21 billion.

The results were “a little bit heartening, but still left some open areas of worry,’’ says Portell. “The fact that they were able to deliver better than expected earnings while their same store sales declined dramatically was in my mind an indication that their cost (cutting) program seems to be on track.''

But, he added, "how long they can sustain double-digit same store losses while still keeping cost cuts ahead of the trend will be an ongoing area of attention.''

In a series of financial maneuvers, Sears said it had gained access to additional borrowing capacity and extended the maturity on certain loans to allow it to stay afloat longer as it continues its restructuring plan.

As recently as 2012, the company had 1,305 Kmart stores and 867 full-line Sears stores in the U.S. But by the end of the latest quarter, Sears said 619 full-line Sears and 610 Kmart locations remained.

In March, Sears rattled investors when it said in a filing with the Securities and Exchange Commission that it had "substantial doubt" about its ability to stay in business unless it could borrow more and wring cash from assets.

The notification was required based on a three-year-old rule change that requires companies to be more transparent about potential risks they face within a year of their reported financial statements. At the time independent auditor Deloitte said it believed Sears Holdings was still viable.

And analysts said Thursday that it's unlikely Sears, though troubled, will run out of money by March, given its vast real estate holdings and the steps it's taking to cut costs.

"Sears has some runway left in terms of its financial position,'' Saunders says.

Sears CEO Eddie Lampert, who has criticized talk of the company's demise as "harmful'' and premature, said the company is moving toward its goals to restore the strength of its bottom line.

"We are making progress on the strategic priorities we outlined earlier this year and remain focused on returning our company to profitability," Lampert said in a statement. "The comprehensive restructuring of our operations is delivering cost efficiencies helping drive improvements to our operating performance."

Earlier this year, the company sold its signature Craftsman brand for more than $900 million. It says that it is on track to meet its goal of cutting $1.25 billion in costs by the end of the year, having already achieved over $1 billion in savings. And the deal to start selling Kenmore appliances on Amazon could provide additional income as Sears also takes on the tasks of delivering and installing the Kenmore products.

Sears was one of the last major department-store chains to report this earnings season, and the results reaffirmed its difficulties, The retailer is trying to stay relevant in a retail environment upended by fast-fashion and online shopping.

Nordstrom was one of the few bright spots, posting a 3.5% increase in net sales to $3.7 billion. But Macy's, with sales better than analysts expected, still missed profit projections. J.C. Penney reported a net loss of $62 million, partly due to its closing 127 stores in a single quarter.

As always, the year-end holidays will be critical for the entire retail sector, and for Sears in particular as it tries to rebound from its latest round of disappointing sales. But however Sears fares in the busiest shopping period of the year, one analyst says Sears can still survive the holiday season.

"As much as the company is very poor at retailing, it is very good at financial management to ensure it stays afloat,'' Saunders says. "This holiday season will not likely be the tipping point for the company. That said, the holidays will reveal how much further Sears can fall, especially on the sales front.''

bloruleshort.gif (618 bytes)

Sears shuttering more Kmart stores than expected
By Gina Hall
Chicago Business Journal
August 24, 2017

Sears revealed Thursday that it will shutter an additional 28 Kmart stores than it had already announced.

The company said closures are in addition to the 180 Sears and Kmart locations that have closed this year. The Hoffman Estates-based chain previously announced that another 150 stores will close by the third quarter.

The company did not disclose how many jobs will be affected by the new Kmart closings.

Sears now has 1,250 total stores in the U.S - 650 Sears locations and 610 Kmart locations. Sears maintained 709 Sears stores and 883 Kmart stores at this time last year, per CNN.

In addition to the closings, the company revealed that it lost $251 million in its second quarter. Total revenue was down 23 percent and same-store sales dropped 11.5 percent.

"We are making progress on the strategic priorities we outlined earlier this year and remain focused on returning our company to profitability," CEO Eddie Lampert said in a statement accompanying the earnings report. "The comprehensive restructuring of our operations is delivering cost efficiencies and helping drive improvements to our operating performance."

The troubled department store has lost more than $10 billion in the past few years and weak earnings are causing many to question the business' sustainability.

The company has been unable to adapt to online sales and competition from the likes of Wal-Mart and Target. In an effort to move products online, Sears said it will sell Kenmore appliances on Amazon, including some appliances that will sync with Alexa, Amazon’s voice assistant.

In March, the company said in its annual report filing that it had "substantial doubt" that it could continue to operate. The company has sold real estate and recently completed the sale of its Craftsman tool brand to Stanley Black & Decker for $900 million.

bloruleshort.gif (618 bytes)

Sears' Q2 sales tumble; will close more stores
By Marianne Wilson
Chain Store Age
August 24, 2017

Sears Holdings Corp.'s second-quarter earnings beat the Street as it benefitted from cost-saving initiatives. But it continued to struggle with weak traffic and declining sales, and added 28 more locations to its long list of store closings.

Sears reported that its second-quarter loss narrowed to $251 million, or $2.34 per share, in the quarter ended July 29, helped by cost savings resulting from the streamlining of operations and store closings.

Losses, adjusted for one-time gains and costs, came to $1.16 per share. Analysts had expected a loss of $2.48 per share.

Revenue fell 23% to a better-than-expected $4.37 billion in the period. Same-store sales were down 11.5%, worse than the expected 7.1% decline.

So far in fiscal 2017, Sears has shuttered approximately 180 stores (all were previously announced for closure), with an additional 150 stores (also previously announced) expected to go dark by the end of the third quarter. It is now adding 28 more locations - all Kmarts - to the list of stores that will close later this year.

"We are making progress on the strategic priorities we outlined earlier this year and remain focused on returning our company to profitability," stated Edward S. Lampert, chairman and CEO of Sears Holdings. "The comprehensive restructuring of our operations is delivering cost efficiencies and helping drive improvements to our operating performance.

Sears said it expects the launch of its Kenmore brand products on Amazon.com will significantly expand the reach of the brand. It also expects the partnership will drive growth opportunities across its Sears Home Services and Innovel Solutions divisions, which will provide "white-glove service" for delivery, installation and extended product protection for the full range of home appliances from Kenmore sold on Amazon.

The company also said it continues to explore opportunities for its Sears Home Services and Sears Auto Centers, as well as its Kenmore and DieHard brands. (On Tuesday, Sears signed new licensing agreements for Kenmore and DieHard brands that will greatly expand their distribution beyond Sears.

"The decision to sell Kenmore appliances on Amazon is a smart move that will help expand the distribution of the brand," commented Neil Saunders, managing director of GlobalData Retail.

"The problem is that both of these initiatives are tiny drops of positivity in a vast ocean of problems and, as such, are not going to save the company."

Sears said that it has used about $605 million of its $1.5 billion revolving credit facility due in 2020. Its cash balances were $442 million as of July 29.

bloruleshort.gif (618 bytes)

Analysis: Sears is headed in entirely the wrong direction
By Neil Saunders, managing director of GlobalData Retail
Chain Store Age
August 24, 2017

As much as Sears deserves credit for the various actions it has been taking to shore up the company, there is no denying that this (Sears second quarter financials) is a miserable set of numbers. Indeed, the precipitous drop in comparable sales and the continued lack of progress on profit suggests the company isn't moving far or fast enough to ensure its long-term survival.

The ongoing slide in same-store sales, which dipped by 11.5% this quarter, reveals the fundamental weakness with both Sears and Kmart: fewer and fewer people want to shop there, and both firms continue to lose relevance. This is hardly surprising as store environments across much of the estate are now so profoundly unappealing that many consumers seek to actively avoid them, let alone making a conscious decision to shop there.

Sears has long since argued in its transition to a nimbler organization with a lighter asset base, stores are a much less relevant part of the mix. This is one of the reasons why 180 outlets have been shuttered so far this year, with 178 further shops earmarked for closure by the end of 2017, including the 28 new Kmart disposals announced this morning.

Right-sizing the store portfolio is laudable and is something to which every retailer should be attending. The difficulty for Sears, however, is that as weak stores are disposed of comparable sales from the remaining parts of the chain should, in theory, be improving. However, this is not the case.

The decline in same-store sales appears to be accelerating, especially at Sears. Other metrics are also on the slide. Gross margin rates for merchandise are down over the prior year; expenses as a proportion of revenue are up sharply; and, interest payments are higher. All in all, Sears is headed in entirely the wrong direction.

Against such weak financials, Sears has been monetizing assets and securing credit lines to ensure it can stay afloat. However, this financial wizardry is not fixing the underlying problems; it is merely kicking the can further down the road. Worryingly, despite all the changes, Sears still lost $251 million over the quarter - and this is after the $380 million gain from asset sales is taken into account. Moreover, the gap between assets and liabilities continues to rise and now stands at $3.6 billion.

As much as Sears is in a dire position, it would be unfair to accuse it of doing nothing whatsoever. The opening of a new store format in Texas that just sells mattresses and appliances is interesting and provides a much more compelling destination than traditional stores. Meanwhile, the decision to sell Kenmore appliances on Amazon is a smart move that will help expand the distribution of the brand. The problem is that both of these initiatives are tiny drops of positivity in a vast ocean of problems and, as such, are not going to save the company.

The bottom line is that as a retail proposition Sears is fundamentally broken. And its long and painful slide into oblivion shows no signs of abating.

bloruleshort.gif (618 bytes)

Sears Holdings Corp (SHLD) Stock Jumps on Q2 Beat, But Don't Blink
By James Brumley
Investor Place
August 24, 2017

The beleaguered retailer offered a glimmer of hope today, but a look at the bigger picture doesn't inspire confidence in SHLD

The good news is, beleaguered retailer Sears Holdings Corp) managed to top last quarter's earnings and sales estimates, and as a result, SHLD stock is heading higher in Thursday morning's early trade. The bad news is, expectations were pathetically low.

The really bad news is, Sears still is marching its way toward the edge of a cliff.

The market ended up seeing the glass as half-full rather than half-empty, by virtue of the solid gain from SHLD stock in Thursday's early trading. It remains to be seen, however, if traders will still feel as bullish tomorrow. Follow-through isn't exactly the stock's strong suit.

Given Sears' history and back-story though, it doesn't seem likely this time around, either.

Sears Earnings Recap

For the second fiscal quarter ending in July, Sears Holdings lost $2.34 per share, narrowing the $3.70 per-share loss booked in the same quarter a year earlier. On an adjusted basis, though, the retailer only lost $1.16 per share versus expectations for a loss of $2.48.

Take the relatively good results with a grain of salt.

While an adjusted tally of operating income is intended to - and usually does - better reflect an organization's true health, Sears' one-time adjustments seem to occur on a regular basis, and have a funny way of blurring rather than clarifying the picture.

And, oh yeah - there’s only one analyst following Sears and bothering to issue outlooks. It's also not entirely clear that the sole observer is even bothering to update those estimates on a regular basis.

The far more meaningful metric for Sears is sales, which it's sad to say, continue to implode no matter how you slice it. While Q2's top line of $4.37 billion was better than the market's projection of $4.21 billion, it also was down from $5.66 billion a year ago. Store closures were a factor, accounting for $770 million of the $1.29 billion difference. Nevertheless, same-store sales fell 11.5%, underscoring how even Sears' remaining locations continue to lose business.

Liquidity, unusually enough, isn't as concerning now as it has been in recent quarters.

CEO Eddie Lampert commented on the quarter's numbers:

"We are making progress on the strategic priorities we outlined earlier this year and remain focused on returning our Company to profitability. The comprehensive restructuring of our operations is delivering cost efficiencies and helping drive improvements to our operating performance. While the third quarter has historically been our most difficult quarter over the past several years, we are working towards making meaningful improvement in our performance this year as a result of the restructuring actions we have put in place, and our continued focus on the expansion of our Shop Your Way ecosystem."

Once again, Lampert's public assessment of the organization's performance stretches the definition of the words "progress" and "improvements."

Bottom Line for SHLD Stock

After years of deterioration and years of undeserved survival rooted in the CEO's apparent denial of the company's true state of affairs, Sears has become less of an investment and more of a circus sideshow.

Mostly, the market wants to know which piece of the company will Lampert sell next - crimping its ability to generate much-needed revenue - and how much time will that buy the retailer.

To that end (and for perspective), the company has already closed 180 of the 1,400 or so stores it started the year with, and another 150 will be shut down before the end of the quarter currently underway. Sears will be adding another 28 stores to the list of impending closures today.

The rationale for closing any store is the amputation of units that are hurting more than helping, but with same-store sales falling by double digits in every quarter for several years now, it doesn't appear many (if any) of its venues are doing very well.

SHLD stock is up on the order of 6% early Thursday. Fans and followers may want to savor the moment.

They also might want to consider using the bullish pop as an exit point. Lampert's plan to shrink the company into profitability looks like it will finally work ... right around the time the top line is nil.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

bloruleshort.gif (618 bytes)

Macy's consolidates merchandising ops, cuts 100 jobs
By Marianne Wilson
Chain Store Age
August 22, 2017

Macy's is streamlining its merchandising operations, expanding its exclusive products and putting increased emphasis on customer insights and data analytics as new CEO Jeff Gennette begins to make his mark on the ailing department store giant.

In a move that will result in a loss of about 100 jobs, Macy's is consolidating three functions - merchandising, planning and private brands - into a single merchandising department organized around five 'families-of-business' (ready-to-wear, center core, beauty, men's and kid's, and home). It will be led by 35-year Macy's veteran Jeff Kantor, who currently serves as chief stores and human resources officer. Kantor will report to Hal Lawton, the newly announced president of Macy's and a former senior executive of eBay.

The new merchandising structure will be supplemented by strengthened customer insights and data analytics, which the company is expanding to include inventory replenishment and pricing capabilities.

"The changes we are making today maintain our core merchandising skills while massively simplifying our structure and processes for greater speed and flexibility," said Macy's CEO Jeff Gennette. "We are also further strengthening our consumer insights and data analytics capabilities so we can make better decisions faster, balancing the art and science of retail."

Gennette added that Macy's plans to grow its exclusive merchandise offering to 40% of its business. He called exclusivity a "great customer loyalty tool."

"Having a single lens for each family-of-business will allow us to expedite our strategy of delivering this edited, elevated and exclusive assortment to our best customers," Gennette stated. "To achieve this, we will aggressively grow our private brands while also offering the best national brands."

Macy's estimates it will save approximately $30 million on an annual basis related to the restructuring, some of which may be used for reinvestment in the business. It anticipates one-time costs of approximately $20 million to $25 million associated with this restructuring, to be booked primarily in the third quarter of 2017.

bloruleshort.gif (618 bytes)

Sears inks new licensing agreements for two top brands
By Marianne Wilson
Chain Store Age
August 22, 2017

Sears Holdings is expanding the distribution of two of its iconic brands.

Cleva North America will manufacture vacuum cleaners and floor cleaning accessories under the Kenmore and Kenmore Elite brands. The company will be able to sell the products to retailers around the world.

Lighting products-maker Dorcy International, which already makes DieHard batteries and flashlights, will be able to manufacture an expanded range of products and sell them in more places under the new agreement. Dorcy's DieHard products will be distributed in the U.S., Puerto Rico, the Caribbean and Latin America and some locations in the South Pacific.

"Both of these agreements are examples of our expansion strategy to unleash the power of these iconic brands internationally," stated Tom Park, president of the Kenmore, Craftsman and DieHard brands at Sears Holdings. “We will have direct and active involvement in building the business with our licensing partners and we're confident that both Cleva and Dorcy will maintain our high quality standards."

The new agreements are in line with Sears' recent moves to leverage its brands to generate more cash, including the sale of Craftsman to Stanley Black & Decker. Most recently, Sears started selling Kenmore products on Amazon.

bloruleshort.gif (618 bytes)

Macy's Hires eBay Executive, Revamps Merchandising
By Suzanne Kapner
The Wall Street Journal
August 22, 2017

Macy's Inc. poached a senior eBay Inc. executive and streamlined top management in an effort to speed up decision making at the struggling department-store chain.

Hal Lawton, 43 years old, will join Macy's on Sept. 8 as president, the company said. He will report to Macy's Chief Executive Jeff Gennette, who had previously held the president's title. Earlier Monday, eBay announced Mr. Lawton’s resignation as senior vice president, North America.

Macy's also restructured its merchandising ranks by consolidating merchandising, planning and private-label functions into a single unit, resulting in the elimination of about 100 jobs. The move is expected to save about $30 million annually with $5 million of the savings coming in the fourth quarter of the current fiscal year.

"We had a lot of decision makers at the table, and we weren't as fast as we needed to be," Mr. Gennette said of the old structure.

The new slimmed-down group will be run by Jeff Kantor, a 35-year Macy's veteran who is currently head of stores and human resources. As chief merchandising officer, he will succeed Tim Baxter, who is expected to leave the company early next month.

Since taking the helm in March, Mr. Gennette has vowed to cut through a "sea of sameness" in Macy's offerings and add more exclusive merchandise as the chain tries to keep shoppers from fleeing to fast-fashion retailers and off price stores like T.J. Maxx.

To that end, he said Monday that he wants exclusive merchandise to account for 40% of Macy’s sales, up from 29% currently. He is also bolstering the Macy's analytics team so the retailer can use more data to better inform how it marks down unsold goods.

Key to his idea was to hire an executive with a solid digital and technology background. Mr. Lawton fit the bill, according to Mr. Gennette, because he also has a strong merchandising track record.

At Home Depot Inc., where Mr. Lawton worked before joining eBay in 2015, he served as senior vice president of hardlines and was instrumental in expanding Home Depot's digital business to nearly $2 billion from $400 million, Mr. Gennette said.

At eBay, Mr. Lawton immersed himself in the details of the business, at one point becoming a top-rated seller, in an effort to improve the experience for other sellers on the site.

Mr. Lawton was a key player in eBay's turnaround effort following its 2015 split from PayPal, helping lead initiatives such as guaranteed delivery for millions of items in three days or less, as well as price-matching.

-Laura Stevens contributed to this article.

bloruleshort.gif (618 bytes)

Survey: Walmart, Target and Old Navy tops in awareness - and that's not all
By Marianne Wilson
Chain Store Age
August 21, 2017

Back-to-school advertising appears to be losing some of its resonance with consumers.

Walmart, Target and Old Navy scored the highest awareness levels among consumers (with children under the age of 18) in a survey of BTS advertising from 30 retailers by YouGov BrandIndex. But many retailers scored less than last year.

For example, 42% of the surveyed parents recall Walmart's advertising, compared to 50% at this time last year. Target's advertising is recalled by 34.3%, while Old Navy is recalled by 30.9%.

Walmart, Target and Old Navy also lead the list of retailers that parents are considering for their next purchase. Marshalls, H&M and Footlocker were among the retailers racking up major gains in purchase consideration.

Old Navy is tops in value perception, followed by Walmart and Target.

bloruleshort.gif (618 bytes)

Where Are All the Shoppers Going? Low-Price Retailers
By Miriam Gottfried
The Wall Street Journal
August 19, 2017

It might seem like the most basic retail maxim, but the second quarter drilled it home for investors: Low prices matter. The only winners in an otherwise bleak retail landscape were the ones offering the lowest ones.

The list of companies that posted sales growth in the quarter-including Wal-Mart Stores, Target, TJ X , Ross Stores, and of course Amazon. com - share one major characteristic: low prices. Even Gap got a boost from 5% same-store sales growth at its inexpensive Old Navy brand. The trend is grim for brands that have commanded premiums and traditional retailers, especially because they all need to be investing in e-commerce just to keep up.

Executives from Wal-Mart and Target said consumers responded to so-called investments in price, meaning both were willing to sacrifice profits for top-line growth. TJX and Ross, meanwhile, have a business model that allows them to sell items at a discount while also maintaining healthy margins because of their low operating costs. Ross said its operating margin climbed to 14.9% from 14.4% a year earlier, thanks to better prices on merchandise and stronger than- expected sales.

At Gap, Chief Executive Art Peck called Old Navy "the fastest-growing apparel brand in the U.S. among major retailers." He said "frugal innovation"-improving product quality at accessible price points—was essential to its success. The success of the low price strategy bodes poorly for other retailers, particularly those that have traditionally sold the same or similar products as the discounters but for more money. For the retailers where sales declined— Macy's , Kohl's and J.C. Penney among them—the quarter shows that anything short of changing their business model might not be enough.

Nowhere was this clearer than in sporting goods, where shares of Dick's Sporting Goods and Foot Locker were slammed. Dick's blamed lower-priced competition, while Foot Locker blamed the absence of exciting new styles for its 6% decline in same-store sales. Investors, who knocked down Foot Locker shares more than 25%, seem to be more concerned with a June deal where Nike agreed to sell some products on Amazon.

For retailers, the only path to sales growth appears to be through lower prices. That creates a painful choice between growth and profits and will force retailers to reduce their cost structure, even as they try to build up e-commerce. The only retailers worth buying these days are those that can earn more while charging less.

bloruleshort.gif (618 bytes)

Hudson's Bay Co. taps former Penney exec as CFO
By Marianne Wilson
Chain Store Age
August 18, 2017

The parent company of Hudson's Bay, Lord & Taylor and Saks Fifth Avenue has appointed a 25-year retail veteran as its new finance head.

HBC named Edward Record as CFO, effective August 28, 2017. He succeeds Paul Beesley, who, as previously announced is leaving HBC.

Record joins HBC after more than three years as CFO of J. C. Penney Company. In July, he announced he was stepping down from the company to "pursue other interests."

Prior to Penney, Record was executive VP, COO of Stage Stores, and previously served as its CFO. He has also held executive leadership positions in finance at Kohl's and Belk.

"Ed's deep retail experience will support our company's mission to get ahead and stay ahead of the rapidly changing retail environment," commented Jerry Storch, CEO, HBC. "He will play a key role as we continue to drive performance and make the right strategic decisions to improve our retail businesses, while also evaluating the best use of our real estate assets."

bloruleshort.gif (618 bytes)

Target's New Pricing Helps End Sales Skid
By Khadeeja Safdar
The Wall Street Journal
August 17, 2017

The retailer, which competes with Wal-Mart, has been lowering its regular prices to be more competitive on consistent basis.

Target Corp.'s efforts to cut prices and improve its digital operations showed signs of success in the latest quarter, as store sales rose for the first time in a year and the retailer raised its profit forecast.

Sales at stores open at least a year rose 1.3%, driven by stronger-than-expected foot traffic and an increase in online sales. The average amount customers spent fell 0.7%, reflecting Target’s more-competitive pricing and an increase in the frequency of quick trips for essentials.

In a call with analysts Wednesday, Target Chief Executive Brian Cornell hailed the retailer's pricing strategy for helping it cut down on discounts.

"We saw a meaningful increase in the percent of our business done at regular price and a meaningful decline in the percent on promotion," he said. "This demonstrates the progress we've already made and gives us confidence we're on the right track."

Target has been struggling to compete with Amazon.comInc., which is benefiting from the shift toward online shopping, as well as Wal-Mart Stores Inc., which has been remodeling its brick-and-mortar stores and lowering prices. In February, after Target posted profit and sales declines and issued a profit warning, it said it would invest billions to improve stores, launch exclusive brands and cut prices.

Target shares rose 3.6% to $56.31 on Wednesday, but are off 22% for the year.

GlobalData Retail analyst Neil Saunders applauded the quarterly results, saying in a research note that "after a long run of decline, greenshoots are finally showing at Target." The uptick in store sales, he said, "suggests that some of Target's initiatives are starting to pay dividends."

Comparable digital sales increased 32% in the quarter, which ended July 29, up from 16% growth in the same period last year. Food and beverage sales were flat, while sales increased in other categories, in-cluding essentials and hardlines.

Target plans to double its number of small-format stores this year, remodel more than 100 existing stores and expand a next-day delivery service for online orders. On Monday, it said it was buying a logistics startup, Grand Junction, to help it expand its same-day delivery offering for in-store purchases.

Mr. Cornell said that Target is also launching four more house brands this quarter, part of its plan to launch 12 by the end of next year.

Amazon's deal to buy Whole Foods Market Inc. has put renewed focus on Target's grocery business, which has had declining food sales despite efforts to improve the assort-ment it sells. On Monday, Target said it has hired executives from Wal-Mart and General Mills Inc. to accelerate its grocery strategy.

The company said it now expects full-year profit of $4.34 to $4.54 a share, up from its previous forecast of $3.80 to $4.20 a share. It expects its same-store sales growth in the second half of its fiscal year to be roughly the same as the first half.

Overall, Target reported a profit of $672 million, or $1.22 a share, for its fiscal second quarter, compared with $680 million, or $1.16 a share, a year earlier. Revenue rose 1.6% to $16.43 billion, from $16.17 billion.

-Cara Lombardo contributed to this article.

bloruleshort.gif (618 bytes)

Head of Sears Canada steps down to launch bid for troubled retailer
By Hollie Shaw
National Post
August 16, 2017

The executive chairman of Sears Canada has stepped down in order to focus on making a bid for the insolvent retailer, currently operating under court protection

The executive chairman of Sears Canada has stepped down in order to focus on making a bid for the insolvent retailer, currently operating under court protection.

An internal employee memo Wednesday says Brandon Stranzl wants to keep the business operating as a going concern and intends to submit a bid for Sears or some of its assets under a court-approved sale and investment solicitation process (SISP), which has an Aug. 31 deadline. Sears Canada filed for court-appointed protection from its creditors in June under the Companies Creditors’ Arrangement Act, announcing the closure of 59 stores and the layoffs of 2,900 of its 17,000 employees.

"The Board thought it was best for Brandon to focus exclusively on putting the bid together and step away from the day-to-day operations of Sears Canada," said the memo from Graham Savage, chair of the retailer's special committee of the board of directors.

Becky Penrice, the retailer's executive vice-president and chief operating officer, will now oversee the executive team, the note said. "The goal of any such proposal is to facilitate a path for Sears Canada to emerge from CCAA and so that all of us can continue with the company's reinvention plans."

Stranzl, who was not available for comment on Wednesday, "is still an employee and is still receiving his salary" during the process, Sears Canada spokesman Vincent Power confirmed. Before the company announced the restructuring, Stranzl and his team had refashioned part of Sears' retail business to sell off-price merchandise in the vein of Winners and overhauled its IT and online shopping platform.

Last month, court-appointed monitor FTI Consulting said that more than 20 parties have signed non-disclosure agreements with Sears Canada as part of the process.

While it looked for a while as though Stranzl would square off in a bid for the retailer against two of Sears Canada’s biggest U.S.-based shareholders, Sears Holdings CEO Edward Lampert and Fairholme Capital Management LLC, the two investors dropped an agreement to make a potential joint bid for the retailer in late July.

Together, the two control about two-thirds of the retailer's shares, and both said they would consider options for Sears Canada independent of one another. Lampert's hedge fund ESL Partners LP, which has a 45 per cent stake in the company, said it could also sell some or all of its Sears Canada shares in order to generate a tax loss for its investors.

Wednesday's news comes as Sears Canada vies for survival and aims to emerge from the restructuring as a smaller, leaner company at a time of unprecedented change in retail, with traditional department stores among the hardest hit.

Amid the upheaval, senior vice president of marketing Zachary James quit last week, and Michael Geddes, senior vice president of merchandise planning and operations, has announced his resignation and will leave after next week, Power confirmed.

The reinvention efforts have come at a steep cost: when Sears Canada filed for bankruptcy protection in June, it laid off employees without severance and applied to quickly terminate the health and dental benefits for retirees. The court ordered Sears to continue paying benefits and to make contributions to its pension plan, which is underfunded by $266.8 million, until Sept. 30.

At the same time, the court approved Sears’ proposal to issue up to $7.6 million in retention payments to 43 senior management and key employees to ensure that they would remain with the company during the restructuring process.

After voluble social media protests from outraged consumers and former employees, lawyers for the ex-employees reached an agreement last week with Sears Canada and its bankruptcy monitor to take a potential $500,000 out of the executive retention payments to form an "employee hardship fund," and will ask a judge to approve a motion on the matter this Friday.

At the same time, significant doubts remain about whether Sears will be able emerge from the court process and operate as a going concern.

"They are going to try to cut debts and emerge profitably, but it's a long shot," said Alex Arifuzzaman, partner in retail real estate specialist InterStratics Consultants. "You can't shrink yourself to profitability as a national retailer, and it's a changing environment. Their competitors are also evolving and adapting and becoming more efficient."

Next week, lawyers representing Sears employees and retirees will present a motion in Ontario Superior Court to wind up the Sears Canada pension plan, "in order to disengage the pension plan from the failing company and to protect the pension income security of the retirees," retiree law firm Koskie Minsky LLP said in a court filing last week.

bloruleshort.gif (618 bytes)

Target revs up efforts to transform supply chain with acquisition
By Marianne Wilson
Chain Store Age
August 14, 2017

Target Corp. has acquired a transportation technology company that will help it expand more quickly in same-day delivery. The deal will also bring a new talent to the discounter's technology team.

Target Corp. has agreed to acquire Grand Junction to improve Target's delivery capabilities and accelerate its investments and ongoing efforts to transform its supply chain. Upon the close of the deal, Grand Junction founder and CEO Rob Howard will become a VP of technology at Target.

"Grand Junction's technology and algorithms will help Target deliver to guests faster and more efficiently," said Arthur Valdez, executive VP, chief supply chain and logistics officer, Target. "This acquisition is part of Target's ongoing efforts to strengthen Target's supply chain to provide greater speed, reliability and convenience for guests."

San Francisco-based Grand Junction has a software platform that is used by retailers, distributors and third-party logistics providers to manage local deliveries through a network of more than 700 carriers. Currently, Grand Junction is working with Target on its same-day delivery pilot at the Target store in New York's Tribeca neighborhood. Upon deal close, Grand Junction's employees will become Target team members.

"Target is seizing a tremendous opportunity to leverage local delivery as a retail differentiator," said Grand Junction's Howard. "We're thrilled about helping to pursue this opportunity, and to join Target at this unprecedented time in retail."

bloruleshort.gif (618 bytes)

Analyst: Penney turnaround is a long-term endeavor
By Neil Saunders, Managing Director of GlobalData Retail
Chain Store Age
August 14, 2017

Although J.C. Penney's numbers are not a disaster and represent a significant sequential improvement over the prior quarter, they are nevertheless underwhelming. While we maintain the company is moving in the right direction, the lack of progress on profit and same-store sales both highlight that the turnaround program is a long-term endeavor that will take some time to deliver.

Admittedly the second quarter numbers were impacted by some exceptional events. Among these was the liquidation of inventory across 127 stores which the company is closing. While necessary, this corrective action was damaging to margins and diluted profits. The pain of today, however, will turn into tomorrow's gain when the cost savings from the shuttered stores start to filter through.

Given that JCP remains in a state of flux, short term shifts in numbers do not always provide a full and meaningful measure of the business. It is better to take a step back and assess longer term trends and look at the general trajectory. On both of these fronts, we remain satisfied that JCP is a financially stronger business than it was several years ago, and that it is building a proposition that is more relevant and meaningful to shoppers.

On a category basis, we believe real progress has been made with home, footwear, and fashion accessories. The company has gained customers across these segments -- including younger shoppers who might previously have shunned JCP. The demographic shift is, in part, aided by the expansion and success of Sephora which continues to act as a magnet, pulling consumers into JCP stores.

One area where much further work is needed is apparel. JCP has made strides in some areas like kidswear, but its performance on womenswear is still lackluster. This is partly a function of the market which remains saturated with choice, is discount focused, and is beset by consumers who are bored with clothes shopping.

However, against this backdrop, JCP needs to work much harder to create a compelling and well-defined fashion assortment. In our view, while some improvements are evident, collections still lack the oomph and excitement required to entice shoppers.

Looking ahead, we maintain our view that, financially, this will be a year of limited progress for JCP. The corrective actions required, and the costs associated with them, will cancel out any gains that are made.

However, strategically this is a year of advancement: Longstanding problems are being remedied, the balance sheet is being strengthened, and the business is on a more stable footing. This is the platform on which growth can be built, but that growth won't come through until 2018 at the earliest.

bloruleshort.gif (618 bytes)

Sears, Whirlpool win fee reduction in washer lawsuit
By Jonathan Stempel
Reuters
August 14, 2017

A federal appeals court reduced by $2 million the legal fees that Sears Holdings Corp and Whirlpool Corp must pay to settle a class action lawsuit over defective washing machines. The reason: the case was not that complicated.

The 7th U.S. Circuit Court of Appeals in Chicago on Monday cut to $2.7 million from $4.77 million the sum owed to the plaintiffs' lawyers.

Shoppers alleged that Whirlpool-manufactured front-loading washing machines they had bought at Sears, under the Whirlpool and Kenmore brands, were prone to failure because of defective control units and mold.

A lower court judge last September cited the "presence of novel and complex legal issues" as a factor to justify awarding the plaintiffs' lawyers 1.75 times the base fees they charged. Such multipliers are common in class action settlements.

Circuit Judge Richard Posner, however, said the appeals court was "puzzled" by the "questionable" decision to award a multiplier, given that a case's novelty and complexity was typically reflected in base fees.

The lower court judge "concluded that for the most part the case wasn't very complex - it was just about whether or not Sears had sold defective washing machines," Posner wrote.

Lawyers for the plaintiffs did not immediately respond to requests for comment.

The settlement followed nine years of litigation. Damages have not been determined, but Sears and Whirlpool have estimated that the total payout to class members may not exceed $900,000.

In a joint statement, Sears and Whirlpool said the appeals court correctly reduced the "excessive and unreasonable" fee award, and said fees in similar cases should generally be lower than sums the plaintiffs recover.

The case is In re: Sears, Roebuck and Co Front-Loading Washer Products Liability Litigation, 7th U.S. Circuit Court of Appeals, No. 16-3554.

bloruleshort.gif (618 bytes)

Penney's Loss Widens on Store Closings
By Suzanne Kapner and Justina Vasquez
The Wall Street Journal
August 12, 2017

Penney closed 127 stores in the latest quarter, the most the retailer has liquidated at one time.

J.C. Penney Co. posted a wider quarterly loss, as liquidation sales at stores it closed during the period weighed on the company's results.

Penney shares tumbled 17% in Friday trading as investors responded to weaker-than-expected profit margins.

Penney closed 127 stores in the latest quarter. Penney CEO Marvin Ellison said the retailer had never liquidated that many stores at one time, which made forecasting difficult. But he added: "We walked away from the liquidation event a stronger company."

Penney said in February it would close as many as 140 of its roughly 1,000 stores, joining rivals such as Macy's Inc. and Sears Holdings Corp. that have been shutting locations this year.

Penney said it would use the savings to focus on revamping stores in stronger markets.

Sales at stores open at least a year fell 1.3% in the quarter ended July 29, better than the 3.5% decline in the previous quarter, a pattern similar to that reported by Macy's Inc. and Kohl's Corp. on Thursday.

But the improved sequential results weren't enough to reassure investors, who have soured on the department store sector. Penney's shares initially dropped more than 20% in premarket trading, but recovered some ground to close Friday at $3.93 a share. They are down 53% this year.

Foot traffic has steadily slowed at brick-and-mortar stores as shoppers increasingly turn to Amazon.com Inc. and e-commerce to spend their dollars.

Penney has been adding new categories such as appliances and revamping its beauty salons to differentiate itself from competitors.

It plans to add a toy sec- in time for the holiday season. And it is revamping its women's apparel offerings, which continue to be a weak spot, by focusing on more casual clothing, including the addition of a new line from the contestants of the "Project Runway" television show that will debut this fall. "We were slow to react to the changes in how women dress," Mr. Ellison said.

The company posted a second- quarter loss of $62 million, compared with a loss of $56 million a year earlier.

Revenue edged up 1.5% to $2.96 billion, from $2.92 billion a year earlier.

bloruleshort.gif (618 bytes)

Costco appoints new chairman
By David Salazar
Chain Store Age
August 11, 2017

Costco Wholesale Club has tapped its longtime director as its new chairman.

The company announced the election of Hamilton "Tony" James to the position of chairman. He replaces Jeff Brotman, who co-founded Costco with James Sinegal in 1982. Brotman passed away unexpectedly on Aug. 2.

James is president and COO of Blackstone Group, and a member of Blackstone Group Management's board of directors. He is also a member of Blackstone Management Committee and sits on each of the firm's investment committees.

James has been a director of Costco since August 1988, becoming its lead independent director in 2005.

bloruleshort.gif (618 bytes)

We Just Visited This Discount Retailer That Could Kill Sears From the Inside Out and Were Blown Away
By Lindsay Rittenhouse
MSN Money
August 8, 2017

I recently visited a retail store that was so well-staffed, organized and aesthetically pleasing I almost couldn't believe I was still in 2017 - the year of the dying retail industry.

Take a guess as to which retailer it was. Here's a hint - it was not a store run by Sears Holdings Corp. However, it does have a connection to the ever-struggling operator of the Sears and Kmart stores.

The answer is Primark - owned by parent company Associated British Foods plc - the growing Dublin-based fast-fashion, off-price retailer coming for Sears' head. Not that Sears Chairman and CEO Eddie Lampert seems to mind.

In 2014, Sears sparked a deal with the U.K. rival to Hennes & Maurtiz and Forever 21 to lease a total of 520,000 square feet of its retail space to Primark. The Irish retailer, which was able to make its U.S. debut in September 2015 through the deal, got eight standalone stores out of the transaction, which are all primarily located on what used to be the top level of a Sears mall-based store.

Lampert is desperately trying to sell off real estate to raise cash, as Sears burned through $1.6 billion last year alone and is on track to shed another $1.8 billion in cash this year.

On Friday, Aug. 4, I visited one of Primark's eight U.S. stores located in the Freehold Raceway Mall in New Jersey in a second-floor space that used to house a Sears store's upper level. The store was as neat as a stiff drink; had an industrial feel; carried a wide array of items from luggage to casual apparel to business attire and offered a hefty load of discounts.

Emily Kosc, 23, while perusing through clothing racks, told TheStreet that she "loves" Primark and shops at the Freehold location often.

"The prices are reasonable and it's still really good clothes," Kosc explained, saying that she also shops at other fast-fashion and discount retailers including Forever 21, Charlotte Russe Inc. and The Gap Inc.'s Old Navy.

As for Sears, the millennial consumer said that the traditional appliances and home goods retailer carries "nothing that I need at my age" so she never shops there.

Sears spokesman Howard Riefs didn't immediately return a request for comment.

bloruleshort.gif (618 bytes)

Why Sears Holdings Corp (SHLD) Never Had a Chance
By Dana Blankenhorn
InvestorPlace
August 7, 2017

A century ago Sears was Amazon. Now it is nothing.

To anyone under 40, all the boo-hooing over the fate of Sears Holdings Corp. must seem pretty silly. The baby boomer will tearfully recall Sears' stature as the Wal-Mart Stores Inc in her youth. Her old man will remember Sears as the Amazon.com, Inc. of his.

To hear Sears is going under - and it is - despite another $200 million credit line from controlling shareholder Eddie Lampert - is like hearing that the water system is going under, that we don't need those electrical poles, or that AT&T Inc. is dead.

Oh, the AT&T you're thinking of, grandpa? The Bell System? Dead.

Sears Was American Retailing

It is hard to overstate the importance of Sears to the development of America in the 20th century.

The Sears "Wish Book," as its Christmas catalog was known, brought consumerism to the countryside. The warehousing and sorting facilities it built were vital in developing regional centers like Atlanta. Sears was an early centerpiece of the American suburb, and helped create the American shopping mall.

Sears built demand for the basic infrastructure we take for granted. The U.S. Postal Service trucks delivering hefty Amazon packages today got their start working for Sears. As recently as the 1970s, Sears was a symbol of American corporate strength. The tallest building in this country was built as the Sears Tower.

Sears today has a market capitalization of under $1 billion, but as recently as 2007 that was near $20 billion. As recently as 2004, SHLD was a hot stock, tripling in value in the wake of Lampert's takeover. Analysts no longer offer earnings estimates - not even a whisper. The two analysts left both have the same recommendation - "sell."

The problem was that Lampert either didn’t know what he was buying, or didn’t care. He thought he was buying a mainline retailing giant. What he was really buying was infrastructure and systems that were 30 years out of date.

Wal-Mart had already taken Sears' rural and suburban markets before Lampert combined it with K-Mart, which he already controlled. He thought combining the market shares of a discounter and a retailer would let him challenge the Walton gang.

But he was looking only at the front of the stores, not what was behind them, and this is the important point.

Retailing, the physical act of having someone accept a product and pay money for it, is the end of a long chain of events. Before that exchange happens, the buyer must be convinced they're getting value and the store’s infrastructure must have delivered it.

What Sears Got Wrong

What Lampert saw in Sears were clerks in front of cash registers handing bags to happy shoppers. But at every step between Sears accepting delivery of product at shipping docks, and even at that point, there were people.

People cost money, and the key to retailing in the 21st century is to minimize their involvement. Wal-Mart and its acolytes, like Dollar General Corp., do that with open floor plans and minimal staffing. Amazon does it by transforming warehouses into factories, and automating those factories.

Retailing is all about information. The old Sears delivered that information on pages in a book, backed by people, warehouses, and procedures. Even before Lampert bought Sears, all this had been reduced to magnetic ink, thanks to Wal-Mart and bar codes. Amazon simply finished the job, automating the process of choosing product, and breaking bulk without having people leave home.

Eddie Lampert's Sears, in short, never had a chance. Julius Rosenwald's Sears, however, might have. But Eddie Lampert is no Julius Rosenwald. If your great-grandfather were still with us, god rest his soul, he could explain it to you.

Dana Blankenhorn is a financial and technology journalist. As of this writing he owned shares in AMZN.

bloruleshort.gif (618 bytes)

Retailers: J C Penney Company Inc (JCP) vs. Sears Holdings Corp (SHLD)
By Will Ashworth
InvestorPlace
August 4, 2017

With both companies facing possible extinction this is not a question for average investors

Asking investors to choose between J C Penney Company Inc or Sears Holdings Corp is like asking vacation travelers which cruise ship they'd prefer to take - the Titanic or the Lusitania?

No rational investor would say yes to buying JCP stock or SHLD stock. However, I'm not talking about your average 401(k) investor. I'm thinking about speculative investors, those willing to risk and lose capital on two department stores struggling to survive.

JCPenney or Sears: Which Should You Pick?

JCP stock is down 33.6% year-to-date, while SHLD is treading water so far in 2017, down 7.7%. Neither of these stocks would qualify as momentum plays; they do, however, represent stocks that are in the middle of possible dead-cat bounces with Sears still down 7.4% and JCPenney up 16% in the past month, well ahead of the S&P 500’s rather modest 2% return.

With both stock prices in single digits, my question to the gamblers out there is a simple one. If you had to buy one of these stocks to save your life, which would it be?

I believe the choice is an easy one. For me, it has to be JCPenney. Here's why.

We're Talking Equity, Not Debt

For both stocks to be worth something in five or ten years, each company has to be in business in 2022 and beyond.

Both face potential bankruptcy.

In the event either were to file for Chapter 11, it's conceivable that a restructuring plan could keep the business operating, but the likelihood of the equity surviving bankruptcy is remote.

"Although a company may emerge from bankruptcy as a viable entity, generally, the creditors and the bondholders become the new owners of the shares," states the SEC’s investor publication about bankruptcy. "In most instances, the company's plan of reorganization will cancel the existing equity shares."

I know family friends who inherited Eastman Kodak stock before it entered Chapter 11 in January 2012. When it emerged from bankruptcy in September 2013, those shares were worthless.

So, it's possible once a reorganization plan is approved by the bankruptcy court, that the original common shares have some actual value, but unlikely. In a Chapter 7 liquidation, there is even less chance once the court-appointed trustee liquidates all the assets.

It's a big reason why Eddie Lampert and Bruce Berkowitz hold approximately $2 billion of Sears' debt. In the event of a Chapter 11 filing, they have greater control over what happens to the company once it emerges from bankruptcy.

If Lampert and Berkowitz only held equity - they own 85% of Sears - they'd be on the outside looking in although Lampert, as CEO, would continue to run the business.

But, if it files Chapter 7, everything is liquidated, creditors made whole including Lampert and Berkowitz, and if there's anything left over, shareholders can claim those funds.

Is Bankruptcy a Possibility for JCP?

Well, you can never say never, but despite terrible same-store sales - its first-quarter earnings saw same-store sales decline 3.5%, considerably worse than the Street’s estimate of 0.7% - it’s expected to make money in both 2017 (49 cents per share) and 2018 (44 cents per share).

Where Sears has negative cash flow, JCPenney is generating positive cash flow. More importantly, CEO Marvin Ellison continues to do whatever it takes to deliver profitable growth for the business.

On July 13, it announced that it was putting toy shops in all of its stores and continues to add new categories to compete with Amazon.com, Inc. and the rest of the e-commerce world.

In a move that should provide confidence for investors, JCP announced July 24 that Jeffrey Davis was the new CFO at the company replacing Edward Record who resigned in early July.

Why would a man who's been CFO at both Darden Restaurants, Inc. and Wal-Mart Stores Inc take this job if he didn't think the future was reasonably decent.

Bottom Line on JCP and SHLD Stock

In the short time Ellison has been at JCPenney, he has made a lot of decisions and changes to its business to survive in this retail environment.

Eddie Lampert has had over a decade to rework Sears, but he has done little to show he understands or cares about retail.

Sears stock might have jumped on the news Kenmore products will be sold on Amazon, but that's merely a temporary bounce.

When, not if Sears goes bankrupt, a Chapter 11 filing could give it another life. If it's Chapter 7, JCPenney gains in a big way from its demise.

Average investors shouldn't own either stock, but if you're a betting man or woman and can afford to lose the capital, JCP stock is the one you buy.

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.

bloruleshort.gif (618 bytes)

Amazon Opens Old Wounds for Retailers (Again)
By Or Shani
Chain Store Age
August 2, 2017

Before we completely move on from last month's Amazon Prime Day, it's important to understand why retail brands once again braced themselves to lose customers and online sales when they had a whole year to do things differently.

Amazon's ingredients for the promotion were extensive and strategic, but were also simple extensions of its carefully built ecosystem: They offered sneak previews of the sale a week in advance, gave Alexa shoppers a several-day head start on Alexa-specific product deals, gave Prime Now members a two-day head start on deals for products with a 2-hour delivery, pushed voice shopping by giving first-time voice shoppers first dibs on deals the day of the promotion, and extended access to 100 Alexa-related deals beyond the close of the promotion.

The most glaring takeaway from all of this is that Amazon didn't do anything that other retailers can't do themselves. When you break it down, they put together a promotion that rewarded loyal shoppers, drew attention to the benefits of membership, pushed valuable behaviors they want to see more of, and created deal segments according to user and product type.

While there are admittedly few retailers that have the infrastructure and product variety that Amazon does, what most retailers do have is lots and lots of data. And as of very recently, they also have access to advanced technologies like artificial intelligence that can put this data to work so they're less vulnerable to retailers like Amazon.

What continues to stand between many retailers and Amazon is their inability to put technology and data to work for them, so they can think less about the day-to-day minutiae and more about the customer experience. Here's how Amazon did that and what retailers can learn.

Get out of the weeds and put the customer first. A major inefficiency for retailers is the overwhelming amount of customer data they must wade through to come up with the type of tangible insights - recurring visitor trends, buying patterns, and product preferences - that Amazon bases most of its marketing and promotions on. The same data that allows retailers to hyper target their audiences with personalized messages has simultaneously become way too much for them to analyze and act on creatively in other ways that would enhance the customer experience.

Amazon got ahead of this problem years ago by introducing a proprietary technology infrastructure that relies on artificial intelligence and machine learning to maximize customers' experiences on the site. Because Amazon has automated many of the day-to-day processes that fuel their understanding of their customers, while other retailers still rely on teams to manually crunch and interpret data, Amazon has freed up its teams to work on more creative programs.

Retailer agnostic AI platforms are now emerging to let retailers bridge the gap between themselves and major retailers like Amazon. Amazon Prime Day is a perfect example of what's possible when retailers have the luxury of time

Stop telling customers who they are and what they want. If the groups that Amazon prioritized for Prime Day taught us anything, it's that Amazon isn't overthinking things. In fact, quite the opposite. What Amazon continues to do so well is use its data to identify and understand it customers, both individually and as parts of the larger behavior-driven groups they fall into. Amazon doesn't make the mistake of pre-determining user segments and buyer personas, and then retroactively fitting customers into them.

Instead, Amazon lets its customers' demographic and behavioral data tell them what they like and don't like, what products are trending among which types of people, and where there are both predictable and unexpected patterns that inform larger user trends. Amazon additionally offers its customers several opportunities to self-identify themselves, their commitment level, and their priorities through structured programs like Amazon Prime and Prime Now. All of this gives Amazon digestible groups-based insights that they can use to seamlessly cater to these groups.

Supplement retargeting with rewarding. Retailers can dedicate a lot of time and resources to retargeting disinterested customers while inadvertently ignoring highly valuable customers they don't know about. Amazon has solved for this with laser-precision targeting, based on the type of acute insights discussed above.

What they do next is also worth noting. During Amazon Prime Day, Amazon isolated a very specific group of customers to activate: Alexa customers who have not yet used the voice shopping feature. Presumably, Amazon has seen increased order frequency or order values from voice shoppers, and sees an opportunity to grow this segment. So, in retargeting them, Amazon didn't just put Alexa-related products in front of these shoppers; it rewarded everyone in this very specific segment with two hours advanced access to Prime Day deals and a 6-day extension on voice deals across segments.

Not surprisingly, Amazon reported that "Prime members' most popular purchase was the Echo Dot, which was not only the best-selling Amazon device this Prime Day, but also the best-selling product from any manufacturer in any category across Amazon globally."

There are several other takeaways and lessons to be learned from the success of Prime Day, but at the core of all of it, what Amazon continues to do better than other retailers is use technology to free up time and maximize reach, data to point them in the right direction, and good old-fashioned creativity to tailor promotions that get customers to do and buy what they want them to.

For retail brands who have never understood why they couldn't compete with Amazon, emerging AI solutions will illuminate the advantages Amazon has enjoyed, while simultaneously eliminating them.

bloruleshort.gif (618 bytes)

Costco co-founder, chairman dies
By Marianne Wilson
Chain Store Age
August 1, 2017

A retail legend has passed.

The co-founder and chairman of Costco Wholesale Club, Jeff Brotman, 74, died Tuesday morning. He died in his sleep at his home and the cause of his death wasn't immediately known.

Brotman's death came as a "complete shock," according to the Seattle Times. On the Monday night prior, he had attended a dinner for about 2,000 Costco warehouse managers from around the world who are gathered this week at the Washington State Convention Center, the report said.

"The thoughts of Costco's board, management and employees are with Jeff's wife and family," Costco said in a statement. The company did not say who would succeed Brotman as chairman.

Brotman had retail in his blood from an early age. His father, Bernard Brotman, founded several specialty stores in the Tacoma Washington area. Brotman co-founded Costco Wholesale with Jim Sinegal, who served as the company's CEO until he stepped down in 2011. The two opened the first Costco warehouse club location in 1983, in Seattle, and built it into a global retail powerhouse. The company currently operates 736 warehouses, including 511 in the United States and Puerto Rico, 97 in Canada, 37 in Mexico, 28 in the United Kingdom, 25 in Japan, 13 in Korea, 13 in Taiwan, eight in Australia, two in Spain, one in Iceland and one in France.

Brotman previously served as chairman of the company's board from Costco's founding until 1993, when he became vice chairman of the company. Since December 1994, he served as chairman.

Brotman was famous for his philanthropy, which spanned the educational, medical and cultural arenas. He and his wife were major donors to the Democratic Party. Brotman also supported other entrepreneurs, and was an early investor in Starbucks.

"I will miss Jeff immensely. He was a dear friend, mentor and a brother," Howard Schultz, Starbucks' executive chairman, said in a statement. "He was one of the earliest believers and investors in Starbucks and in me."

Schultz also commented on Brotman's charitable endeavors, describing him as "a shining light in the community contributing so much to Seattle and the nation. We have lost a titan of our community."

bloruleshort.gif (618 bytes)

J.C. Penney turns TV show into women's apparel brand
By Marianne Wilson
Chain Store Age
July 31, 2017

J.C. Penney has entered into an ambitious partnership with a Lifetime reality fashion show.

The department giant has launched the first-ever "Project Runway" brand, with the collection inspired by the popular show and its design contestants. Currently available in over 500 Penney stores and online, the line made its debut with a summer preview collection featuring designs inspired by season 15 winner Erin Robertson, with the full assortment planned for Sept. 8.

"Millions of viewers aspire to emulate the fashion-forward looks first conceptualized during a Project Runway episode," said John Tighe, chief merchant for J.C. Penney. "This strategic collaboration enables us to work directly with up-and-coming design talent from Project Runway and increase our assortment of contemporary apparel, while gaining a fresh perspective on what women are seeking when curating the ultimate wardrobe."

In addition, Penney announced it will be the exclusive retailer partner for "Project Runway" seasons 16 and 17, along with "Project Runway All Stars" season 7. As part of the collaboration, throughout each season of both shows, Penney will sponsor a design challenge. The winners will have a special, limited edition run of their winning design produced in New York City, which will be immediately available to the public at J.C. Penney.com, and in select stores the following morning. Each season's winner will also have the chance to collaborate with J.C. Penney on a capsule collection for the Project Runway brand.

For the entire season of Project Runway All Stars, Penney plans to translate the winning look from every episode into garments that will be available exclusively on J.C. Penney.com every week, giving fans instant access to the latest styles from the show. And each show will also showcase "The JCPenney Accessory Wall," featuring a curated selection of shoes, handbags, fashion accessories and jewelry from various brands sold at Penney. In every episode, designers will be encouraged to complete their runway look using accessories displayed on the wall.

Penney is supporting its new brand with an integrated marketing campaign that includes dedicated Project Runway television spots and engaging fans of the show on popular social media channels. It is also spotlighting the collection through a dedicated microsite at jcp.com/projectrunway where customers can shop the latest Project Runway assortment inspired by the show and the challenge episodes.

"This partnership with J.C. Penney is one of our biggest retail collaborations since the series first began more than a decade ago," said Harvey Weinstein, co-chairman of The Weinstein Company, which produces the Runway shows. "It also marks the first time the entire Project Runway franchise has partnered with a leading, national retailer and introduced a line of Project Runway clothing that will be available year-round."

bloruleshort.gif (618 bytes)

4 Reasons J.C. Penney Is a Better Value Stock Than Sears Holdings
By Leo Sun
The Motley Fool
July 31, 2017

J.C. Penney might turn its ship around, but Sears is clearly capsized.

J.C. Penney is often mentioned in the same breath as Sears Holdings. On the surface, there are similarities -- both retailers flourished in past decades, but the rise of e-retailers and sluggish mall traffic gutted their businesses.

As a result, both stocks plummeted by more than 90% over the past decade and now trade at very low valuations. J.C. Penney trades at just 0.1 times sales, and Sears has a price-to-sales ratio of 0.05 -- compared with the industry average of 0.3 for department stores.

Value investors might look at Sears' lower price-to-sales ratio and assume that it's the cheaper stock. However, investors should always spot the differences between a "cheap" stock and a doomed one. If we compare J.C. Penney and Sears' core businesses, we'll see that J.C. Penney is the better value play for four simple reasons.

1. Better top- and bottom-line growth

J.C. Penney and Sears' top lines have both declined considerably over the past decade. But J.C. Penney's declines have stabilized in recent years:

J.C. Penney's annual revenue rose 3% in fiscal 2014 and another 3% in 2015, and it dipped less than 1% in 2016. Analysts expect its revenue to slip 3% this year and another 1% next year.

Those numbers look mediocre, but they easily beat Sears' sales declines of 14% in 2014, 19% in 2015, and 12% in 2016. J.C. Penney's comps were merely flat in 2016, while Sears' combined comps (including Sears and Kmart) tumbled more than 7%.

J.C. Penney's bottom-line growth is also superior to Sears'. J.C. Penney posted net losses for several straight years, but it squeezed out a slim non-GAAP profit of $0.08 per share in 2016. Wall Street expects J.C. Penney to remain profitable for the next two years. Sears, however, remains deeply unprofitable, and its losses are expected to widen over the next two years.

Here's how dire the situation is for Sears?

2. Sears is burning the furniture; J.C. Penney isn't

Under CEO Eddie Lampert, who took over in 2013, Sears aggressively closed stores to stay afloat. Between fiscal 2012 and 2016, Sears reduced its total store count by 44% to 1,430 locations. During that same period, J.C. Penney reduced its store count by just 8% to 1,013 locations.

In other words, Sears is burning the furniture to stay warm. But the more furniture it burns, the less relevant its brand becomes -- as we saw with the collapse of its former rival Montgomery Ward. To make matters worse, all those store closures aren't boosting Sears' profits.

3. J.C. Penney has clearer turnaround plans

J.C. Penney is implementing a wide range of turnaround strategies under CEO Marvin Ellison, who took the helm in 2015. J.C. Penney improved the product presentation at its stores, brought back appliances in a bid to steal Sears' customers, boosted its supply-chain efficiency, and expanded its in-store salons.

It also expanded its home-improvement department, increased its athletic apparel and plus-size offerings, added new toy shops, and expanded its Sephora in-store locations. It upgraded its website and enhanced its analytics capabilities to better understand what shoppers wanted, and it launched a new B2B program for selling furnishings to hotels.

The bears argue that J.C. Penney's scattergun strategy is unfocused, but it's easier to understand than Sears' vague turnaround plans -- which mostly consist of closing more stores, laying off employees, unloading its real estate, and selling off its brands, including Craftsman. Sears claims that expanding its loyalty programs will win back customers, but that could be tough as it shrinks its brick-and-mortar footprint.

4. Lower debt levels

Both retailers are shouldering a lot of debt. But J.C. Penney's debt load is decreasing -- its total long-term debt dropped 7% annually to $4.1 billion last quarter. Sears' total long-term debt, however, rose 9% to $3.7 billion last quarter.

Some analysts are worried that Sears can't tread water for much longer. Its cash and equivalents fell 17% annually to just $236 million last quarter, and it had a negative free cash flow of $1.6 billion over the past 12 months. J.C. Penney's cash and equivalents slid 13% annually to $363 million last quarter, but its negative free cash flow of $89 million during the past 12 months looks much more manageable.

But should you actually buy J.C. Penney?

J.C. Penney is clearly a better value play than Sears, but it's still a risky investment. The best-case scenario for J.C. Penney is that it strikes the right balance between its e-commerce and brick-and-mortar stores, occupies the right niches (such as home improvement) that are defensible against e-retailers, and wipes out struggling rivals such as Sears.

If it can pull that off, it could be a great bargain at current prices. But if just one of those strategies comes up short, it could have a lot more room to fall.

bloruleshort.gif (618 bytes)

Sears Holdings Corp (SHLD) Stock Awaits How Canada Unit Bankruptcy Plays Out
By Will Ashworth
InvestorPlace
July 30, 2017

Eddie Lampert is likely using North of the border tactics to plot strategy for what's next in U.S. restructuring

Sears Holdings Corp might not hold a majority of Sears Canada's equity anymore, but the affiliate's bankruptcy should help those holding SHLD stock understand just how messy things are going to get in the U.S.

If Eddie Lampert thinks he's going to get out from under his moral obligation to pay severance to longtime employees, he's got another thing coming.

Let me be clear, I'm not an attorney, nor am I an expert on bankruptcy law in either country, but I do know a thing or two about retail, so I feel it's necessary to say my piece on the subject.

What's Happening in Canada is Shameful

My June 30 article about Sears Holdings touched on the bankruptcy of Sears Canada. Today, I'll fill you in on what's happened since then.

Are you familiar with Mike Myers, the actor?

Yes, the same Mike Myers from Saturday Night Live who went on to do the Austin Powers and Wayne's World movies. Well, he's from Toronto, and his brother Peter worked at Sears Canada for 35 years, most recently as senior director of planning.

On July 13, Sears Canada announced its restructuring plans as part of its bankruptcy proceedings, which included closing 59 stores and firing 2,900 people. Peter Myers is one of them. After almost four decades with the department store, Myers was getting the ax without any severance - not a penny.

Myers' departure is especially ironic because Sears Canada's former management asked the longtime employee on several occasions to get his celebrity brother to do a commercial.

In 2014, Peter Myers agreed.

"I said, I will do this commercial if it's about how Sears isn't closing," Peter told Business News Network shortly after his dismissal. "Mike turned to me at one point when we were having a break [during the filming of commercial] and said, 'I guess they can never fire you now.' We laughed because it was not really a thing."

"When I told him [about the firing], he couldn't believe it and he really wasn't happy," Peter Myers revealed. "I do see the irony."

Big Retention Bonuses for Fat Cats at Head Office

In Canada, most people are disappointed that Sears Canada is firing several thousand people but they understand that it's just business.

However, when it was learned that none of the employees would be getting any severance - one expert suggests Myers was eligible for two years' pay for his tenure - and the court had approved CAD$9.2 million ($7.4 million) in retention bonuses to keep the company operating during the store closures, the citizenry went ballistic.

The hashtag #BoycottSearsCanada has become a social media firestorm. The protest's become so bad the company's been forced to close comments on its Facebook Inc page, turning the entire process into a PR nightmare.

Sears Canada is going to have a tough time getting people into its stores after this, and although the boycott will ultimately put a lot more people out of work, it's easy to understand why people are pissed.

What Was The Court Thinking?

It's far harder to comprehend the thinking behind the court's decision to approve zero severance and huge bonuses.

Is there no decency left in business?

Unfortunately, the judge who made the decision probably had no choice given Canada's bankruptcy laws, but to approve both requests.

Now, a law firm representing more than 17,000 current and former non-unionized employees, has filed a motion for the court to disallow all but CAD$1.6 million - for those working at the 59 stores set for closing - of the retention bonuses. It claims the CAD$7.6 million set aside for 43 senior management does nothing to ensure a successful restructuring.

Ya think?

The problem is the laws, as they're currently written, don't allow for much wiggle room. Secured creditors rule.

"These are people whose function, whose role, Sears has deemed to be key in allowing it to restructure and liquidate and maximize that amount that it hopes to recoup for its creditors," says Toronto labor lawyer Lior Samfiru. "It's going to be very difficult for a court to question that judgment."

My feeling on this subject, much like my thoughts on excessive CEO compensation, is that the importance of senior management in big business is often greatly exaggerated.

Bankruptcy laws in both countries must put employee rights on equal footing with secured creditors. Until that happens, the rank and file are going to be chewed up and spit out 100% of the time.

Bottom Line on SHLD Stock

This article might not seem to have anything to do with Sears Holdings but let me assure you it does.

Eddie Lampert is using Sears Canada's bankruptcy as his test case to determine what course of action he should take to extract the most value for ESL Investments, his hedge fund, which owns 56.5% of SHLD stock and 32% of its long-term debt.

There's no question that Sears Holdings' days as a retailer are coming to a close. How this goes down, in large part, will be a reflection of what happens at Sears Canada.

Frankly, unless you own some of Sears' secured debt as Lampert does, you're a dead man walking. Both Sears Canada and Sears Holdings are headed to the history books.

Handle SHLD stock accordingly.

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.

bloruleshort.gif (618 bytes)

Sears Canada's biggest shareholders call off bid
By Andrew Scurria
MarketWatch
July 28, 2017

Eddie Lampert and Bruce Berkowitz called off a potential joint bankruptcy deal for Sears Canada Inc., clearing the way for other bidders to challenge its two largest shareholders.

The two hedge-fund managers on Friday terminated a joint legal engagement ahead of an Aug. 31 bid deadline. ESL Partners LP, the hedge fund operated by Mr. Lampert, also said it might sell "some or all" of its 45.3% Sears Canada stake to generate a tax loss for its investors.

For Mr. Lampert in particular, the announcement marks a rare retreat from the Sears brand name after pumping billions of dollars into both the Canadian and U.S. namesakes in the face of widespread disruptions upending the retail industry. ESL may consider other potential financing transactions or sale agreements involving Sears Canada, according to the announcement.

Mr. Berkowitz's Fairholme Capital Management LLC has also wagered heavily on a retail revival, increasing its Sears Canada stockholdings in the quarters leading up to the June bankruptcy filing. He told investors a week after the insolvency proceedings began that his 21% Sears Canada stake would still be worth an estimated $7 per share after the company emerged from court protection.

ESL and Fairholme said this month they were teaming up to develop "a potential negotiated transaction" with Sears Canada, which was spun off from Sears Holdings Corp. in 2012. The U.S. entity, chaired by Mr. Lampert, also owns a 12% stake in Sears Canada.

More than 20 potential bidders had expressed takeover interest in a possible bankruptcy sale.

Sears Canada filed for court protection under the Canada's Companies' Creditors Arrangement Act, the equivalent of chapter 11 bankruptcy in the U.S. The company said it planned to leave bankruptcy "as soon as possible" this year and shed costs by closing roughly a quarter of its stores and laying off some 2,900 employees.

Sears Canada, one of the largest multiformat retailers in Canada, has a 225-store footprint across the country and employs roughly 17,000 people.

bloruleshort.gif (618 bytes)

The Accelerating Death Of Sears Retail
By Elephant Analytics
Seeking Alpha
July 24, 2017

Sears Holdings (SHLD) continues to close stores at a torrid pace, with another 43 stores set to be closed within a few months. This brings the total store closures during 2017 to over 300. Kmart is affected more by the store closure announcements than the Sears banner, as has been typical in recent years.

Sears's partnership with Amazon (AMZN) should help preserve some value for its Kenmore brand and Sears Home Services as it continues to close stores. The decision to sell Kenmore outside of Sears will likely accelerate Sears's comparable store sales decline though, and contribute to further store closures. Faster store closures are favorable to shareholders, who have seen Sears's retail operations swallow up much of its asset value. However, I think the more bullish estimates of its real estate value are quite overstated, leaving no margin of safety for its equity in the end.

Kenmore And Amazon

Sears's deal with Amazon to sell Kenmore appliances is generally a positive for the company. Kenmore sales have been declining for years as Sears stores close and have consistently negative same store sales. Kenmore's share of major appliance sales has fallen dramatically according to Stevenson TraQline, with its market share going from 16.7% in the 12 months ending March 2013 to 10.3% in the 12 months ending March 2017. This partnership helps preserve some of Kenmore's value, which was evaporating as Sears closed stores and lost customers.

Now even as Sears's retail sales crumble, there will still be a major distribution channel available for Kenmore. Sears Home Services should also benefit, as now there likely will be more Kenmore owners than there otherwise would have been.

Amazon is currently not a huge player in major appliances with only a 1% market share. Most of Amazon's major appliance sales appear to come via its Marketplace as it only carries a limited number of major appliance products directly. However, online major appliance sales are growing quickly and adding Kenmore to Amazon should result in a noticeable boost in Amazon's market share, even though Kenmore customers tend to skew different demographically compared to Amazon customers.

While this partnership is a boost for Kenmore and Sears Home Services, it will likely serve to also accelerate the decline of Sears retail some more. For example, if Amazon triples its market share of major appliances and around 50% of that increase is cannibalised from Sears stores, it would knock another couple percent from Sears's comps (and around 3% to 4% off Sears Domestic comps). That does not include any additional lost sales from associated foot traffic decline if Kenmore shoppers make fewer visits to Sears stores.

In terms of profitability, the effect is likely to be limited for now. Sears will have lower margins on Kenmore sales since it loses the retailer markup. This gives Sears even more incentive to continue closing stores and eliminate the costs associated with those stores.

Effect Of Store Closures

After the most recent store closure announcement, it appears that there will be no more than 523 Kmarts still in business at the end of Q3 2017. This is a 35% reduction from the 801 Kmarts that were operating at the end of Q3 2016. There haven't been as many Sears store closures, but it appears that there may still be a 15% reduction in full-line Sears stores from Q3 2016 to Q3 2017.

The store closures should allow Sears to significantly reduce inventory levels, which will benefit its cash flow. Sears Holdings had $3.48 billion in net inventory (inventory less merchandise payables) at the end of Q3 2016, so the store closures could potentially contribute around $650 million to cash flow even with merchandise payables increasing as a percentage of total inventory. There are store closing costs to deal with, but Sears may still end up benefiting by around $400 million net of those costs.

Surviving Another Year

Sears appears to be on track to survive until at least 2018. It has apparently closed on around $400 million in real estate transactions so far in 2017 and also sold Craftsman for $525 million up front, plus additional payments, including $83 million that can count towards its pension funding obligations for 2017. Combined with the estimated $400 million net benefit from closing stores, these various items add up to around $1.4 billion so far.

That $1.4 billion plus the potential proceeds from other real estate transactions and the additional funding that Sears has lined up should likely be enough to see Sears through to 2018.

Kmart Leases

Although Sears is touted as having a large real estate portfolio, it should be noted that a significant portion of its real estate square footage (estimated at close to 40% at the end of 2016) consists of leased Kmart locations.

While some Sears leases (primarily those attached to top malls) may be quite valuable, most Kmart locations are standalone locations or part of local strip malls. As shown by Target (TGT) Canada's bankruptcy sale, these locations probably have minimal net value unless there is some catalyst (such as Target's initial entry into Canada) that results in demand for a massive number of locations at one time, and that cannot be supplied by other methods. With department stores and other retailers closing many physical locations in the United States, it seems unlikely that anyone would pay a significant premium for leases that aren't located in top malls.

Target Canada's bankruptcy filing resulted in the sale of its leases (described as with below-market rents), which fetched drastically less than what Target paid for those leases in the first place. A handful of the leases (those located in top malls) fetched a significant amount of money, with 11 leases going for $138 million CAD ($110 million USD) to the mall landlords. The remaining 126 leases appear to have netted around negative $23 million CAD (negative $18 million USD) after approximately $180 million CAD ($144 million USD) in landlord claims were factored out.

This indicates that the Kmart leases potentially have negative combined value (net of lease termination costs) outside of the Manhattan locations. There is less retail space per capita in Canada as well, so assuming that the non-Manhattan Kmart leases have the same average value as the non-top mall Target Canada leases is probably generous to Sears.

The two Vornado Manhattan Kmarts apparently have lease options until 2036 and Vornado has had discussions with Sears about those properties for years, but have been unable to reach a deal. Theoretically the leases for those properties could be worth $100+ million each, but it is uncertain how negotiations would shake out.

Overall, the Kmart leases (representing close to 40% of its real estate square footage) are probably worth less than $200 million combined net of lease termination costs.

Conclusion

Sears's partnership with Amazon will help some elements of the company retain value as its retail sales continue to implode. It also appears likely to survive another year via asset sales, inventory reductions and debt funding. However, I still believe that its equity is likely to end up with minimal to no value in the end.

Sears's retail operations are continuing to gobble up its cash, resulting in Sears needing to arrange funding at very expensive rates (9.75% for a short-term secured line of credit). The margin of safety provided by its real estate also appears overstated, with a significant portion (such as its Kmart leases) having minimal value.

With Sears's equity likely to have minimal to no value in the long run, and Sears also likely surviving another year, there doesn't appear to be a great way to play the stock for the long-term. The cost to short is too high to effectively hold a short position for a whole year. Sears may make a good shorter-term trading stock however.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

bloruleshort.gif (618 bytes)

Sears sued for holding its stock in retirement plan
By Chris Neiger
The Motley Fool
July 21, 2017

The deal immediately boosted Sears' stock price, but despite the seemingly good news, there's not much evidence that selling Kenmore appliances on Amazon's e-commerce platform will be enough to spark a turnaround for Sears.

The problem is much bigger than this

Sears has made a slew of store closing announcements this year, which now total to more than 300 Sears and Kmart locations, all due to poor sales. The bad news started at the end of January when Sears said in a Securities and Exchange Commission (SEC) filing that, "Our historical operating results indicate substantial doubt exists related to the company's ability to continue as a going concern." Since the filing and store closings, rumors have swirled that Sears may eventually file for bankruptcy protection.

Appliance sales have been one of the company's key businesses and Sears is trying to prop this up as much as possible. Just last month it said it would open some smaller stores that only sell mattresses and appliances -- two of the company's most lucrative products.

There are likely two problems with the Amazon deal though. The first is that Sears could actually hurt its own efforts to sell appliances in its new, smaller locations once the same appliances go on sale on Amazon. It seems a bit counterproductive to both launch a new type of appliance store and at the same time try to boost appliance sales on a competitor's website -- which has already put so many retail locations out of business.

Second, there is increasing competition in the appliance sales business, with Lowe's , Home Depot , Best Buy , and others gaining ground. Lowes has been the No. 1 appliance retailer for several years, after unseating Sears, and Home Depot currently holds the No. 2 spot. It's unlikely that Sears could make any significant gains in the competitive space through pricing cuts, especially since the company saw a $2.2 billion net loss in 2016.

To make matters worse, the Kenmore brand doesn't have the same clout with consumers that it once did. Kenmore appliances once held about 40% of the U.S. appliance market, but that's fallen to less than 13% now.

Possibly the right move at the wrong time

It's understandable that Sears is pursuing new avenues for growth in the appliance space. The company earns a good chunk of its revenue -- 15% for the past three years -- from its appliance sales. Additionally, the U.S. consumer appliance market is growing and sales improved 5.6% last year to $69 billion. But the newly announced deal with Amazon is likely a little too late.

Sears is shedding retail spaces left and right and trying to claw its way back into the consumer appliance space that it once dominated. Sears may be able to add some sales by selling Kenmore appliances on Amazon's site, but the move is at best a band-aid to the company's ongoing losses.

Chris Neiger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon

bloruleshort.gif (618 bytes)

Sears Holdings Corp Stock Is Going to Zero No Matter What
By Laura Hoy
InvestorPlace
July 21, 2017

SHLD selling appliances on Amazon won't be enough to stave off bankruptcy

The retail industry is in a difficult transition period in which consumers are turning more toward e-commerce and away from traditional brick-and-mortar stores. While the majority of the old-school U.S. retailers are working to cope with the new trend, one store has been so badly beaten down that there appears to be no way to salvage the business.

Sears Holdings Corp (SHLD) is on its last legs despite CEO Eddie Lampert's best efforts to keep the company afloat.

Even though Lampert's rhetoric suggests that he still believes there is some potential there, the survival of SHLD stock looks very unlikely. It got a pop this week on news it would be selling appliances on Amazon.com, Inc. (AMZN), but that won't be enough. In fact, I'd be surprised to see Sears stock stay afloat for longer than a year.

Lampert's Delusions About Sears

It's difficult to figure out what exactly is going on in Sears CEO Eddie Lampert's mind. On one hand, it should be encouraging for traders to see a CEO stand so firmly behind his company.

However, much of his confidence appears to be unfounded, and when you dig a little bit deeper, his financial tie-ups with SHLD make it look like an impending bankruptcy would actually be in his best interest.

Eddie Lampert is in an unusual position in that he is one of SHLD's largest secured creditors. Together with his hedgefund, Lampert owns almost half of Sears' secured debt. The issue with this is that Lampert will be one of the first in line to collect should the company go under, something that should make shareholders wary.

Not only that, but Lampert also bought up a great deal of SHLD stock's real estate in order to create a real estate investment trust called Seritage Growth Properties (SRG). U.S. bankruptcy law says that such a purchase could be considered a conflict of interest if Sears were to file for bankruptcy within two years.

Since that purchase happened over two years ago, Lampert is in a pretty good position if the company does decide to pack up shop.

Smaller Format, Smaller Footprint for SHLD Stock

If you aren't suspicious of Lampert's business dealings when it comes to a Sears bankruptcy, then you might be encouraged by the Amazon deal. Alternately, you may be looking at the firm's recent decision to downsize and sell off some of its less-profitable stores as a positive.

While it's true that the closures will bring in a bit of much-needed cash and help reduce operating costs, those benefits are unlikely to do more than drag out the company's inevitable demise a little bit longer. Without a catalyst for future growth, SHLD stock is doomed no matter what.

Lambert has been pointing to SHLD's latest "small format" store initiative as a lifeline for the future, but I'd say that’s an overly optimistic viewpoint. It's really too late for SHLD to turn things around. Small-format stores that focus on more profitable categories would have been a good idea a few years ago when the firm started to slip into the danger zone, but at this point it appears to be a case of too little too late.

Surviving Against the Odds

Sears has been limping forward over the past year despite the fact that most investors agree that bankruptcy is an inevitable outcome. I believe that a big part of Sears' forward momentum has been due to Lampert's real estate transaction, and with that issue now out of the way, a Chapter 11 filing looks more likely.

SHLD’s most recent store closures will probably keep the company afloat through the rest of the year, but not much longer. There's only so much Lampert can do to keep the company ticking forward without turning a profit.

A bankruptcy is coming. It's impossible to be certain about exactly when the filing will come, but I don't think it's unreasonable to expect it sometime in the next 12 months. Investors should steer clear of SHLD stock, unless they want to get burned.

bloruleshort.gif (618 bytes)

Sears to sell Kenmore appliances on Amazon
By Gina Hall
Chicago Business Journal
July 20, 2017

Alexa, can Sears revive its Kenmore brand on Amazon?

Sears revealed Thursday it will sell Kenmore appliances on Amazon, including appliances that will sync with Alexa, Amazon's voice assistant.

The Alexa integrations will allow consumers to control home appliances, like air conditioners, via voice commands, per the company statement.

Stock in the Chicago-based retailer shot up more than 17 percent on the news. The financial terms of the deal were not disclosed.

"The launch of Kenmore products on Amazon.com will significantly expand the distribution and availability of the Kenmore brand in the U.S.," Sears CEO Edward Lampert said in a statement. "At the same time, Sears Home Services and our Innovel Solutions unit will benefit from the relationship as more customers experience their quality services for Kenmore products purchased on Amazon.com."

For Sears, the deal is also a boon to its delivery, installation and the service units. Sears Home Services will fulfill delivery and warranty services on the Kenmore appliances sold on Amazon.

The move is part of Lampert's promised turnaround for the troubled retailer. The company has already closed many retail stores, sold real estate and recently completed the sale of its Craftsman tool brand to Stanley Black & Decker for $900 million.

The troubled department store has lost more than $10 billion in the past few years and weak earnings, causing executives to question the business' sustainability.

The company has been unable to adapt to online sales and competition from the likes of Walmart and Target. In March, the company said in its annual report filing that it had "substantial doubt" that it could continue to operate.

bloruleshort.gif (618 bytes)

Online giant in deal with unlikely retail partner
By Deena M. Amato-McCoy
Chain Store Age
July 20, 2017

Amazon is staking a claim in the appliance market in a big way in a partnership with Sears Holdings.

The embattled retailer announced it will sell its prized Kenmore-branded appliances on Amazon. The deal opens the way for the broadest distribution to date of Kenmore products outside of Sears stores and its websites. Distribution will be nationwide, and Sears Home Services and Innovel Solutions units will provide delivery, installation, and other services.

"We continuously look for opportunities to enhance the reach of our iconic brands to more customers and create additional value from our assets," said Edward S. Lampert, chairman and CEO of Sears Holdings. "The launch of Kenmore products on Amazon.com will significantly expand the distribution and availability of the Kenmore brand in the U.S."

As an added feature, Sears will sync its full line of Kenmore Smart appliances with Amazon's Alexa. The integration means that customers will able to control the appliances with a voice command.

"The connection to Alexa gives Sears the ability to get into the IoT (Internet of Things) market without having to build their own capabilities," commented Greg Portell, lead partner in the retail practice of global strategy and management consulting firm A.T. Kearney. "Sears gets to take a premiere technology and integrate it into their products as part of this deal, which is a great way to move forward."

Sears' alliance with Amazon is its latest move to remain competitive as more players, such as Best Buy and Lowe's, among others, continue to crowd the marketplace, stealing more share from the appliance category.

In another proactive move to take back those category sales, Sears recently introduced a new store concept that caters specifically to the appliance category. Located in Pharr, Texas, the new Sears Appliances & Mattresses stores features interactive displays of top home appliances brands in kitchen vignettes.

bloruleshort.gif (618 bytes)

Sears sued for holding its stock in retirement plan
By Gina Hall
Chicago Business Journal
July 20, 2017

Alexa, can Sears revive its Kenmore brand on Amazon?

Sears revealed Thursday it will sell Kenmore appliances on Amazon, including appliances that will sync with Alexa, Amazon's voice assistant.

The Alexa integrations will allow consumers to control home appliances, like air conditioners, via voice commands, per the company statement.

Stock in the Chicago-based retailer shot up more than 17 percent on the news. The financial terms of the deal were not disclosed.

"The launch of Kenmore products on Amazon.com will significantly expand the distribution and availability of the Kenmore brand in the U.S.," Sears CEO Edward Lampert said in a statement. "At the same time, Sears Home Services and our Innovel Solutions unit will benefit from the relationship as more customers experience their quality services for Kenmore products purchased on Amazon.com."

For Sears, the deal is also a boon to its delivery, installation and the service units. Sears Home Services will fulfill delivery and warranty services on the Kenmore appliances sold on Amazon.

The move is part of Lampert's promised turnaround for the troubled retailer. The company has already closed many retail stores, sold real estate and recently completed the sale of its Craftsman tool brand to Stanley Black & Decker for $900 million.

The troubled department store has lost more than $10 billion in the past few years and weak earnings, causing executives to question the business' sustainability.

The company has been unable to adapt to online sales and competition from the likes of Walmart and Target. In March, the company said in its annual report filing that it had "substantial doubt" that it could continue to operate.

bloruleshort.gif (618 bytes)

Home improvement stocks hammered by Sears-Amazon partnership
By Carl Surran
Seeking Alpha
July 20, 2017

Shares of Home Depot (HD -4.1%) and Lowe's (LOW -5%) suffer their worst showing of this year after Sears (SHLD +14.1%) announced an agreement to sell its Kenmore line of home appliances directly through Amazon; Best Buy (BBY -3.5%), which also sells appliances, and Whirlpool (WHR -4.3%) also are down sharply.

If AMZN chooses to dive further into the appliance business, one of the few retail areas where it has yet to penetrate deeply, home improvement stocks could get hit further moving forward, WSJ's Amrith Ramkumar writes.

But Baird analyst Peter Benedict thinks the selloff creates a buying opportunity, believing the SHLD-AMZN partnership likely will have a limited impact on HD and LOW as other major appliance brands already sell on AMZN, though he admits the deal introduces "improved competition" from a brand both retailers do not carry.

bloruleshort.gif (618 bytes)

Sears sued for holding its stock in retirement plan
By Ben Unglesbee
RetailDive
July 19, 2017

Sears is not the first stumbling company to be sued for holding its depressed stock in its retirement plan. Arch Coal, for example, was sued by a former employee in 2015 on similar grounds as that company's stock plummeted along with the coal market. While it may be par for the course for companies in financial straits, the suit highlights Sears' retail problems and adds insult to injury, regardless of the court outcome.

The complaint does not mince words about Sears' business performance, and it lists the many documented issues Sears has faced in recent years as proof that the stock was an improper choice for an investment fiduciary. Among those issues are "drastic changes in the retail industry, which Sears failed to adapt to compromised Sears's financial health, and regularly forced Sears to divest its most valuable assets in order to pay operating and interest expenses so that it could continue losing money," as well as "secular shifts in the retail industry [that] rendered Sears highly unlikely to survive in the near-term or long-term."

For now it's hard to see how and when Sears' woes will end. While the company in May managed to eke out a quarterly profit for the first time in recent memory, and has begun testing a new store format, the once-great department store retailer is still closing stores and laying off employees by the hundreds.

Sears this year warned it might not be able to survive as a going concern. This followed years of layoffs, store closures, asset sales, operating losses, sales declines and criticism from some corners of CEO Eddie Lampert's retail acumen.

The company shocked the retail world this year when it announced the sale of its popular Craftsman brand to Black and Decker for $900 million. This year the company made other moves to shore up its balance sheet, including 270 store closures, 530 layoffs and agreements to restructure some debt and pension obligations. The moves will save millions in annual costs, but analysts still see long-term liquidity constraints for Sears. Fitch Ratings and Moody's still give the company a C-grade bond rating, and Fitch analysts see significant risk that Sears could need to restructure in the next year or two.

bloruleshort.gif (618 bytes)

Walmart opens massive online center
By Marianne Wilson
Chain Store Age
July 18, 2017

Walmart is bringing 1,500 jobs to Florida as it continues to expand its e-commerce fulfillment network.

The discounter on Tuesday opened an e-commerce fulfillment center in Davenport, Fla. At 2.2. million sq. ft., the state-of-the-art facility is equivalent in size to about 20 football fields and features 33 miles of shelving and dock doors that can withstand wind speeds of up to 120 miles per hour. It will house millions of items dedicated to fulfilling online orders and will enable faster shipping directly to customers or to stores for free pickup, Walmart said.

The facility is the sixth addition to the next-generation fulfillment network that Walmart is building to support its e-commerce business. The new 50-acre campus is part of a $450 million investment the retailer previously announced it is making in Florida between 2017 and 2018.

"This campus is just the latest example of Walmart's commitment to offering customers fast shipping on items they need every day," said Nate Faust, senior VP, Walmart U.S. e-commerce supply chain. "We're excited not only about the economic impact our facility has had, and will continue to have, in the community, but also how it will help us empower our customers to shop when and how they want."

The opening comes at a time of growth in e-commerce for Walmart. In the first quarter of this year, the retailer experienced 63% growth in U.S. e-commerce sales, the majority coming from organic growth in Walmart.com.

Since the beginning of the year, Walmart.com has rolled out a number of new features, including free two-day shipping with no membership fees, an extra discount for picking up orders in stores and the ability to easily reorder online or make store purchases within the Walmart app.

bloruleshort.gif (618 bytes)

Sears inks $200 million credit line from CEO Eddie Lampert's hedge fund, shares jump 9%
By Lauren Thomas
CNBC
July 17, 2017

Sears Holdings has landed a fresh line of credit, valued at $200 million, from its CEO Eddie Lampert's hedge fund, according to a Monday filing with the Securities and Exchange Commission.

On July 13, Lampert's ESL Partners entered into a short-term line of credit loans, which carry a maturity date of 151 days and a fixed interest rate of 9.75 percent per year, Sears said.

"This facility is intended to provide the Company with the flexibility to generate additional liquidity on an as-needed basis," Sears CFO Rob Riecker said in a statement.

"This adjustment to our capital structure demonstrates that Sears Holdings will continue to take actions to generate liquidity and manage our business while meeting all of our financial obligations."

Sears' stock surged 9 percent higher Monday morning following this news. Shares are now up more than 32 percent from one month ago. This, compared with a loss of nearly 40 percent over the past 12 months.

In 2017, Sears has been trimming its real-estate portfolio — shuttering unprofitable stores — and making moves, such as opening smaller locations that only sell mattresses and appliances, to stay afloat.

Dwindling foot traffic across American malls is dragging many department stores down with it.

Earlier this year, media shy CEO Lampert sat down for an interview with the Chicago Tribune in which he said the retailer is "fighting like hell" to battle negative headlines and pessimism regarding Sears' ability to continue.

Meanwhile, much of Lampert's ESL portfolio today consists of retail companies, particularly Sears Holdings, which is also the fund's largest holding. Lampert founded ESL in 1988 with an initial outside investment of $28 million.

Just last week Lampert said ESL Partners, along with Fairholme Capital, is considering a deal with struggling Sears Canada. Sears Canada, which was spun off from Sears Holdings in 2012, is currently looking to restructure itself under bankruptcy protection.

Sears has also expressed some doubt about its future.

"Our historical operating results indicate substantial doubt exists related to the company's ability to continue as a going concern," Sears said in an annual filing with the Securities and Exchange Commission earlier this year.

The retailer, though, has said it's remaining focused on long-term profitability and on taking actions to mitigate risks.

Cash injections from Lampert's hedge fund and his heavy ownership of the chain's unsecured debt continues to convince some investors that Sears will avoid filing Chapter 11.

bloruleshort.gif (618 bytes)

Illinois companies, including Sam's Club and Sears, warn off more than 500 job losses in June
By Alexia Elejalde-Ruiz
Chicago Tribune
July 15, 2017

The closures of an Aurora manufacturing plant, a Woodridge Sam's Club and another Chicago Savers thrift shop contributed to more than 500 layoffs reported to the state in June.

Some 200 people will be out of a job at the Philips manufacturing plant in Aurora, where the Dunlee brand, acquired by Philips in 2001, makes medical imaging component parts...

Sears Holdings reported 108 people affected by a layoff in Oak Brook, to begin Aug. 27. The department store chain previously announced that it will temporarily close its Oakbrook Center location to remodel the store and make it dramatically smaller, reducing it from three floors to one, and will reopen next year. Its auto center at that location will close in March.

"We will work to ensure that our Oakbrook associates have clear visibility to all openings in our surrounding stores for the period of the temporary closure," said spokesman Howard Riefs. "All eligible associates are encouraged to apply and we will facilitate moving as much talent as we can into these openings. All eligible associates will be offered severance."

bloruleshort.gif (618 bytes)

Sears Canada Lays Off Mike Myers' Brother And 2,899 Other People Without Severance
By Laura Northrup
Consumerist
July 14, 2017

Not long ago, as Sears Canada (a separate company from Sears Holdings here in the United States) was struggling and closing a few stores, one longtime employee did something important for the company's morale and good publicity. He asked his brother, comedian Mike Myers, to make a commercial for Sears Canada. Four years later, Peter Myers has been laid off with no severance.

Sears In Canada

Sears Holdings and Sears Canada aren't the same company, but they used to be. Now they're corporate third cousins, sort of. Sears Holdings chairman and CEO Eddie Lampert owns a large portion of Sears Canada's stock, but the companies have separate management and boards of directors.

Sears Canada filed for bankruptcy last month, and is pursuing the Canadian equivalent of a Chapter 11 reorganization. The company has started the process of closing some stores and laying off employees.

Workers let go earlier this year are having their severance payments cut off, and those being laid off now won't be receiving severance at all.

My Brother Works There

One of the people now out of a job, Peter Myers, was the face of the company just four years ago.

The Myers brothers grew up in Ontario. Younger brother Mike sought his fortune south of the border, becoming a Saturday Night Live cast member and starring in the successful Austin Powers and Shrek movie franchises.

Peter took a different career path, staying in Canada, and has worked for Sears Canada for 36 years. Four years ago, while working in the planning department of the company's headquarters, he asked his famous brother to make a commercial assuring shoppers that Sears Canada wasn't going anywhere.

The ad was a huge hit, and even played in Sears Canada stores. It helped Canadians realize that their Sears wasn't doomed, and they could, say, buy major appliances without fear that the warranties would evaporate.

The "my brother works there" tagline reminded people of the chain's role in their communities. An international movie star's brother works there, and maybe your brother does too. So does your next-door neighbo(u)r and your kid's youth hockey coach.

"I can't quantify it, but I know it had an effect, because store managers told me," Peter Myers told the CBC.

Sort Of Doesn't Feel Very Canadian

The ad is still on YouTube (for now), but Peter Myers was laid off from Sears without severance. He estimates that he'd be owed two years' salary if the bankruptcy didn’t get Sears Canada out of severance payments.

"There's kind of a dichotomy between what people think of as Sears and kind of the corporate reality of it today," Peter Myers told the CBC, later observing that the way the company is handling the store closing and layoffs "sort of doesn't feel very Canadian to a lot of people."

While lower-level employees won't receive severance pay, key executives will still receive bonuses from a pool of about $7 million (about $5.5 million USD) as the company looks for a buyer and reorganizes. Store-level management will also receive bonuses if they meet sales targets.

bloruleshort.gif (618 bytes)

Things looking up at Target
By Marianne Wilson
Chain Store Age
July 13, 2017

Target Corp. on Thursday surprised the industry and investors with some good news.

The discounter updated its guidance and said that as a result of improved traffic and sales trends through the first two months of the quarter, it expects to report a modest increase in its second quarter same-store sales. Target previously said it expected a decline.

"Following better-than-expected results in the first quarter, we’ve seen additional, broad-based improvement in traffic and category sales trends in the second quarter, despite continued challenges in the competitive environment," stated CEO Brian Cornell. “Our team is energized and focused on enhancing and modernizing the Target shopping experience, and our guests are responding."

Cornell said the company's launch of its nursery decor line, Cloud Island, in May was a success. Target will be rolling out four more exclusive brands across home and apparel during the coming months in support of its plan to launch 12 new brands by the end of 2018.

"We are also pleased with initial results of the Twin Cities rollout of Target Restock, providing next-day delivery of a shopping-cart-sized shipment from an assortment of more than 10,000 essential items," Cornell added.

In updating its guidance, Target said it now expects to report second quarter GAAP and adjusted EPS above the high end of its previous guidance range of $0.95 to $1.15.

bloruleshort.gif (618 bytes)

J.C. Penney jumps into $20 billion industry with in-store shops
By Marianne Wilson
Chain Store Age
July 13, 2017

J.C. Penney isn't playing around when it comes to toys.

The retailer announced it is opening toy shops in its 1,000 plus brick-and-mortar stores, and has already expanded its online toy assortment. The in-store shops will be located within the children's department, next to the Disney Collection displays, and will feature a wide range of items, from dolls and action figures to board games and arts and crafts, and such brands as Hasbro, Mattel, and Fisher Price. Many of the shops feature a play area where kids can try out select toys.

The rollout grows out of Penney's decision to bring back toys to its stores — for the first time in years — for the 2016 holiday season. The move apparently resonated with shoppers. Penney said it was "extremely pleased by customer response and confidently made the decision to grow our toy assortment in stores and at JCPenney.com.

"We know that shoppers buy toys year-round and by creating a fun, inviting toy shop, with some of the biggest brands and hottest products, we will entice families to shop and spend more at J.C. Penney,” said John Tighe, executive VP and chief merchant for J.C. Penney. “Toys are an exciting product category for J.C. Penney and an in-store attraction that will drive traffic and sales as we continue to focus on increasing revenue per customer.”

Online, Penney has doubled its toy assortment and added an array of new product categories, including bicycles, video games, outdoor trampolines, costumes and science kits. The retailer has also sorted out product by age group. Penney plans to beef up the assortment even more time for the holiday shopping season.

“J.C. Penney realizes the importance of having a significantly expanded product selection at JCPenney.com to compete with pure e-commerce rivals, which is why we are so proud of both our product and category expansions over the past 12 months," Tighe said. "The toy industry continues to grow and J.C. Penney intends to capture a significant portion of this $20 billion (Toy Association estimate) industry."

bloruleshort.gif (618 bytes)

What's Next For Sears Holdings Corporation?
By David Stoneback
Seeking Alpha
July 11, 2017

...What does the future hold for Sears Holdings? The company has a $500 million loan due in the middle of July and $43 million in notes that are maturing this coming October. This could be the tipping point that forces Sears Holdings to file for Chapter 11 bankruptcy protection.

In June 2017, Sears Canada (SRSCQ) filed for Chapter 11 bankruptcy protection after the company blew through almost 30% of its cash and maxed out all of its credit lines. While Sears Canada is not a subsidiary of Sears Holdings, the bankruptcy filing doesn't engender much faith in the company's future. Retail bankruptcies are also on the rise, as companies such as RadioShack (RSHCQ), Gymboree, Sports Authority, and Payless Shoes have all filed for bankruptcy within the last year.

I believe that Sears Holdings should file for Chapter 11 bankruptcy protection sooner rather than later, as it could be advantageous for the company with the approaching fall and holiday season not too far down the road. Refinancing and restructuring the company, closing unprofitable stores, and focusing on online sales and profitable bricks-and-mortar stores would be the only way toward a recovery.

The company does still hold value in some brand ownership, such as Kenmore appliances and DieHard batteries, as well as some valuable real estate. However, the long-term sustainability of the company is highly unlikely to occur due to the current financial state and the decline of the traditional bricks-and-mortar retail market as a whole. It's never reassuring either when a company warns investors about their doubts regarding sustainability going forward.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha).

bloruleshort.gif (618 bytes)

Target, Walmart tops with these shoppers
By Deena M. Amato-McCoy
Chain Store Age
July 11, 2017

Amazon hasn't make it to the head of the class for this year's back-to-college shopping season.

Among young U.S. shoppers (ages 18-24), 64% said they will buy back-to-school items from Target and Walmart, respectively, edging out Amazon (50%). This is according to a new consumer survey from the retail app platform, Branding Brand.

The results differ from a similar survey conducted last year by Branding Brand in which Amazon led the pack. In the 2016 survey, 74% of respondents said they would buy back-to-college items at Amazon, with 42% planning to buy from Walmart and 51% from Target.

Branding Brand's 2017 survey also identifies several millennial shopping trends that will shape this year's back-to-school season, including:

• 80% will purchase items online this year; and 62% will buy via smartphone.

• 54% said they won't start shopping until August. A mere 14% were done in June.

• 18% will purchase using mobile payments like Apple Pay, Android Pay, and Samsung Pay.

bloruleshort.gif (618 bytes)

Penney starts search for a new CFO
By Marianne Wilson
Chain Store Age
July 11, 2017

J.C. Penney's finance head of three years is leaving to "pursue other interests."

Edward Record stepped down as CFO of Penney effective July 11, according to a regulatory filing. He will remain in an advisory capacity with the company until Aug. 7. Andrew Drexler, Penney's senior VP and chief accounting officer and controller, will serve as interim CFO while the retailer searches looks for Record's replacement.

"The timing of his departure coincides with a demonstrated sales performance improvement in the second quarter, and we continue to expect to report significantly improved top-line results this quarter versus the first quarter," CEO Marvin Ellison stated. "We look forward to sharing more details on Aug. 11."

Record joined Penney as CFO in March 2017. Previously, he was with Stage Stores, where he served as COO, from 2010 to 2014, and CFO, from 2007 to 2010. Prior to that, he served as senior VP, finance, at Kohl's.

"I've had a very rewarding experience at J.C. Penney, and am proud of the work we have undertaken to strengthen the company's financial condition," Record stated. "J.C. Penney is well positioned for the future, and I will continue to follow the company closely as the team builds on the positive momentum it has experienced over the last few years."

bloruleshort.gif (618 bytes)

Sears Holdings Chooses Downsizing Over Bankruptcy (for Now)
By Adam Levine-Weinberg
The Motley Fool
July 10, 2017

Sears Holdings is now set to close more than 300 stores in 2017 as part of a desperate attempt to avoid bankruptcy.

For months, many pundits have speculated that Sears Holdings (SHLD) would file for bankruptcy in July -- or shortly thereafter. That's because two years ago this month, Sears spun off a large portion of its valuable real estate assets as Seritage Growth Properties, an independent REIT. This transaction could have potentially been reversed as a "fraudulent conveyance" if Sears had filed for bankruptcy within two years of the spinoff.

However, while Sears Holdings may theoretically have a clear path to file bankruptcy now, CEO Eddie Lampert seems determined to stave off that outcome. Instead, the company continues to downsize its operations at a frantic pace.

Sears is closing more stores than ever before

2016 was a busy year for downsizing at Sears Holdings, particularly for the Kmart chain. At the beginning of last year, the company operated 941 Kmart stores and 705 full-line Sears stores. By year end, it was down to just 735 Kmarts and 670 full-line Sears stores.

In 2017, Sears has accelerated its downsizing initiative. In early January, Sears announced that it would close 150 unprofitable stores during its first fiscal quarter. In the following months, Sears quietly decided to close an additional 30 locations. Furthermore, in early June, it made plans to shutter another 65 stores (excluding auto centers) by the end of September.

Just in the past few weeks, Sears has added to its store closure tally again. In late June, it marked 20 more stores for closure. And just last week, Sears Holdings announced that it will close yet another 43 stores by early October.

Overall, Sears Holdings is set to close more than 300 stores this year, more than half of which have already closed. This will slash its store base by more than 20%.

Store closures will keep Sears Holdings on life support

Sears Holdings' store closures certainly don't inspire confidence that the company has a long-term future. However, they may help it to survive for another couple of years.

First, most of the stores Sears is closing are unprofitable. Shutting them down will allow the company to improve its long-term cash flow performance -- although it remains far from breakeven.

Second, closing these stores will provide a one-time cash windfall as Sears liquidates their inventory. The company has been forced to self-finance most of its inventory in recent years because of vendor skittishness. During fiscal 2016, Sears reduced its net inventory investment by nearly $700 million, driven in part by its store closures. The company may be able to make a similar reduction this year, as it continues to close stores at a rapid pace.

In some cases, Sears also owns the real estate for the stores it is closing (or has favorable lease terms). That provides yet another avenue for the company to generate cash as it closes stores.

Is the Sears of the future a small-format store?

In a blog post announcing the most recent round of store closures, Lampert noted that Sears Holdings is on track to reduce operating expenses by $1.25 billion this year. He also touted some recent progress in improving Sears' liquidity by selling real estate and increasing its borrowing capacity.

Lampert also highlighted the two small-format "concept stores" that Sears has opened in 2016 and 2017. He stated that Sears plans to open more small-format stores in the coming years, while reducing the number and size of its larger stores.

Small-format stores allow Sears to focus on its strongest product categories while exiting lines of business where it can't operate profitably. So far, the company has been pleased with the results of its two test stores.

Five years ago, transforming Sears to focus on a few key categories like appliances, hardware, and mattresses in smaller stores might have been a good idea. Today, Sears is hemorrhaging money so quickly that it may not matter. Sears will burn so much cash as it works to slim down its legacy store portfolio and headquarters staff that it will likely be forced into bankruptcy -- presumably followed by a liquidation -- by 2020 at the latest.

In this scenario, it would be nearly impossible to find a buyer for a handful of small-format concept stores -- even if they show some promise. In the long run, downsizing is likely to be a prelude to bankruptcy for Sears, not an alternative.

bloruleshort.gif (618 bytes)

What's Really Going On At Sears Holdings Corp?
By Shivam Patel
Simply Wall St.
July 10, 2017

Sears Holdings Corp just can't seem to get a break. On Friday, July 7, CEO Eddie Lampert announced that the company would be closing down an additional 43 stores, adding to the nearly 1,000 stores that SHLD has closed in recent years.

This after years of declining revenue and the fact that Sears hasn't turned a profit in over five years.

However, despite what seems to be an obvious decline, management is maintaining that the company is in a process of "operational restructuring efforts" that will ultimately turn the company around and restore it to its former glory.

This seems to be contradictory to what both Sear's SEC filing states and what a visit to a local store would tell a prospective investor. In SHLD 10-K filing, the company stated that "substantial doubt exists" that the company could remain solvent.

Insiders like CFO Jason Hollar were quick to dismiss concerns, claiming that the SEC required language of the sort to be used in filings. Holler maintained that Sears was still "a viable business" and that the reorganizational efforts by management will ultimately yield fruit.

In the face of contradicting signals by the statements and actions of management, some investors have decided to take a look in-person themselves by visiting local Sears stores to see what the problem is. They didn't like what they saw.

Sears stores are empty and seem like a ghost town to any who would dare wander in. The shelves are empty, the roofs are leaking, and the employees are missing...

Sears is not oblivious to their demise and they are taking steps to explore the most viable business models. One example is the Sears appliance stores that have "surpassed projections since its opening". But the question still remains the same — is this too little too late to save a dying dinosaur?

bloruleshort.gif (618 bytes)

Sears CEO Eddie Lampert announces plans to close more Sears, Kmart stores
By Lauren Thomas
CNBC
July 7, 2017

Sears Holdings on Friday announced plans to shutter more of its stores.

The department store chain, which operates the struggling Sears and Kmart nameplates, said on Friday it will close eight more Sears locations and 35 unprofitable Kmart stores, as the company "continue[s] to focus on [its] best stores and return to profitability."

Sears stock was down more than 3 percent Friday afternoon after the news.

"This is part of a strategy both to address losses from unprofitable stores and to reduce the square footage of other stores because many of them are simply too big for our current needs," CEO Eddie Lampert wrote in a statement.

The latest stores deemed unprofitable by Sears will be shuttered by early October, the company said. Additionally, eligible associates will receive severance and will have the opportunity to apply for open positions at local Kmart or Sears stores.

"We have fought hard for many years to return unprofitable stores to a competitive position and to preserve jobs," Lampert said.

"[W]e don't make decisions to close stores lightly," he added, saying his goal as chief executive is to make Sears Holdings "more relevant and more competitive for our members and other constituents."

In his Friday blog post on the company's website, Lampert updated readers on Sears' restructuring program. The company has said it wants to achieve $1.25 billion in annualized cost savings this year, as well as reduce the retailer's debt and improve its liquidity.

Lampert said Sears is "well on track" to meet its goals.

Later Friday evening, Sears announced it has entered into an amendment to an existing credit facility, which will provide the retailer an "uncommitted line" of credit, moving forward.

"This facility is intended to provide the Company with the flexibility to generate additional liquidity on an as-needed basis," Sears Holdings CFO Rob Riecker said in a statement.

"This adjustment to our capital structure demonstrates that Sears Holdings will continue to take actions to generate liquidity and manage our business while meeting all of our financial obligations," Riecker said.

Sears also revealed that in June it closed on more than $200 million of real-estate transactions, which helped the company pay down an April 2016 loan, from $500 million to $347 million. Additional net proceeds of $57 million reduced an outstanding balance on Sears' revolving credit facility, the company said.

Some of Sears vendors, meanwhile, have been seen as looking to jump ship and terminate deals with the retailer as rumors of a looming Sears bankruptcy filing continue to swirl. Key vendors, such as Craftsman supplier Western Forge, fear never being repaid.

"As I have said before, the level of support we have from our vendors is an important factor in defining the size of our business and the number of stores we can operate responsibly going forward," Lampert said Friday in regard to this issue.

He said that in the past 12 months Sears has "reached the point" where some of its vendors have trimmed support, and this is thereby putting "additional pressure" on the company.

"Despite this challenge, we have been working and fighting hard to improve our operational performance and streamline our organization," Lampert added.

In June, Sears announced it's trying a new store concept in Texas — a store that only sells mattresses and appliances. The company said it expects to open more smaller-format stores while shrinking its large, less-competitive ones.

It's a rare spot of optimism for the troubled retailer, which warned earlier this year in an annual filing with the SEC that there were doubts about its ability to continue as a going concern.

bloruleshort.gif (618 bytes)

Sears lowers the ax again
By Marianne Wilson
Chain Store Age
July 7, 2017

Sears Holdings continues to shrink its traditional store portfolio even as it plans to open more smaller, specialty stores.

The embattled retailer on Friday announced that it will close 43 more locations -- eight Sears stores and 35 Kmart locations -- by early October. This is on top of the 265 store closings that it has already announced for this year.

"This is part of a strategy both to address losses from unprofitable stores and to reduce the square footage of other stores because many of them are simply too big for our current needs," Sears chairman and CEO Eddie Lampert stated in a blog post on the company's website.

In the post, Lampert cited the chain's recent opening of a small-format, 20,000-sq.-ft. mattress and appliance store as a sign of its future brick-and-mortar direction.

"The smaller store concept allows us to focus on some of our stronger categories, complemented with our Shop Your Way membership program, home services and credit offerings," he said. "We expect to introduce additional smaller, specialized concept stores in the upcoming quarters while simultaneously reducing the number and/or the size of larger-format, less competitive stores. Having the right formats and right sized stores will help us put Sears Holdings in a better position to meet the realities of the changing retail world.'

The new round of closings will bring Sears' store count to less than 1,140, down from 2,073 five years ago.

bloruleshort.gif (618 bytes)

Former Sears employees worry about lost severance, possible reduced pension
By Sophia Harris
CBC News
July 6, 2017

Sue Earl is still reeling from news that Sears has cut off her severance payments. She says she stands to lose upwards of $20,000.

"I feel robbed," says Earl, who did everything from work in the children's department to handle catalogue orders during her 38-year career at Sears.

"It's another slap in the face," adds the 64-year-old. "Especially when they reach out after you've left and snatch that money back from you."

Earl was laid off when the Sears store where she worked, in Cobourg, Ont., shut down in March — three months before the department store chain announced it would close 59 stores and lay off 2,900 staff as part of a court-supervised restructuring process. When those workers lose their jobs, they won't receive severance.

On the day it filed for bankruptcy protection, Sears also informed previously laid-off workers like Earl it was axing their severance payments.

"We're mad as hell," says Earl, who has kept in touch with fellow ex-employees. "We've supported Sears with positive attitudes, and this is how we're treated."

Pensions in peril

Earl also fears losing thousands of dollars from her pension as part of the restructuring process. "I just feel helpless," she says.

Sears has a court hearing next week where the company will request permission to halt both its retiree benefit payments along with special payments it has made for some time to top up the underfunded pension fund.

Many of Sears' 16,000 retirees fear if the company is allowed to stop making pension contributions, they will receive reduced pensions. They also don't like the idea of losing their medical, dental and life insurance benefits.

"We don't have any rights under this court protection," says Joseph Moczulski, who worked for Sears as a long-haul truck driver for more than 35 years before retiring in 2004.

"It will be a hardship," says the St. Thomas, Ont. resident of the possibility of losing his medical benefits. Both Moczulski and his wife are diabetics.

"We were promised that from the company," says the 73-year-old. "They don't care about the years we put in."

Employees at back of line

Sears Canada told CBC News that deep financial troubles left the iconic retailer with no choice but to seek court protection from its creditors while it restructures. As part of the court proceedings, Sears said it's not able to make payments to a number of stakeholders, including laid-off employees owed severance.

As far as retiree benefits and pensions are concerned, Sears contends it's too early to predict what will happen and claims employee pension payments may not be compromised.

• Sears restructuring cuts off severance pay
• Sears tries to rebrand by getting hip, hiding name

The retailer also said ex-employees who feel they're entitled to more compensation can make a claim as part of the bankruptcy proceedings.

But for most, that could be a futile endeavor.

It's unlikely employees will recover their losses, says Toronto labour lawyer Lior Samfiru. That's because when compensation is doled out in these situations, secured creditors like banks get priority.

"Whenever a company is under creditor protection, employees are at the back of the line," says Samfiru, with Samfiru Tumarkin LLP in Toronto. "If it yields something — and I highly doubt that it would — it would be small, small pennies on the dollar."

He adds that what the retailer is doing is perfectly legal. "It's easy to demonize Sears here, but at the end of the day, Sears is acting in accordance with our bankruptcy laws."

'Disgusting behaviour'

While it's following the letter of the law, Earl believes Sears cutting off payments to workers could hurt the department store's image.

"I think Sears is shooting themselves in the foot," says the former employee.

Even store customers have complained on the retailer's Facebook page about the elimination of workers' severance.

"Canadians won't stand for that. Just as well to close up all the stores when you take that stance," posted one person.

"Disgusting behaviour by a shell of a once great company," commented another customer.

Moczulski agrees Sears was a good company. "They'd do anything to keep us happy," he says about working for the retailer. "You just wouldn't believe how fantastic it was."

And that makes it all the more difficult for the retiree to witness Sears' downfall, which could end up costing him as well.

"I'm saddened about it, about how a company so great went downhill so fast," he says.

bloruleshort.gif (618 bytes)

Guess Who's About to Overtake Sears in Appliance Sales
By Rich Duprey
The Motley Fool
July 5, 2017

Sears Holdings used to be the most popular destination for appliance buyers with its premier Kenmore brand and a 40% share of the market. However, as many investors know, time and neglect have withered both Kenmore and its parent company.

Kenmore's market share slipped to less than 13% last year. Surprisingly, Sears was still the leading appliance seller as recently as four years ago, but it has since fallen to third place. As the lead it holds over the next runner-up quickly narrows, it may again fall in the rankings in 2017.

A stodgy business

Consumer electronics industry trade publication TWICE (the name is an acronym for This Week In Consumer Electronics) tracks sales in the appliance market -- both the brands and the retailers that sell them. It's a pretty staid group of companies, considering major appliances don't hold nearly the same flash and sex appeal as consumer electronics. But every now and then, there's a big upheaval in the standings.

Last year, for example, after a 30-year absence from the list, J.C. Penney returned following its decision to enter the appliance market once again, a big enough effort that it was able to land in 23rd place out of the top 50 retailers TWICE tracks.

Meanwhile, the site noted that hhgregg had been the seventh biggest retailer with almost $1 billion in appliance sales until it declared bankruptcy in March.

Over the past few years, though, the top three players in the appliance market haven't changed. After Lowe's toppled Sears for the No. 1 position in 2013, it has remained atop the list. Appliances are its third-biggest product category, accounting for 11% of its total $65 billion in revenue in 2016. Home Depot subsequently surpassed Sears for the No. 2 position, and though it makes most of its money from its indoor plant and garden departments, appliances still represented 7.8% of its $94.6 billion in net revenue last year. Together, the three companies account for 58% of all appliance sales.

However, the top rankings may be set to change once again and not just because Sears might go bankrupt (though that may happen, too).

The incredible, shrinking retailer

Because Sears is closing so many stores, it's losing floor space where it can sell appliances. The top three players have approximately 4,400 stores between them, but with Sears selling or closing hundreds of its stores -- perhaps one of the biggest contributors to the retailer's decline in the standings -- its percentage of the appliance marketplace will dwindle as well.

Last year, there was a sales gap of $1.3 billion between Sears and the fourth-place retailer, which has since been nearly halved to only $743 million. At this rate, it's quite possible Sears will fall once more.

Appliances supplanting electronics

Appliances represented 9% of the consumer electronics superstore's total $39.4 billion in revenue last year, a space where it saw comparable-store sales surge nearly 8% on top of a 15% gain the year before, despite the fact Best Buy's total revenue actually declined slightly year over year.

It should be noted that Sears realizes that if it is to survive, appliances will be one category it needs to continue focusing on. The company recently announced that it will be opening a new small-format store concept that focuses solely on two segments: appliances and mattresses.

Whether that is the future for Sears -- a niche retailer selling only a select range of merchandise -- remains to be seen, but since closings of its primary Sears and Kmart stores will vastly outweigh any new store openings, it's clear the retailer's days as a leading appliance outlet are numbered. Best Buy will likely overtake it in 2017, and others will surely eventually surpass it as time goes on.

Rich Duprey has no position in any stocks mentioned.

bloruleshort.gif (618 bytes)

Does Sears Holdings Care About Its Stores? It Depends Where You Look.
By Adam Levin-Weinberg
The Motley Fool
July 3, 2017

For the past few years, Sears Holdings has been burning billions of dollars of cash annually, while its sales have plunged. During 2017, its problems have become even more pronounced. Sears' cash cushion has fallen to dangerously low levels, and the company has made plans to close 17% of its stores this year.

As a result, vendors have become very leery about doing business with Sears, leading to inventory problems. A series of exposes over the past year have shown stores with lots of empty shelves, highlighting Sears' distress.

On a Saturday in June, I set out to get a firsthand look at how things are going at Sears and Kmart. I visited two Sears stores and one Kmart store in Northern Virginia. What I found was that the level of inventory -- and the quality of presentation -- depended a lot on how important a particular category is to Sears.

Best merchandise categories are presented well

Fifteen years ago, Sears purchased Lands' End (LE) for nearly $1.9 billion, in an effort to boost its internet presence and upgrade the quality of its apparel offerings. As part of its turnaround plan, Sears spun off Lands' End as an independent company a few years ago. However, there are still Lands' End shops in most Sears stores.

Lands' End remains a key part of Sears' apparel strategy. It also caters to higher-income customers than Sears' other apparel offerings do. Thus, it makes sense that Sears would want to keep its Lands' End sections looking good.

Sure enough, the Lands' End shop at Sears in Falls Church, Va., was a good shopping environment. The carpet was relatively new, there was good lighting, and there was adequate inventory. Some of the piles of clothing were shorter than they probably should have been, but there was no blatant inventory shortage here.

The situation was similar in the store's appliance department. The setup was hardly elegant, but the selling area was packed with floor models, the lighting was good, and the section was clean.

Appliances are one of the few product categories where Sears is still a major player. Thus it's not surprising that the company is doing its best to keep its appliance sections in good shape.

My key takeaway was that Sears is still providing a reasonably good shopping environment for its core offerings. Even this clothing section from the Kmart in Annandale, Va., looks reasonable (for what it is).

There are plenty of warts

Once I looked past Sears' most important categories and product lines, the attention to detail dropped off -- as did the level of inventory.

For example, at Sears in Alexandria, Va., the Lands' End shop itself looked perfectly reasonable. Yet the accessories display perched at the edge of the section was nearly empty. This may be a symptom of inventory shortages.

An even more blatant example of an inventory shortage was on display in the Kmart vitamin and supplements aisle. There was lots of empty shelf space. Even for the items that were in stock, Kmart had only one or two bottles of each.

Sears Holdings' Kmart chain is a tiny player in the grocery market today. Thus suppliers have no reason to cut it any slack -- and it shows. Furthermore, Sears Holdings can't afford to tie up lots of capital in inventory for a strategically unimportant merchandise category like this.

Exercise equipment was another category that is evidently not a key focus for Sears. The exercise equipment section at the Sears I visited in Falls Church was covered with dingy, stained carpet. The section also somehow managed to look both cluttered and light on inventory at the same time.

Sears and Kmart also seemed to be trying to cover up their inventory problems by keeping the middle of their stores well-stocked. By contrast, the sections around the exterior walls were likely to have obvious gaps with missing inventory.

For example, this bedding section was located along the wall of a Sears store. Hardly any of the shelves were full, while two racks were empty.

The electronics section at Kmart in Annandale looked even worse. Presumably, the back wall of the store was supposed to display a variety of TV models. Instead, it was nearly bare.

Sears should stick to its knitting

Sears Holdings' situation is so dire that the company seems to have little chance of avoiding bankruptcy. Despite CEO Eddie Lampert's cost-cutting efforts, Sears Holdings continues to bleed cash at a rapid rate.

To have any hope, Sears' best course of action may be to radically reduce the square footage of its remaining stores and sell just a few key product categories, such as appliances, tools, mattresses, and perhaps Lands' End clothing.

Sears has already opened a pilot store that sells just appliances, along with a second store that sells appliances and mattresses. We can hope this means management has finally realized that Sears is competitive in only a few key product categories.

Adam Levine-Weinberg has no position in any stocks mentioned.

bloruleshort.gif (618 bytes)

Collapsing ceilings and no working toilets: Sears workers describe decay in failing stores
By Hayley Peterson
Business Insider
July 1, 2017

Some Sears and Kmart stores are deteriorating as their parent company, Sears Holdings, struggles to turn the business around following years of plunging sales.

In interviews with Business Insider, half a dozen employees described signs of decay in the stores they work in. These include a rat problem, collapsing ceilings, empty shelves, and a lack of working toilets for weeks on end.

Some of these problems started several years ago, and have been getting progressively worse, according to the employees, who asked to remain anonymous for fear of retaliation from Sears.

Sears acknowledged some of the issues that employees highlighted, such as leakage problems and broken toilets, saying in an email that several of these have been addressed with repairs, but denied an employee's claim that the store they work in has a rat infestation.

Workers from the store level to Sears' headquarters in Hoffman Estates, Illinois — as well as critics outside the company — claim that the stores' decline is the result of years of underinvestment in maintenance and other capital expenditures at the direction of Sears CEO Eddie Lampert.

"He has been clamping down on that from day one. This has been going on for over a decade," Mark Cohen, former Sears Canada CEO and a professor at Columbia Business School, told Business Insider.

"Stores are your face to your customers and they have to be refreshed and renewed and maintained — and if they aren’t, the customer starts to treat you like a pariah," he said.

Lampert has long faced criticism for not investing enough money in Sears' physical stores. He addressed this criticism head-on in 2013.

"I was criticized for not investing enough in the stores," Lampert said at the time. "My point of view is we couldn't invest in everything."

Lampert has invested instead in share buybacks and building up the company's e-commerce operation and loyalty program, called Shop Your Way.

But the stores' decline has stymied those initiatives, according to employees.

"We missed the basics so badly," a senior Sears executive who recently left the company told Business Insider. Sears' website and loyalty program "is icing on the cake and means nothing if the cake is fundamentally rotten."

'The store is infested with rats'

At a Sears store in Lafayette, Louisiana, maintenance delays led to a rat problem, according to a former employee who worked in loss prevention at the store.

"Sears turned into a disgusting, filthy place," the former employee said. "The store is infested with rats... at night when we would all be in the office area waiting for the managers to finish, you would hear troops of rats running around the ceiling."

He said there were frequent ceiling leaks in the store and in the stock room, which "smelled of rat urine and feces."

"Every storm the ceiling would leak," he said. "This water would sometimes get on the merchandise. There would be tiles so soaking wet that they would fall."

Sears spokesman Howard Riefs said the store "experienced ceiling leaks during heavy storms."

Riefs said the claim of a rat infestation is "false," citing the store exterminator. He also said the store is closing in September.

The Sears store in Cockeysville, Maryland - which Sears recently revealed it is planning to close - has also had recurring ceiling leaks, according to one long-time employee of the store.

But "the biggest problem over the years has been the air conditioning," the employee said. "At times, in the past, it was hotter inside than outside."

Meanwhile the Kmart store in Eureka, California went three weeks in April 2016 without a functioning bathroom, according to an employee of that store.

"We were told to clock out and drive to the mall or go to a gas station" until the store rented porta-potties and set them up outside the store, he said.

There were problems in the Eureka store's employee break room, as well, according to this employee. He claimed it lacked a working sink and drinking water, that the garbage cans regularly overflowed, and that light bulbs in the store parking lot were out for months.

Conditions aren't much better in the corporate offices, according to a former Sears employee who worked at the company's headquarters in Hoffman Estates, Illinois, for more than four years until he was laid off in late 2016.

"It is very typical to see garbage cans, buckets, and even large plastic dumpsters scattered all over the building to catch leaks," the former employee told Business Insider.

He said leaks aren't properly repaired, so water-damaged walls and ceilings are a common sight.

"Typically just a hole would be punched in the ceiling to keep the water draining vs. pooling," he said.

Riefs said a glass atrium at Sears' headquarters "experiences occasional leaks during heavy rains."

He confirmed leakage problems at the Cockeysville store. He said the roof was replaced in 2016 and since two roof drains failed in May 2017, there have been no additional issues. The store's air conditioning system was also rebuilt last year and "we actively monitor for issues," he said.

The broken toilets and sink at the Eureka Kmart were related to a leaking pipe, and porta-potties were on the site within six hours of the water being shut off for repairs, he said. The parking lot lights adjacent to the building are currently functional and "a few on the perimeter away from the building will be replaced this summer," he said.

When reached by phone, the Eureka Kmart store declined to comment. The Lafayette and Cockeysville Sears stores did not return requests for comment.

The problems that employees describe in Sears' stores aren't just structural. Some stores are running out of merchandise to fill the shelves as suppliers retreat from the ailing retailer, according to several employees.

"We used to have walls and aisles full of televisions - upwards of 100 on the floor," one Sears store employee said. "Now we have six or so displayed and nothing in stock. I find it's harder and harder to satisfy customer needs - can't get things from other stores anymore because everything close has closed... we are like a ship adrift on the open stormy sea."

Riefs said this shortage is intentional.

"In 2014, the company made a shift in its consumer electronics strategy from focusing on televisions to connected solutions," he said. "As a result, we stock fewer television models in stores."

A former employee of a Kmart store in Rochester, New York, told Business Insider in January that her store started moving freight straight from delivery trucks to the sales floor — skipping the stock room altogether — to fill empty store space, and that it led to an "appalling" mess.

On top of these problems, many Sears and Kmart stores are struggling with a lack of labor, as Sears trims its store staff and slashes hours for its part-time workers to cut costs.

The company has said it plans to reduce costs by $1.25 billion in fiscal 2017.

"We are making progress with the fundamental restructuring of our operations that we initiated in February," Lampert said in a statement in June. "We remain focused on realigning our business model in an evolving and highly competitive retail environment. This requires us to optimize our store footprint and operate as a leaner and simpler organization."

But store issues aren't going unnoticed by shoppers — and they appear to be sending many customers away for good.

Sears' annual revenues dropped by nearly 50% to $22.1 billion between 2011 and 2016, and the company recorded net losses of more than $8.2 billion over that period.

"Sears can only blame themselves," Michael Looney, who worked at his local Sears store in Antioch, California in the 1970s, told Business Insider. The Antioch store has "suffered terribly" and now "looks like a flea market."

"You could fire a cannon in any direction and not hit one sales person," he said.

bloruleshort.gif (618 bytes)

Sears Must Think We're Stupid Or Gullible. Here's Why.
By Steve Dennis
a Forbes contributor
July 1, 2017

I'm a strategic advisor, writer and keynote speaker on retail growth and innovation, with a particular focus on omni-channel, customer insight and digital disruption. Prior to launching my own firm (SageBerry Consulting) I was the Senior Vice President of Strategy & Multichannel Marketing for the Neiman Marcus Group.

During my nearly 30 year retail career I've also held senior strategy, marketing and general management roles at Sears, Lands' End, among others. I've been named a top retail influencer by several publications and my commentary on the future of retail regularly appears in the press. My BA is from Tufts University and my MBA is from Harvard Business School.

The author is a Forbes contributor. The opinions expressed are those of the writer.

Having spent my first 12 years in retail as an executive at Sears, I've followed the company's trials and tribulations with more than a passing interest. And considering my last role at the once-storied brand was leading corporate strategy--where my team was mostly focused on trying to fix the mall-based department store format and making the Lands' End acquisition work--I am far from an impartial or unknowing observer.

Arguably, I've taken Sears to task too many times over the years. When I left Sears in 2003 (a year before Sears and K-mart merged), I had already concluded that the once iconic brand was on a slow slide to oblivion. Combining a deteriorating, mediocre chain with a terrible one did not change my view.

Over the years Eddie Lampert's misguided leadership has been a frequent target of criticism on my blog. In 2013, I labeled Sears "The World's Slowest Liquidation Sale" as it became abundantly clear that after nine years Lampert still had no viable turnaround plan.

In 2014, I lampooned the futility of their efforts in an April Fool's post and went on CNBC arguing that investors would be better served by a swift liquidation rather than perpetuating an increasingly delusional strategy that only served to lower asset values. So, years later, Sears is still hanging around and Lampert is still peddling his special brand of snake oil. How is this possible?

Let's answer the easy question first. Sears has endured longer than they deserve to because they had enough assets to unload (real estate, private brands and fungible business units) to cover the massive operating losses they've racked up during the past decade. The fact that Sears has very low operating costs (partially because of favorable rents, partially because Lampert has cut overhead to the bone) has extended their life. But, make no mistake, they are very close to the end of the runway.

To answer the other question we must conclude that investors are either stupid or gullible--or at least Lampert is counting on it. Before we get to the most recent nonsense, it's worth mentioning some of the whoppers we were supposed to believe over the years:

• That Sears and Kmart would create some magical synergy.
• That Sears' problems could be fixed by cutting costs rather than investing in the customer experience.
• That it made sense to have merchandise categories compete internally with each other, rather than focus on the customer and external competition.
• That Sears could disinvest in stores and profitably transition much of its business online.

That selling once enormously valuable private brands like Kenmore, Craftsman and DieHard in off-the-mall formats and Ace Hardware Stores was a sufficient antidote to the massive share loss to Home Depot, Lowe's and Best Buy.

Today, the company continues to make a big deal about how it is a "member-driven" company, touting its "Shop Your Way" program and "ecosystem" as some sort of important differentiator and value contributor. The facts are that a) it is, at best, a mediocre loyalty program, b) customer engagement is driven almost exclusively by a high rate of discounting, c) margins have declined since its introduction and d) sales continue to slide.

Referring to customers as "members" may sound good, but it connotes a strength of relationship and value that clearly does not exist. The program has always been an expensive gimmick to collect customer data. Suggesting anything else defies credulity.

In an apparent attempt to distract from the collapse of its mall-based stores, Sears Holdings also continues to announce "innovative" new store formats like an appliance & mattress store (which isn't a new idea at all) and a DieHard Battery Center. These might be interesting formats to franchise when Sears ceases to be a significant retail operator, but the notion they will somehow be material to a turnaround is just silly.

More broadly--and most stupefyingly--Lampert continues to claim turnaround efforts are on track. This from a company that has had precisely one-quarter of positive sales growth in seven years, operating losses that continue to worsen, an acceleration in store closings and rampant departures of key executives.

Moreover, the moves detailed in the most recent press release are all about financial restructuring and say nothing about actions to improve customer relevance. If Sears does not quickly and dramatically improve its performance with its customers nothing else matters. Period.

At one level, I get why Lampert apparently chooses to create the illusion that Sears can actually stay in business. He needs vendors to keep shipping product to mitigate a complete unraveling. He needs employees to keep the lights on and greet the few customers who might wander into the ever shrinking store fleet. He needs to avoid looking too desperate to dodge fire sale pricing on the few remaining assets he must unload to make it through the holiday season. And he needs creditors to give him more time to try to pull another rabbit out of his hat.

Yet, let's be clear, to believe that Sears is somehow going to make it much longer as anything remotely resembling a national, fully operating retailer is beyond folly. I have no idea whether Lampert truly believes Sears can be saved. I hope not because that would be quite sad.

But for the rest of us, there is simply no reason to be stupid or gullible. The reality is there for all to see. A story and, most importantly, the one spinning the tale--only has power if we allow them.

bloruleshort.gif (618 bytes)

Supreme Court Case Could Have A Major Impact On Sears Holdings
By Wyco Researcher
Seeking Alpha
June 30, 2017

A U.S. Supreme Court case could have critical implications for various Sears Holdings Corp. (SHLD) investors. On June 27, the court agreed to hear the case PEM Entities LLC v. Eric M. Levin (16-492) by granting a writ of certiorari. While Sears is not a party to the case, it could impact the company.

Depending on the scope of the decision, Eddie Lampert's loans to Sears as an insider could be considered capital/equity and have low priority in any future bankruptcy; or if the court rules in the opposite direction, Lampert’s secured loans would be considered a relatively high priority.

Seeking Alpha is an investment-oriented website and not a legal website, but this court case is critical and the legal details need to be considered by investors. The legal issues asserted in this case have caused some confusion and hopefully, the decision will give investors clarity on the important bankruptcy issues raised in this case.

Case Background
Here is a brief background to the actual case: A group of investors bought a secured loan at a large discount from a bank for a project that they were equity investors in (insiders). During Ch.11 bankruptcy proceedings, unsecured creditors asserted in court that the purchase of the loan by the equity holders was just an equity investment and should be "recharacterized as equity" and not debt. The unsecured creditors would, therefore, move up to a higher priority status above this secured loan (now considered capital/equity) in getting recovery under a reorganization plan.

The unsecured creditors asserted that Section 105a of the Bankruptcy Code gives the bankruptcy court authority to recharacterize debt as equity. The equity holders are asserting that the state law (in this case North Carolina) should decide if the loan is actual secured debt.

Two U.S. Circuit Courts, the 5th and 9th, have sided with state laws and five other Circuit Courts have ruled that the bankruptcy code should give judges latitude in determining if the loans by insiders are equity or debt. As stated in the writ of certiorari, "The question presented: Whether bankruptcy courts should apply a federal rule of decision (as five circuits have held) or a state law rule of decision (as two circuits have held, expressly acknowledging a split of authority) when deciding to recharacterize a debt claim in bankruptcy as a capital contribution."

The lawyers (Ropes and Gray LLP) for the petitioner understood the significance of this case for investors by asserting in their Reply Brief, "Inconsistent decisions among the circuits concerning the law applicable to debt recharacterization in bankruptcy make the enforceability of rescue loans uncertain and inhibit investment in distressed businesses."

Assuming Federal Rule Prevails
Assuming the court decides that the federal rule should apply, then investors need to understand what is usually considered to determine if a loan is really a capital/equity investment by an insider. Loans by Lampert to Sears have always been sort of in a "grey area" and he seems to have attempted to structure them to be "good-faith loans" by an insider.

The problem is that the standards are not written in an actual statute/code but are from case law, especially a court case (link may require subscription to read the full court decision) brought by the unsecured creditors of Dornier Aviation, Inc. in 2006. Below are the issues that should be factors in recharacterizing debt as equity, according to the Dornier decision. The court, however, stated that they should not be considered a "mechanistic scorecard," but as a guideline.

(1) the names given to the instruments, if any, evidencing the indebtedness; (2) the presence or absence of a fixed maturity date and schedule of payments; (3) the presence or absence of a fixed rate of interest and interest payments; (4) the source of repayments; (5) the adequacy or inadequacy of capitalization; (6) the identity of interest between the creditor and the stockholder; (7) the security, if any, for the advances; (8) the corporation's ability to obtain financing from outside lending institutions; (9) the extent to which the advances were subordinated to the claims of outside creditors; (10) the extent to which the advances were used to acquire capital assets; and (11) the presence or absence of a sinking fund to provide repayments.

Loans by Lampert seem to meet many of these standards, such as specific interest rates and maturity. If SHLD files for bankruptcy, some stakeholders expect that an ad hoc unsecured creditor committee will assert in court that his loans were not "good-faith loans" and were really capital/equity investments, which have lower priority in recovery than unsecured creditors.

The critical point is this: What happens if the court decides on the federal approach, but issues a broad scope ruling that specifies the standards needed to make the determination if a loan by an insider should be recharacterized as really capital/equity?

Following that same approach: What happens if the standards are such that Lampert’s loans would now under the U.S. Supreme Court decision be classified as equity in a Ch.11 proceeding?

Assuming State Law Prevails If the court decides that state law prevails, it will reinforce the assumption that Lampert's secured loans would be considered to having the same standing in bankruptcy as other secured loans with a high priority class. It would be a win for Lampert.

Going Forward Trying to forecast SCOTUS opinions is often extremely difficult, especially when a case does not necessarily follow some ideological philosophy. Those who have an interest in bankruptcy issues have followed this case, but not until the writ of certiorari was granted did it get much attention by investors in Sears. (Attention actually started when there was a conference by the justices on June 26.) The case will be heard during the 2017 term and a decision will be handed down before the term ends in June 2018.

Impact on Sears Holdings Corp.
One of the possible reasons for the surge in SHLD stock price this week was that some investors feel that the best/easiest way for Eddie Lampert and Sears to avoid any possible negative decisions from this case is for Sears to never file for bankruptcy. If Sears never files for Ch.11, the decision regarding this case would be irrelevant.

Will this throw a wrench into the way Lampert was recently thinking, since this case will now actually be heard by the court, instead of the court not hearing the case and just letting the lower court decision stand? That would have meant the federal rule would apply, but there would be no impact from SCOTUS regarding any standards for recharacterization of debt for capital/equity.

I was expecting Lampert to use his secured debt holdings as means to own new stock under a Ch.11 bankruptcy reorganization plan. I also expected him to use various components of a plan to get a maximum amount of new stock via rights offerings, backstopping rights offer, management incentive plan, and capital/equity raising schemes that would be open to only him and Bruce Berkowitz.

If SCOTUS sides with the state approach or a limited scope decision for the federal rule, Lampert would most likely be in the clear if he files for Ch.11. On the other hand, if the court issues a very broad decision that includes specifics about how loans from insiders could be recharacterized as equity and if (repeat if) Lampert's loans would be considered equity under this new court standard, it would be a disaster for Lampert.

It would, however, be great for unsecured note holders and vendors, which would have a priority claim higher than Lampert's for recovery under a Ch.11 bankruptcy reorganization plan.

Will he wait until the court decision or will he just ignore this case as just a very remote negative that may or may not impact him? Will he file and take the risk of a potential loss of much of his SHLD investment if his loan is considered equity?

Conclusion
I was expecting the court to deny a writ of certiorari and just let the lower court case stand. This case could be a "nothing" or it could open a Pandora's Box with a very broad ruling. It is important to remember that SCOTUS has never ruled on the Dornier Aviation case and it may want to include the court's opinion on this important bankruptcy issue.

While this case is potentially important, I think that Sears Holdings will still file for bankruptcy because vendors are just not comfortable dealing with SHLD. After the company files, some vendors will be more willing to deliver goods knowing that their account will most likely be paid as a priority claim under Ch.11. I still rate SHLD a strong sell.

Disclosure: I am/we are short SHLD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

bloruleshort.gif (618 bytes)

Sears Holdings Corp Is Bedridden, Surrounded by Friends and Creditors
By Dana Blankenhorn
InvestorPlace
June 27, 2017

SHLD stock is on its deathbed, and America's suburban lifestyle is right there with it

Sears Holdings Corp (SHLD) is doomed. Its passing into bankruptcy seems like only a matter of time.

SHLD stock is like a character from The Walking Dead, popping 6% on a short squeeze but down more than 40% since mid-April and plunging rapidly.

The curtain could fall next month, after the risk of a "fraudulent conveyance" charge of real estate to Seritage Growth Properties (SRG), its real estate investment trust, passes. Sears Canada Inc. (SRSC), in which Sears holds 12% and CEO Eddie Lampert 45%, is likely to go first.

The main reason bankruptcy hasn't happened yet is that Lampert is trying not to go down with the ship. Seritage is part of that planning. So is his becoming Sears' biggest lender. There are rumors he could even take the company private. Watch for the captain's lifeboat going over the side, then get out of the way, seems the order of the day.

Wall Street Deathwatch

While former customers write their Sears obituaries and headquarters staff pack boxes, more heartless types are looking at what else may die with Sears.

Mall store closings can mean big defaults on Commercial Mortgage Backed Securities (CMBS), commercial mortgage loans, as whole shopping malls go down when their anchors die.

When mall anchors close, they take other stores with them. The bankruptcies of Payless Inc (PSS) and The Gymboree Corporation (GYMB) stem, at least in part, from mall closings.

Any company whose stock is attached to the survival of the mainstream mall seems to be at risk in the present environment.

New Sears Openings?

Despite all this, there are some new Sears stores opening.

The new stores are small, located in rural communities, they don't always carry the Sears name, and some are operated like franchises. In the border town of Pharr, Texas, a new Sears Appliances and Mattresses store opened just last week, complete with a ribbon-cutting and giveaways.

A former Sears auto center was recently re-opened in San Antonio as a DieHard Auto Center, selling maintenance plans, pushing vehicle evaluations and basic repairs.

By minimizing or eliminating the Sears name, going into underserved areas, and partnering with local businessmen, there may be a new chapter opening. But, not every Sears is even a Sears.

Many of the new outlets are owned by Sears Hometown and Outlet Stores Inc (SHOS), spun off in 2012. I wouldn't recommend the stock, though. Sales have been falling steadily, if slowly, and the company has not turned a profit since 2014.

If you’re looking to make money with Sears, even by shorting Sears stock, you may be too late, as our Ryan Fuhrmann writes. The buzzards, starting with the CEO, seem to have picked the carcass clean.

Collateral Damage

The slow-motion fall of Sears has brought with it immense collateral damage. Shopping malls, commercial loans, ancillary businesses related to malls, and the suburban lifestyle of the late 20th century are all seen as casualties. Local newspapers write about "our mall" being threatened, the downtown that replaced the downtown that the mall made redundant.

Malls that were once magnets for the middle-class are becoming magnets for the poor. Casual dining restaurants that once looked like easy money no longer are.

Few analysts seem to have considered the larger economic implications of what is happening to Sears and the malls it once anchored. As former "rotten urban cores" bloom, new "rotten suburban cores" are being created, taking residential property values down and increasing commercial bankruptcy rates.

While investors are busy celebrating the success of Amazon.Com Inc. (AMZN), the failure of Sears and the suburbs it once stood for could overwhelm the larger market.

bloruleshort.gif (618 bytes)

More layoffs. More store closures. What's the endgame for Sears?
By Unglesbee
RetailDive
June 27, 2017

The news from Sears is grim. Is there a light at the end of the tunnel — or is this just the slowest liquidation sale in history?

Few people outside the remaining executive ranks of Sears Holdings are projecting optimism about the company these days.

The retailer once was not just a household name — it literally put its name on houses. It pioneered direct-to-home and department store retail and sold everything from clothes and washing machines to cars and houses. But in 2017, customers see understaffed and poorly maintained stores, while analysts and other observers see a company undergoing a slow motion liquidation outside of bankruptcy.

That process has continued in recent weeks. In the past month, Sears announced more store closures, more layoffs and more executive departures. It has also sued two of its suppliers. This all comes on top of the retailer acknowledging in March that it might not survive as a going concern. Much of the retailer's prized assets have been stripped away and sold off, including the sale of the lion's share of the company's owned real estate to a venture called Seritage Growth Properties, which is chaired and partly owned by Sears' CEO. Sears also shocked the retail world earlier this year when it sold the popular Craftsman tool brand to Black and Decker for about $900 million.

To be sure, Sears has had some small wins lately, too. In May, the retailer announced it managed to wring out its first quarterly profit in two years. The news came just days after Sears said it had inked agreements to reduce its outstanding debt and pension obligations for fiscal 2017.

Yet even as Sears tries to take stress off its balance sheet, there are few signs it can successfully adapt to a retail environment undergoing rapid changes and widespread challenges. With each store closure, asset sale and layoff, Sears is reducing its imprint on a world with little shortage of retail options — from rival department stores and off-price merchants to general merchandisers and e-commerce retailers.

Eddie Lampert, the hedge fund mogul who became CEO in 2013 after merging Sears and Kmart in the early 2000s, and his ESL Investments fund have provided emergency financing to Sears and hacked away at the retailer's cost structure. Yet even with these moves, the company still faces long-term liquidity challenges that show no signs of abating. To put it bluntly: It’s getting harder and harder to see how this could possibly end well.

If there is a soft landing for Sears, it will require a reduced store and staff footprint and a company that's more focused on select categories and a more niche demographic. Sears' days of selling everything to everybody everywhere are over.

A Sears spokesperson declined to comment on this story, only saying that Sears does not "comment on speculation about the company."

Death by 1000 cuts

So far for the year, Sears plans to close 270 stores — well more than twice what fellow department store retailer Macy's said it would close in its own downsizing moves. Sears' closures grew in June when plans for more than 60 additional store closings, including 49 Kmart stores, became public. An announcement of 20 additional store closures soon followed. All told, Sears has cut its store footprint nearly in half since 2012 — from 2,019 stores to fewer than 1,200 once all planned closures are completed this year.

The company has also shed more than 500 corporate jobs thus far in 2017 in an effort to further reduce costs. Greg Portell, lead partner in consulting firm A.T. Kearney's retail practice, said Sears' most recent staff cuts are not worrisome as long as they are part of an orchestrated strategy — or, in his words, "a known path" — rather than a reaction to an unexpected event.

Departing with the most recent wave of laid-off workers will be three key executives: Stephan Zoll, president of online; David Pastrana, president of apparel; and Eric Jaffe, senior vice president of Shop Your Way. The context of those executive departures is not exactly clear. A Sears spokesperson said the roles and responsibilities would be filled through a mix of job consolidation and internal hires, though the company is still "working through that."

"[W]hat is it about Sears' performance over the last 12 years that suggests there's anything to talk about in terms of a future?"

Mark Cohen
Director of Retail Studies, Columbia Business School


The departure of those three executives is notable for what they oversaw. Apparel represents about a quarter of Sears total merchandise sales, while online sales and the loyalty program Shop Your Way are key aspects of Sears' current strategy as a retailer. The loyalty program, which was headed by Jaffe, who had been an ESL analyst before joining Sears, has been a key piece of the company's turnaround efforts. In a February press release, the company said it planned to make investments in further developing Shop Your Way, which has regularly added partnerships and capabilities in recent years.

"It's kind of odd the people who are leading your strategy are part of the group that's out," Mark Cohen, a former Sears executive and Columbia University retail studies professor, told Retail Dive in an interview. "But what is it about Sears' performance over the last 12 years that suggests there's anything to talk about in terms of a future?"

'There really isn't a way forward'

"It's been a long, slow trainwreck at Sears," Ken Perkins, president of retail research firm Retail Metrics, told Retail Dive.

On the one hand, asset sales, corporate cost cuts and cash infusions from Lampert and his hedge fund have all helped stave off bankruptcy, according to Perkins. But "the cupboard is becoming increasingly bare" in terms of assets left for Sears to sell off.

More importantly, Sears is struggling to give shoppers a reason to walk through its doors. According to data from Perkins' firm, Sears' sales growth has lagged behind that of the struggling department store sector as a whole during nearly every quarter since 2008. During that same time, Sears has experienced just one quarter of positive sales growth — all the way back in 2010.

"Given how competitive the entire retail landscape is, where you have a company like Macy's, which is much better positioned just in terms of national brand, product offerings, cleanliness of stores, investments in IT and ecommerce efforts — all things Sears hasn't done — and even they are having a tough go of it and shuttering 100 stores. There's really just no light at the end of the tunnel [for Sears]. It's only a matter of time before the lights go out," Perkins said. "There really isn't a way forward. ... I don't see how it can possibly survive long-term."

Supplier squeeze

The company's recent public spats with suppliers could hint at even deeper troubles than what we see on the surface.

In May, Lampert took to the company's blog to complain that toolmaker One World, which manufacturers some of the company's Craftsman tools, was attempting to renege on its contract and threatening to sue Sears in court. "We will not simply roll over and be taken advantage of — we will do what's right to protect the interests of our company and the millions of stakeholders we serve," Lampert said.

At the time Lampert defended Sears' track record of paying all its vendor bills and, as he has in the past, said that rumors to the contrary only give vendors leverage to negotiate more favorable terms. He noted that Sears will "take the appropriate legal action to protect our rights and ensure that One World honors their contract." Sears went on to sue One World and then quietly announce later that it had resolved the matter. In June, the retailer sued a second Craftsman supplier, Ideal Industries.

The vendor disputes have been unusually open and could hint at more widespread issues in Sears' supply chain. "We definitely haven't seen a retailer's relationship play out as publicly as this has been," David Silverman, senior director for retail coverage at Fitch Ratings, told Retail Dive in an interview. "There could be other issues elsewhere and this one for whatever reason has been made public."

"Weakening vendor relations are definitely a step toward a restructuring process."

David Silverman
Senior Director for Retail, Fitch Ratings


Very often, a retailer's relationships with its suppliers play out backstage, even if those relationships are deteriorating. For instance, children's apparel retailer Gymboree, which filed for bankruptcy in early June, ran up against a supply chain full of vendors pushing for stricter terms on shipments earlier this year, including demands for upfront payments. In a filing, a representative for Gymboree said these issues began after news of an executive departure at Gymboree broke amid speculation of financial stress. None of this was made public until Gymboree filed for bankruptcy protection.

For retailers with balance sheet issues, a rash of skittish suppliers demanding better terms and earlier payments can create a vicious cycle that only hastens bankruptcy. "Weakening vendor relations are definitely a step toward a restructuring process," Silverman said. "Tighter terms from vendors with regard to payment, and frustrations with regard to store closures and negative comp sales, would cause the vendors' sales and profits to be impacted. Strained quantitative and qualitative relations, if you will, between retailers and vendors are a step along the path [toward bankruptcy]."

To make matters worse, supply issues could hurt Sears in the short term, too. After Sears issued its "going concern" announcement in March, reports surfaced that Sears' suppliers were scaling back shipments and asking for better payment terms.

Perkins said that Sears' Kmart vendors have scaled back on product shipments over time as Sears has under-invested in the discount retail chain. "Especially on [the] Kmart side of things, some stores are really operating on bare bones inventory," he said.

Better off out of bankruptcy

So, you might be asking yourself, what's ahead for Sears?

For starters, bankruptcy is still a very real possibility. Fitch's Silverman said his firm still sees risk that Sears could default in the next year or two despite several restructuring moves this year. "The company continues to need $2 billion in liquidity every year to fund EBIDTA losses, basic maintenance, capex, pension payments, debt payments and other fixed obligations," he said. "While some of the moves they have made this year should be able to help the company operate in 2017, in our analysis, they have not changed the company's long-term picture."

Sears is running out of room to cut costs and lower its expenses to boot. The company's $150 million in capital expenditures amounts to "literally changing light bulbs and putting paint on stores where the paint is peeling," Silverman said.

While Sears is essentially liquidating the company at a pace that rivals some bankrupt retailers, things could still get worse for the company, its employees and customers in a potential bankruptcy. Silverman noted bankruptcy can impose onerous limitations on retailers. It can also allow for a quickened pace of store closures that would cut even more store jobs and at a faster rate. Vendors would likely become even more reluctant to sell to Sears. Customers could lose some ability to return merchandise and have products under warranty fixed.

"All counterparties of the business are in better stead outside of bankruptcy," Silverman said, although some have pointed out that Lampert and his hedge fund — being creditors to Sears — could fare better than other stakeholders in bankruptcy.

Any path back to profitability?

Further out, it's difficult to see what the future holds for Sears.

"It's hard to see how it possibly turns around," Perkins said. "I think the only possibility would be maybe you hand-select the top-performing stores and they become a core you build on or maybe just keep alive, and that would be a very small core, maybe 100-150 stores."

For even a diminished Sears to survive, the company would have to make changes and investments companywide, he added. Less apparel, for one, and more jewelry, home, auto and other hard line goods. Better associate training, better in-store technology, better relationships with vendors. "It would be almost a complete overhaul," Perkins said.

"A profitable $15 billion retailer — that would be the pride of the industry."

Greg Portell
Partner, A.T. Kearney


A.T. Kearney's Portell thinks Sears' shrinking sales today look worse in the context of its former stature and that the retailer could still secure a place in the world for itself if it executes a downsizing strategy carefully. "Management needs to say, '30 years from now, what is the revenue figure that stops the decline? What are the talent and economics we need to make that goal work?'" Getting that smaller revenue figure right is crucial, he said, for setting up a supply chain and support staff around it.

Portell points out that for all the talk of Sears' struggles, it still does $22 billion in sales — little more than half of what it did five years ago. He can imagine a smaller Sears that's focused on categories strong for the retailer, such as home goods and low-priced apparel, could succeed. "Kohl's, for example, is an $18 billion, $19 billion company. That's not huge, but they're sizable, and they're national," Portell said. "Imagine if Sears said, 'We are going back to our roots, we're going back to serving rural markets in retail deserts — that's entirely possible."

"A profitable $15 billion retailer — that would be the pride of the industry," he added.

But Cohen and others read the tea leaves far more grimly. "[Lampert] will continue to strip the assets for as long as there are any assets. As long as he's got a buyer, there's no motivation not to," he said. "This is a slow-rolling liquidation."

bloruleshort.gif (618 bytes)

Dead Stock Walking: Sears Holdings Has Nowhere to Go but Down
By Rich Duprey
The Motley Fool
June 26, 2017

This zombie retailer thinks it's clinging to life, but it's dead and just doesn't know it.

The recent announcement by Sears Holdings that it is closing an additional 66 stores, including 49 Kmart locations, shouldn't have been a surprise. Retail is in a downward spiral, with even department stores in better financial condition needing to close more stores. That the arguably worst retailer still operating is following suit isn't exactly a revelation.

And yet hope persists, as Sears stock seems to rally on any glimmer of good news. When chairman and CEO Eddie Lampert unveiled a plan to trim $1 billion in costs from operations earlier this year, it took the stock from under $6 a share to over $14 in just two months, but since then, shares have lost virtually all of those gains. The reality of the retailer's situation simply weighs too heavily, meaning Sears ought to be considered a zombie stock: It's dead, but it just doesn't know it.

Deep pockets

There are multiple reasons that Sears has yet to succumb. First, Lampert and his friends have deep pockets. Time and again he's come up with financing plans to keep the lights burning, only to have to go back to the well a short time later; at the rate Sears is burning cash, that's going to get old soon.

Second, Sears hasn't been completely stripped of value. While some brands like Lands' End and Craftsman tools have been spun off or sold, it still owns Kenmore and DieHard, and has a portfolio chock-full of supposedly valuable real estate.

Third, there's speculation Lampert is doing some clock-watching. Apparently, there's a two-year look-back period following a transaction that bankruptcy courts can use to determine whether a company was bankrupt at the time of conveyance, or became so as a result of the deal, in which case they can unwind the transaction. Lampert sold hundreds of stores to the real estate investment trust Seritage Growth Properties in 2015; that window closes on July 8, and some analysts suspect he's been keeping Sears limping along to make it over that finish line, as he has just enough cash on hand to make it.

While that's certainly a possibility, Lampert has made sizable investments in digital technology that in many cases are novel and worthy of exploration by other retailers (in fact, some, like Wal-Mart Stores, have seemingly picked up on them), suggesting he really does hope there's a U-turn ahead. His store closures also make it look as though he's trying to shrink Sears' footprint enough that it will be able to functionally operate, perhaps even profitably.

Unfortunately, that's not likely to be the case. Lambert's not-so-benign neglect of his stores early on hastened their downfall, and there might not be enough stores in his portfolio to achieve functionality.

The end of retail as we know it

According to a recent note by Credit Suisse Group, some 8,600 stores will close this year, a record that supersedes the 5,800 that shut down during the recession. Retail bankruptcies are running rampant too, as attempts to compete against Amazon.com and other e-tailers prove to be too much.

Apparel, for instance, represents 24% of Sears Holdings' total sales, or $1 billion last quarter, but sales in the segment fell 20% for the period. While a lot of the decline was undoubtedly due to all the stores Lampert closed, it's also because few customers are shopping at his stores. Comparable-store sales tumbled 12% at Sears and 11% at Kmart.

At the same time, Amazon is poised to overtake Macy's this year as the biggest apparel retailer. Last year Amazon's apparel sales are estimated to have exceeded $22 billion, so it's not just Sears stores where people aren't shopping -- it's most retail chains.

Second, Sears hasn't been completely stripped of value. While some brands like Lands' End and Craftsman tools have been spun off or sold, it still owns Kenmore and DieHard, and has a portfolio chock-full of supposedly valuable real estate.

Third, there's speculation Lampert is doing some clock-watching. Apparently, there's a two-year look-back period following a transaction that bankruptcy courts can use to determine whether a company was bankrupt at the time of conveyance, or became so as a result of the deal, in which case they can unwind the transaction. Lampert sold hundreds of stores to the real estate investment trust Seritage Growth Properties in 2015; that window closes on July 8, and some analysts suspect he's been keeping Sears limping along to make it over that finish line, as he has just enough cash on hand to make it.

While that's certainly a possibility, Lampert has made sizable investments in digital technology that in many cases are novel and worthy of exploration by other retailers (in fact, some, like Wal-Mart Stores, have seemingly picked up on them), suggesting he really does hope there's a U-turn ahead. His store closures also make it look as though he's trying to shrink Sears' footprint enough that it will be able to functionally operate, perhaps even profitably.

Unfortunately, that's not likely to be the case. Lambert's not-so-benign neglect of his stores early on hastened their downfall, and there might not be enough stores in his portfolio to achieve functionality.

At the same time, Amazon is poised to overtake Macy's this year as the biggest apparel retailer. Last year Amazon's apparel sales are estimated to have exceeded $22 billion, so it's not just Sears stores where people aren't shopping -- it's most retail chains.

Too little, too late

Lampert undoubtedly waited too long to do anything with the Kenmore brand. While Sears' partnership with a third-party gas-grill maker to extend the brand further into the outdoor area was smart, Kenmore's leadership in the appliance market has dwindled away. Many peg the decline to when Lampert severed ties with Whirlpool to save money, but today Lowe's, Home Depot, and Best Buy are just more important outlets.

And Lampert's branding of an auto center with the DieHard battery name was a bit of genius marketing, but that also is probably too little, too late. He has other potential opportunities, such as a tire co-branding deal -- a survey found that DieHard tires were a top choice among consumers -- but he has yet to take advantage of them.

In short, there's little left of value to strip from Sears Holdings, and time is running out before Lampert will have to work some more hedge-fund magic to raise more cash. Sooner or later Sears will succumb. As of right now, it's just a dead stock walking.

Rich Duprey has no position in any stocks mentioned.

bloruleshort.gif (618 bytes)

How Sears Canada's Bankruptcy Impacts Sears Holdings Corp.
By Wyco Research
Seeking Alpha
June 23, 2017

Sears Canada Inc. (SRSC) filed for bankruptcy on June 22 in Canada under the Companies' Creditors Arrangement Act (CCAA). While this has only a minor direct impact on Sears Holdings Corp. (SHLD), the indirect impact is significant. If Eddie Lampert is willing to throw in the towel on his equity investment in SRSC, it could indicate that he is not willing to pour more of his cash into propping up SHLD. In addition, vendors who were already nervous about dealing with Sears may stop shipping goods for the critical Back to School and Fall shopping season. In my opinion, SRSC's bankruptcy filing is just a dress rehearsal for a Chapter 11 filing by SHLD in July.

Canadian Bankruptcy Laws

Sears Canada filed under the CCAA instead of the Bankruptcy and Insolvency Act (BIA), which would have resulted in complete liquidation. There are two critical points in the CCAA that differ from Chapter 11 bankruptcy in the U.S. A monitor, in this case FTI Consulting, is appointed by the court, who has oversight authority but does not control day-to-day operations. The first critical point is that the monitor has supervision over the sale of assets, and not Eddie Lampert. The second point is that the monitor is required to report to the Superintendent of Bankruptcy when they feel creditors would be better off if the case was switched to BIA, which would mean total liquidation.

A June 22 Pre-Filing Report prepared by FTI Consulting contains a large amount of useful information. According to the report, SRSC had cash outflows of C$30-100 million per month over the last 5 months, and in May was burning C$20 million a week. The company only had C$139 million on June 19. Without new sources for cash, it was forced to file.

Its current plan entails: closing 59 stores and laying off 2,900 employees; getting a C$300 million DIP revolving loan at LIBOR+4.5% and a $150 USD equivalent term loan at LIBOR+11% which mature on December 20, 2017; trying to get the authority to suspend certain pension and retiree benefit payments; creating a C$9.2 million key employee retention plan.

A key item mentioned in the report was that the company would try to get "interest in a range of potential transactions involving all or part of the assets or businesses of Sears Canada Group". It is critical to remember that this will be done "under the supervision of the monitor", and not by Lampert.

Below are the cash flow and operational projections until September 16. According to FTI Consulting's forecast, SRSC will only have a negative C$25.7 million operating cash outflow during the 13-week period. It is only closing 59 stores, and it would seem unrealistic to expect that the current burn rate of cash would improve so significantly.

Impact on Sears Holdings Corp.

To many SHLD shareholders this information about SRSC may be interesting, but they feel it has little impact on SHLD because SHLD only owns 12% of SRSC and a loss of a few million dollars will not kill SHLD. Correct, but the indirect impact will most likely have a very significant negative impact on SHLD shareholders.

Prior to the filing, SRSC was able to arrange for about C$109 million in financing, but it needed C$175 million. Lampert did not step up and loan the company the other C$68 million. Does this indicate he will no longer be ready to step up and loan SHLD when other financing sources are not? Lampert also owns about 45% of SRSC, and there is a very real possibility that he will get no recovery.

Unlike Chapter 11 bankruptcy in the U.S., where the company/management still has almost complete control of the bankrupt company, in Canada the monitor has a major voice in the bankruptcy process. One can only speculate to conclude that Lampert has finally decided an in-court process is the better way to deal with operations that burn cash, especially since in Chapter 11 he is able wipe out unsecured creditors, shareholders, and certain pension liabilities, while using his and Bruce Berkowitz's secured debt as means to own a large portion of a "new" Sears Holdings.

Some investors are taking the opposite opinion on the SRSC filing. They assert that not proposing to liquidate, but instead to continue operating and selling just some stores, demonstrates Lampert's willingness to pursue his turnaround plans. This could explain the pop in SHLD shares on the day SRSC filed. The reality is that the above extremely low cash burn projections are unrealistic. The company was burning C$20 million per week, but now, all of sudden, this is forecast to improve.

This is just another example of Lampert's unrealistic retail expectations. FTI Consulting, as monitor, decides if the operations continue or if the company liquidates going forward, and not Lampert. FTI was retained by Sears Canada last November as consultant, and its reputation as Licensed Insolvency Trustee now as appointed court monitor would dictate its need to be prudent in supervising the cash flow, and it would be quick to inform the Superintendent of Bankruptcy that a liquidation of assets is necessary to protect creditors instead of continuing to operate.

Vendors are the Achilles' Heel for SHLD. The SRSC bankruptcy filing tore this tendon. There is a very real possibility that vendors will now be even less likely to deal with SHLD after SRSC filed for protection. I would assume that many vendors supply both companies, and now they are not getting paid for goods they delivered to SRSC that were not paid for prior to June 22, because the CCAA prohibits the payment for any goods or services provided before the filing date.

The unpaid vendors now need to file a claim and may get less than the full amount. Those goods delivered after the bankruptcy filing will, however, be paid (This is the same as under Chapter 11 in the U.S.)

Why would vendors deliver goods now and risk getting only partial payment under the Chapter 11 claims procedure? Why not wait until after SHLD files for Chapter 11 and get paid the full amount as a priority claim under Chapter 11. After SHLD files for Chapter 11, many vendors will be eager to do business with the company again because they know they will be paid in full.

Other Recent News

Sears is closing 20 more stores. Some view this as a positive move to reduce negative cash flow. Others view it as a negative because there are fewer stores trying to support the same amount of debt. Barron's posted an article with an interesting title: "Fraudulent Conveyance Rules May Pave Way for Sears Bankruptcy in July". An article I wrote about Sears in April had the same idea.

Conclusion

Eddie Lampert's unwillingness to lend SRSC cash as the "lender of last resort" and the bankruptcy filing of SRSC could signal that he finally realizes SHLD also needs court protection to stop the cash bleeding. At least in the U.S. under Chapter 11, he does not have to cede power to a court-appointed monitor, which will mostly likely not be easy for his ego to accept. While the current plan is for the Canadian operations to continue with a modest reduction in number of stores, continued cash flow issues could force SRSC into a formal liquidation.

Sears's real problem in the near future is vendors, and this filing has made that problem acute. The reality is that the best way to deal with these issues is to file for Chapter 11 bankruptcy in early July, so that vendors will deliver the needed Back to School and Fall merchandise. I still expect to see a Chapter 11 filing, and therefore, rate all SHLD securities a Sell.

Disclosure: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

bloruleshort.gif (618 bytes)

Eddie Lampert's Retail Empire Wobbles With Sears Canada Filing
By Lauren Coleman-Lochner & Taylor Cromwell
Bloomberg Markets
June 22, 2017

Eddie Lampert's sprawling retail empire, built when the billionaire combined Kmart and Sears more than a decade ago, just suffered its highest-profile stumble yet.

Sears Canada, which was partially spun off from Sears Holdings Corp. in 2012, went to court on Thursday to seek protection from creditors. The move -- something akin to a Chapter 11 filing -- followed failed creditor negotiations and the search for a possible buyer. A person familiar with the situation said earlier this week that the chain ultimately expects to liquidate its operations.

The move deals a setback to the Sears name and raises concern that other Lampert entities may falter. Sears Holdings, once the world's largest retail chain, has racked up more than $10 billion in losses over the past six years.

Lampert himself, a hedge fund manager who serves both as Sears's chief executive officer and its largest investor, has used his own money to help keep the business afloat. But he's contending with a broad slump among department-store companies, worsened by slowing mall traffic and deep discounts.

"It's definitely another black eye for Sears," said Steve Azarbad, co-founder and chief investment officer of Maglan Capital, which focuses on distressed companies.

Sears is already a shadow of itself, following years of Lampert offloading real estate and other businesses, including its Lands' End clothing division and Craftsman tool brand. Sears Canada had suffered similar losses and shrinking revenue. And many of the trends dogging U.S. retailers -- a shift online and deep markdowns -- have plagued Canadian chains as well.

Key Difference

"To some degree, Sears is sort of a giant version of Sears Canada," said Noel Hebert, a Bloomberg Intelligence analyst.

The key difference, he said, is Lampert has been more willing to keep financing Sears Holdings. "One has had sort of free access to Eddie's checkbook; the other has not," Hebert said.

Lampert has poured more than $1 billion into Sears Holdings, including a $500 million loan facility and letters of credit worth as much as $500 million more. That business is aggressively pursuing a turnaround, with plans to cut costs by $1.25 billion a year. It showed signs of progress last quarter, when efforts to sell assets and raise cash brought its first profit since 2015.

Still, the company would have posted a loss when excluding one-time items. And sales continued to tumble.

"'Brick and mortar' retailers are facing industry headwinds -- and ours and others are not immune," Howard Riefs, a spokesman for Hoffman Estates, Illinois-based Sears Holdings, said in an email Thursday. "That is why we've taken steps to reduce costs and continue to execute against our transformation."

Sears Canada filed for creditor protection after a failed attempt to borrow additional funds. After a tough negotiating session with lenders, the company warned earlier this month that it probably didn't have enough money to pay its bills. At the time, Sears Canada said it was considering a possible sale of the business. But no buyer has emerged.

As part of the proceedings announced Thursday, Toronto-based Sears Canada is closing about 60 stores and cutting 2,900 jobs.

Top Investor

Though Sears Canada operates as a separate company -- with its own board and balance sheet -- it's still linked to its former parent. Lampert is the largest investor, with about 45 percent of Sears Canada's stock as of April 25. Sears Holdings, meanwhile, owned about 12 percent -- though that was down from 95 percent in 2012.

Sears opened its first Canadian store in Toronto in 1953, part of a joint venture with Robert Simpson Co. called Simpsons-Sears. The company changed its name to Sears Canada in 1984.

Sears Canada isn't the first bankruptcy on Lampert's watch.

In 2011, he announced plans to spin off the Orchard Supply Hardware chain, which Sears had purchased 15 years earlier. Lampert distributed the shares to Sears Holding investors and retained about 40 percent. Less than two years later, Orchard filed for bankruptcy and was acquired by Lowe's Cos.

But the retail climate is much harsher now, with more than a dozen bankruptcies among U.S. merchants this year. And the decline of Canada doesn't point to good things for Sears, Hebert said.

"How did Rome fall?" Hebert said. "It started with the farther-flung provinces. Orchard Supply, Sears Canada, while divested from Holdings, were still part of Mr. Lampert's empire when they succumbed."

bloruleshort.gif (618 bytes)

Sears debuts new store concept
By Marianne Wilson
Chain Store Age
June 22, 2017

Sears has opened a freestanding store concept dedicated to two of its strongest categories.

Sears debuted its first store under the Sears Appliances & Mattresses banner, in Pharr, Texas. The format expands the concept of the Sears Appliance store, which opened in Ft. Collins, Colo. in 2016. The location has surpassed projections since its opening, Sears said.

The 20,000-sq.-ft. Sears Appliances & Mattresses store features interactive displays of top home appliances brands in kitchen vignettes. It also allows visitors to experience the top mattress brands.

The space includes a full-scale kitchen that features a 122-inch interactive digital display. Using a tablet, shoppers can select common kitchen layouts and appliances and further customize the experience by choosing colors and finishes. They also can use the digital display to shop for other products on the retailer's website.

"Like our Sears Appliances store in Ft. Collins, this stand-alone location fully integrates in-store and online shopping to provide our members with the convenience of shopping with us wherever, whenever and however they choose," said Leena Munjal, senior VP, customer experience and integrated retail, Sears Holdings Corp.

The Pharr store features an array of integrated services, including free shipping on orders placed while in the store (for product not carried in the store), buy online and ship to the store as well as in-vehicle pickup. Shoppers can also go online to schedule in-store appointments with experts for assistance in purchasing appliances and mattresses.

bloruleshort.gif (618 bytes)

Sears Canada Plunges After It's Said to Near Creditor Protection
By Lauren Coleman-Lochner & Scott Deveau
Bloomberg Markets
June 21, 2017

Sears Canada Inc., the struggling offshoot of Sears Holdings Corp., tumbled as much as 30 percent after people familiar with the matter said it was preparing to seek court protection from creditors.

The court filing will likely lead to a liquidation, with the business sold off in pieces, said one of the people, who asked not to be identified because the deliberations are private. The company's most valuable assets are real estate, but many of its locations are in lower-end shopping centers. That makes it difficult to sell them to a single buyer, the person said.

Sears Canada's stock fell as much as 30 percent in Toronto trading. They were down 16 percent to 67 Canadian cents at 10:09 a.m.

The move would herald the end of a once-prized piece of the Sears retail empire. As in the U.S., Canadians are increasingly shopping online and shifting more spending toward experiences -- rather than apparel and other department-store fare. Sears also has had to contend with homegrown competitors, such as Canadian Tire Corp. and Hudson’s Bay Co.

A representative for Sears Canada didn't immediately respond to a request for comment.

In preparing the filing, Sears follows in the footsteps of Target Corp., another U.S. chain that saw its northern operations falter. Target announced plans in 2015 to close its 133 Canadian stores after its operations there amassed more than $2 billion of debt. Wal-Mart Stores Inc. and Costco Wholesale Corp. suffered some missteps entering Canada as well, though they remain in the country.

And while Sears Holdings posted its first profit since 2015 in the first quarter, the U.S. company remains in a dire state. It burned through $900 million in cash in the period to support operations as revenue tumbled 20 percent. Once the country's biggest retailer, Sears has been shuttering stores amid a broader department store slump. Last month, Evercore ISI analyst Matt McGinley said Sears's "shrink-to-survive mode" leaves little room for optimism about a turnaround.

'Significant Doubt'

Earlier this month, Sears Canada voiced "significant doubt" about its ability to pay its bills and keep operating after a shortfall in the financing it could line up. It hired BMO Capital Markets to explore options including a possible sale, and Osler, Hoskin & Harcourt LLP for legal counsel.

Billionaire Edward Lampert, who is Sears's chairman, chief executive officer and largest shareholder, owned about 45 percent of Sears Canada stock as of April 25, data compiled by Bloomberg show. Sears Holdings owned 12 percent, down from 95 percent in 2012.

The Toronto-based company has lost more than C$700 million ($528 million) in the past three years.

Sears Canada has 155 locations leased or owned by the company. It owns eight full-line department stores, two Sears Home stores, and two outlets and leases the remainder, according to the company's annual report.

With locations in malls across Canada, the retailer is linked to some of the country's largest real estate firms. RioCan Real Estate Investment Trust, Canada's largest landlord by market value, leases nine locations to Sears, including a strip mall in Calgary, Alberta and a shopping center in Winnipeg, Manitoba. H&R REIT, the country's second-largest REIT, leases space via its Primaris subsidiary to at least eight Sears stores, according to its most recent investor presentation.

Sears Canada's plight worsened after it attempted to borrow as much as $175 million, using its real estate as collateral. After negotiations with lenders faltered, the company said last week that it only expected to get $109 million before transaction fees. With few other quick sources of cash available, the conditions "raise significant doubt as to the company’s ability to continue as a going concern," it said at the time.

bloruleshort.gif (618 bytes)

This Is Why You Shouldn't Have Gotten Excited By Sears Reporting a Profit
By Rich Duprey
The Motley Fool
June 19, 2017

Investors should know by now that good news from the troubled department store operator is usually a mirage.

The headline news last month that Sears Holdings turned a quarterly profit for the first time in several years sent its stock soaring 20%, but as usual, the euphoria quickly wore off, and today its shares trade 22% below that high point. Ever the optimists, Sears investors grasp onto any hint of good news, only to be smacked upside the head by reality.

From spinoffs and sales of stores to financing and branding deals, Sears stock rallies on the news only for the hoped-for long-term gains to be revealed as ephemeral. No one wants to see Sears go under, and its investors likely hope each fresh development will be the one that marks the start of the retailer's revival, but that never turns out to be the case.

Operating on a non-recurring basis

There was good reason not to get too excited by Sears' first quarter. A quick read of the press release showed that its $244 million Q1 profit had nothing to do with its shoppers buying more clothes or household goods, since comparable-store sales tumbled 12.4% at Sears and 11.2% at Kmart. Rather, it was deals like the sale of its Craftsman tool business to Stanley Black & Decker that inflated its returns. If you backed them out, Sears actually had a loss of $230 million, worse than the $199 million loss it recorded a year before.

And so it has ever been with Sears since Chairman and CEO Eddie Lampert bolted together the ailing Kmart and Sears, Roebuck chains. Early on, it was the use of financial gimmicks such as total return swaps and stock buybacks that allowed Sears to keep up the appearance of improvement; later, it was spinoffs like those of Sears Hometown & Outlet Stores and Land's End.

Most recently, it has been the monetization of Sears' significant real estate holdings that has driven the gains, such as those realized after Lampert created the real estate investment trust Seritage Growth Properties and sold it several hundred stores, or dipping into his admittedly deep pockets to loan the retailer money. Unfortunately, all that has simply allowed Sears to keep the lights on.

Burning the furniture to heat the house

Analysts estimate Sears Holdings is burning through so much cash that it could run out within the next month. TheStreet.com quotes Iszo Capital financial analyst Brian Sheehy as saying Sears is burning through $189 million a month in cash, and because at the end of April it had just $70 million left on its credit revolver and $264 million in cash, the well should run dry in July. Unless, of course, it can come up with yet another one-time cash infusion.

The problem is that Sears is running out of gimmicks to deploy and assets to shed; it can't keep this up for much longer. But some speculate that a month longer is all the time Lampert really needs before he can allow Sears to go under.

According to Debtwire, a corporate debt intelligence service, because of Sears property sale to Seritage in 2015, July 8 would be the earliest the retailer could seek bankruptcy protection without worrying about being accused of violating laws on fraudulent conveyance. Under bankruptcy law, there is a two-year window where the courts can consider whether assets were improperly transferred.

The end is nigh

That was also one of the concerns surrounding the sale of Craftsman that Stanley acknowledged was a possibility. Although the toolmaker said it had shielded itself from Sears financial woes, it admitted a judge could unwind the deal if a judge determined Sears was bankrupt at the time of the deal or became bankrupt because of it.

Of course, Sears is not profitable, it has declared there is an imminent risk of bankruptcy (albeit the disclosure was largely boilerplate), and it has within the past week said it will be closing even more stores than it had previously announced and slashing dozens of corporate positions.

While Sears Holdings investors may be hoping for the best, at this point they should realize that whatever good news is delivered, bad news will probably be following close behind. The retailer has been described as a slow motion liquidation, and we may very well see the end of it next month.

Rich Duprey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

bloruleshort.gif (618 bytes)

Why doesn't Lampert take Sears private?
By Joe Cahill
Crain's Chicago Business
June 16, 2017

News that Nordstrom family members may take their department store chain private got me wondering if CEO Edward Lampert might do likewise at Sears Holdings.

The hedge fund mogul who controls Sears insists the beleaguered retailer has a bright future, even as persistent sales declines and operating losses force him to close stores and sell off assets. Earlier this year, he said Sears has "what it takes to move us forward." But investors aren't listening. Sears shares have dropped 24 percent this year to under $7 apiece, near an all-time low of $5.50, set in February, and down 96 percent from their peak value of $195.12 a decade ago.

If Lampert's storyline is true, the stock must be a bargain, right? Imagine the upside if the Hoffman Estates-based company recovers as he predicts. He could make a huge score by scooping up the 51 percent of Sears stock he doesn't already control, which is worth about $375 million at current market prices. Throw in a 10 percent buyout premium, and Lampert would pay less than $425 million to capture the full benefit of a Sears turnaround.

Of course, his hedge fund investors might object if he plows more of their money into a stock that has cost them so dearly since he took control of Sears by merging it with Kmart in 2005. And bank lenders surely would demand high interest rates and fees to finance a Sears LBO.

But why use other people's money? If Lampert is worth $1.8 billion, as Forbes estimates, he could finance the buyout himself, without borrowing or sharing the returns with co-investors.

Taking Sears private would bring other benefits, as well. Lampert's willingness to wager a bigger chunk of his personal fortune on Sears would send a strong signal to merchandise vendors that appear to be growing leery of the company. And a privately owned Sears would escape the expense and inconvenience of nettlesome Securities & Exchange Commission regulations, including a rule that recently forced the company to acknowledge uncertainty about its future as a "going concern."

Sears won't comment on Lampert's interest in such a transaction. But so far, he isn't acting like a hedge fund manager who sees unappreciated value in Sears. He rails against negative media coverage, upbraids suppliers that treat Sears "like a pariah" and bemoans bankruptcy speculation. Yet he forgoes an opportunity to buy up Sears stock at a price that reflects none of the long-term prosperity he envisions for the retailer.

"If he thought the stock was undervalued enough to make up for the downside risk, he would take it private to reap 100 percent of the upside and eliminate the cost and risk of SEC regulation and reporting," says Erik Gordon, a professor at the University of Michigan's Ross School of Business.

Sure, Lampert bought about 500,000 shares in March, steadying the stock after the "going concern" warning. But that's a rounding error for him.

Rather than double down on Sears equity, Lampert has taken steps that would strengthen his position in a Sears bankruptcy. Through various entities, he has become the company's biggest lender, advancing more than $1 billion in recent years, much of it secured by potentially valuable assets he could seize in bankruptcy proceedings.

He also stands to gain from Sears store closings through his stake in Seritage Growth Properties, a real estate company that's redeveloping former Sears locations.

Lampert may truly believe that Sears will thrive in the long-term. If he backed his optimism by taking the company private, others might believe it, too.

bloruleshort.gif (618 bytes)

Walmart to acquire Bonobos
By Marianne Wilson
Chain Store Age
June 16, 2017

Walmart is buying the hot men's clothing company Bonobos for $310 million in cash.

The move is in keeping with Walmart's recent efforts to compete with Amazon by beefing up its online fashion offerings and widen its appeal by buying digitally native brands that target millennials and younger consumers. Founded online in 2007, Bonobos has expanded its assortment over the years and has also opened 35 brick-and-mortar stores ("Guideshops"). It also has a partnership with Nordstrom.

Upon completion of the deal, Andy Dunn, founder and CEO of Bonobos will report to Marc Lore, president and CEO of Walmart U.S. eCommerce. Lore is being given a major role at Walmart: He will oversee the company’s collection of digitally-native vertical brands, which, in addition to Bonobos, now includes Moosejaw, ShoeBuy and ModCloth.

"Adding innovators like Andy will continue to help us shape the future of Walmart, and the future of retail," stated Lore. "I'm thrilled to welcome Andy and the entire Bonobos team. They've created an amazing product and customer experience, and that will not change. In fact, Andy will be a great influence on the company, especially in leading our collection of exclusive brands offered online."

The acquisition, which is subject to regulatory approval, is expected to close toward the end of the second quarter or the beginning of the third quarter of this fiscal year.

bloruleshort.gif (618 bytes)

Sears cuts 400 jobs, no longer qualifies for state tax breaks
By Lauren Zumbach
Chicago Tribune
June 14, 2017

Sears Holdings Corp. on Tuesday said it would eliminate 400 full-time jobs, with most of the job cuts coming at its Hoffman Estates headquarters. The announcement means Sears' head count in Hoffman Estates has been cut by more than a third since 2011, when it employed 6,200 people at its headquarters and received a package of tax breaks after threatening to leave Illinois.

At the end of 2016, Sears reported having just three more employees than the 4,250 minimum it was required to maintain to be eligible for the tax credits, said Illinois Department of Commerce and Economic Opportunity spokeswoman Jacquelyn Reineke.

Sears has not received a payment this year and the state plans to review Sears' records "to ensure taxpayers are not on the hook for an out-of-compliance agreement," Reineke said. The company received $18.79 million in payments through the Economic Development for a Growing Economy program.

Company spokesman Howard Riefs declined to say how many employees work at its Hoffman Estates headquarters, but said the company had recently fallen below the 4,250 jobs it was required to maintain for the EDGE tax breaks.

While the majority of the 400 job cuts are in Hoffman Estates, some are in Sears' field offices. Sears said it already eliminated open positions and reduced contract employees to lessen the impact of layoffs.

Also exiting Sears are three executives: Stephen Zoll, Sears' president of online; David Pastrana, president of apparel; and Eric Jaffe, senior vice president of Sears' Shop Your Way program.

Shop Your Way, Sears' membership program, has been the centerpiece of Sears Chairman and CEO Edward Lampert's plan to turn around the struggling Sears and Kmart chains since it launched in 2009. In a recent interview, Lampert said he's still committed to that strategy: strengthening Sears' e-commerce business while using the rewards program to cater to top customers.

The 2011 state tax deal gave Sears credits worth an estimated $15 million a year for 10 years, which it could use against withheld employee income taxes. Sears dipped below the requirement because it was only allowed to count certain types of jobs, Riefs said in an email.

Sears had to invest a certain amount of money in the state before receiving the credits. The company has invested $260 million so far, more than 85 percent of the amount it was required to spend as part of the incentive agreement, Riefs said. The company received its first payment through the program last year.

"We have a rich history in Illinois spanning over 130 years, so while tough but necessary decisions are being made today, we believe both the company and the state of Illinois have benefited and will continue to benefit greatly by our remaining in the state," he said.

The job cuts announced Tuesday come on top of the embattled retailer's latest round of store closures. By early September, Sears will close 49 Kmart and 17 Sears stores, according to a source close to the company, after shuttering 150 in the first quarter of this year.

Along with other actions taken since the end of January, those changes have allowed the company to remove almost $1 billion from its cost structure. It expects those cost savings to grow to $1.25 billion by the end of January 2018.

"We are making progress with the fundamental restructuring of our operations that we initiated in February," Lampert said in a news release. "We remain focused on realigning our business model in an evolving and highly competitive retail environment. This requires us to optimize our store footprint and operate as a leaner and simpler organization."

bloruleshort.gif (618 bytes)

Sears Holdings Provides Strategic Restructuring Update
Press Release by Sears Holdings Corp.
June 13, 2017

Announces incremental actions to streamline its operations and deliver cost savings
On track to achieve $1.25 billion in annualized cost savings in 2017


Sears Holdings Corporation today announced important actions related to its previously disclosed strategic restructuring program, which is designed to deliver $1.25 billion in annualized cost reductions.

These actions include the elimination of approximately 400 full-time positions at our corporate offices and support functions globally, in addition to certain positions at our field operations as well as the store closures we initiated last week. Combined with the restructuring actions announced since the beginning of the fiscal year, Sears Holdings has actioned nearly $1.0 billion in annualized cost savings to date and is on track to deliver $1.25 billion in annualized savings through actions taken in fiscal year 2017.

The Company will continue to take all necessary action to drive improvements in our organization to achieve our profitability objective with a greater focus on Best Members, Best Categories and Best Stores.

"We are making progress with the fundamental restructuring of our operations that we initiated in February," said Edward S. Lampert, Chairman and Chief Executive Officer of Sears Holdings. "We remain focused on realigning our business model in an evolving and highly competitive retail environment. This requires us to optimize our store footprint and operate as a leaner and simpler organization."

Organizational Restructuring

As part of the Company's ongoing efforts to simplify its organizational structure and enabling greater consolidation of the Sears and Kmart corporate and support functions, approximately 400 full-time positions at our corporate offices and support functions will be eliminated. The majority of these positions are related to the corporate workforce at Sears Holdings' headquarters in Hoffman Estates.

In addition, certain positions at our field operations will be impacted by these restructuring actions. 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. We are providing eligible associates severance compensation and transition assistance. As part of the organizational restructuring, the company first eliminated open positions and reduced contract employees in an effort to minimize the impact on full-time employees.

Transformation Progress to Date

Today's announcement is in addition to the significant actions the Company has already taken. Since the beginning of the calendar year 2017, we have taken decisive steps to improve our operational performance, enhance our financial flexibility and drive our strategic transformation, including:

• Significant progress on our strategic $1.25 billion restructuring program, with nearly $1.0 billion in annualized cost savings already actioned to date, including the actions announced today;

• Paydown of approximately $418 million of term loans outstanding under our revolving credit facility and extension of the maturity of $400 million of our $500 million 2016 Secured Loan Facility up to twelve months;

• Entered into an agreement with Metropolitan Life Insurance Company ("MLIC") to annuitize $515 million of pension liability to reduce the overall size of the Company's pension plan, future cost volatility and plan administrative expenses;

• Monetization of certain real estate properties that generated over $200 million in proceeds;

• Continued growth of our Shop Your Way ecosystem through strategic partnerships and value offerings, including recently announced partnerships with Citi and Time Inc.

Path Forward

We will continue to take all necessary action to drive improvements in our organization to achieve our profitability objective with a greater focus on Best Members, Best Categories, Best Stores strategy. Going forward, we will focus our investments to drive the growth of our valuable assets, such as our Shop Your Way platform; our Kenmore, Craftsman at Sears and DieHard brands; the nation's largest product repair services provider, Sears Home Services; and Sears Auto Centers, a leading provider of automotive maintenance and repair services and parts. In addition, we continue to evaluate strategic options across our portfolio to unlock value from our assets through partnerships, joint ventures or other means.

Forward-Looking Statements

This press release contains forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995, including, but not limited to, statements about our liquidity, our ability to achieve our cost-savings and profitability objectives, our ability to successfully achieve our plans to generate liquidity through monetization of our real estate, additional debt financing actions, asset securitizations or other potential transactions or otherwise, our intention to explore potential partnerships or other transactions involving our Kenmore and DieHard brands and our Sears Home Services and Sears Auto Centers businesses, the impact of the agreement with MLIC, and other statements that describe the Company's plans.

Whenever used, words such as "will," "expect," and other terms of similar meaning are intended to identify such forward-looking statements. Forward-looking statements, including these, are based on the current beliefs and expectations of our management and are subject to significant risks, assumptions and uncertainties, many of which are beyond the Company's control, that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements.

Detailed descriptions of risks, uncertainties and factors relating to Sears Holdings are discussed in our most recent Annual Report on Form 10-K and other filings with the Securities and Exchange Commission. While we believe that our forecasts and assumptions are reasonable, we caution that actual results may differ materially. We intend the forward-looking statements to speak only as of the time made and do not undertake to update or revise them as more information becomes available, except as required by law.

bloruleshort.gif (618 bytes)

Sears Canada says "significant doubt" it can continue as cash crunch worsens
By Carl Surran
Seeking Alpha
June 13, 2017

Sears Canada plunged 20% in today's trade after warning it had "significant doubt" about its ability to continue as a going concern and is exploring a possible sale of the business.

Sears Canada, whose Q1 net loss more than doubled from a year ago, abruptly called off its annual meeting scheduled for Wednesday, postponing it to an undetermined future date.

The retailer says its cash and forecast cash flows from operations likely will not meet its obligations coming due over the next 12 months; it has often raised cash from asset sales, but now says it has few alternative sources of liquidity, "through real estate monetizations, asset sales or otherwise."

Although the Canadian unit is no longer majority-owned by the U.S. retailer, its biggest single shareholder is SHLD CEO Eddie Lampert, who controls ~45% of Sears Canada shares as well as nearly 50% of SHLD.

bloruleshort.gif (618 bytes)

Sears cutting jobs; key digital exec to leave
By Marianne Wilson
Chain Store Age
June 13, 2017

Sears Holdings is reducing headcount as part of its ongoing effort to deliver $1.25 billion in annualized cost reductions. It's also losing a key online executive.

Sears is eliminating some 400 full-time jobs at its corporate offices, in Hoffman Estates, Illinois, and from its support functions. In addition, certain positions at the chain's field operations will be impacted. The eliminated jobs represent less than half a percent of the 140,000 full-time and part-time employees Sears had as of the end of January.

In other news, Stephan Zoll, president of online, Sears Holdings, is stepping down from the company, effective June 15, Sears said Tuesday in a separate 8-K filing with the Securities and Exchange Commission. Stephan joined Sears in June 2016, coming from eBay Germany where he had served most recently served as VP of eBay Marketplaces.

As previously announced, Sears' strategic restructuring program is designed to deliver $1.25 billion in annualized cost reductions. To date, the retailer said it has made about $1 billion in annualized cost savings to date, and remains on track to meet its target.

"We are making progress with the fundamental restructuring of our operations that we initiated in February," said Edward S. Lampert, chairman and CEO of Sears Holdings. "We remain focused on realigning our business model in an evolving and highly competitive retail environment. This requires us to optimize our store footprint and operate as a leaner and simpler organization."

Last week, Sears confirmed that it planned to close 66 additional locations on top of the 180 planned closures it had announced earlier in the year.

bloruleshort.gif (618 bytes)

Sears Is Done, Traditional Retail Is Dying
Bears of Wall Street
Seeking Alpha
June 10, 2017

When a company sues its long-time suppliers because of its own mistakes, that company will not have a fighting chance, especially when those suppliers combined have bigger war chest. As Eddie Lampert prepares for that last battle, the Sears saga on the verge of ending.

Let's look at the events that have put Sears in the tough spot it is in today and find out how long can the company stay afloat before going bankrupt. If you follow Sears story, then you know that Eddie Lampert, the famous hedge fund manager, has officially run the company since 2013, when he was appointed CEO.

However, rumor on the street was that he was calling all the shots from as far back as 2005, when he acquired the initial stake in the company. And if we look at Sears' performance over the last 10 years, we see that the retailer's stock has failed to return to its pre-recession levels and has been constantly depreciating in value since 2010:

While Eddie Lampert and another hedge fund manager, Bruce Berkowitz, together hold 85% of the stock, we do not believe there's a chance that they can turn things around. At the moment, the overall traditional retail industry is dying as other companies continue to close their stores quarter after quarter, and it's getting harder to compete for better margins with e-commerce giants.

Right now, the majority of traditional retailers do not offer unique in-store experiences that might increase their customer numbers. In addition, a lot of them do not offer same-day shipping, which causes buyers to choose online retailers like Amazon over them.

And the bigger the retailer, the harder it is to create an efficient environment that produces innovation - the logistics are going to be overwhelming, especially if the company lacks the right infrastructure. If you google the outlook for the traditional retail industry, you find studies and reports that tell you e-commerce market share is going to grow, and traditional stores of the big chains are going to be closed, at a higher rate for the foreseeable future.

Going back to Sears, you don't need to be a financial expert to see that the company is in deep trouble, and not only because of the death of the traditional retail, but because due to its poor performance in the recent years. Back in 2005, Warren Buffett told a group of students that he didn't believe Eddie Lampert would be able to turn around the company - and as we can see, he was right.

Due to the depressing historical data, the company's returns on assets, equity and capital are negative. In fact, its ROIC alone is -151%, which gives you the idea how bad the situation really is. Shrinking margins and declining revenue have caused Sears to overleverage its balance sheet, and if it had to cover its outstanding debt in the foreseeable future, it would fail to do so.

Despite the cash injection of a total of around $800 million from Eddie Lampert himself, the situation hasn't changed much and the long-term picture looks devastating. And while we see that the company is slowly divesting its assets, like real estate, this process will stop at some point and there will be no one to help the company as the solvency issues arise.

As we said in the beginning, Sears saga is about to end and, as the new debt coverage time comes by the end of this quarter, we believe that bankruptcy would provide the only chance for an end to this depressing story...

Disclosure: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

bloruleshort.gif (618 bytes)

Merger of Department Stores Off the Table for Now
By Suzanne Kapner and Matt Jarzemsky
The Wall Street Journal
June 10, 2017

Takeover talks between Neiman Marcus Group Inc. and the parent of Saks Fifth Avenue have stalled, according to people familiar with the matter, leaving the department store owners to chart their own paths through a difficult retail landscape.

Hudson's Bay Co., the owner of Saks and Lord & Taylor, had approached Neiman Marcus about a potential combination earlier this year, The Wall Street Journal reported in March. The two sides have been unable to reach an agreement on price and are no longer actively working on a deal, one of the people said, adding that the talks could resume.

In March, Neiman Marcus said it hired financial advisers to explore strategic alternatives, including a potential sale or debt restructuring. The luxury chain, which has been controlled by private-equity firms for a dozen years, has been grappling with a $5 billion debt load and shrinking sales.

The transaction would have been a complex move for Hudson's Bay, which sought to take control of Neiman without taking on its debt load, people familiar with the matter had said.

Ares Management LP and the Canada Pension Plan Investment Board bought Neiman Marcus in 2013 from another group of private-equity backers for $6 billion including debt.

The retailer is expected to report its latest quarterly results on Tuesday.

Hudson's Bay on Thursday announced plans to cut 2,000jobs in North America and lower its dividend payout, part of a $350 million restructuring program to help the Canadian company cope with "the challenges of an evolving retail environment."

The company reported a 3% drop in retail sales and a wider loss for the latest quarter.

Its shares fell 9% Friday and are down by about a quarter since the deal talks surfaced in March, giving the company a market value of less than 2 billion Canadian dollars ($1.5 billion).

"I continue believe that there are opportunities around the world for us to create synergies and increase our market share in different markets," Hudson's Bay Chairman Richard Baker said on a conference call Friday. "Obviously, we have a lot to do here and we're very focused on it."

Department stores are struggling as shoppers make fewer visits to malls, and discounting by online rivals squeeze profits out of the industry. Some, like Macy's Inc. and J.C. Penney Co., have responded by closing stores. Hudson's Bay has been exploring combinations that could give it greater scale and room to cut more costs, but the stalling of the Saks talks shows how difficult it is to strike deals in the current environment.

On Thursday, the founding family of Nordstrom Inc. said it was exploring the possibility of taking the company private and that the board had hired financial advisers to review any potential offer. The Nordstrom family owns about 30% of the Seattle-based company and runs the business.

bloruleshort.gif (618 bytes)

Sears' downward spiral continues with more store closings
By Adam Levine-Weinberg
The Motley Fool
June 9, 2017

Sears Holdings is about to close even more stores. After shutting more than 150 Sears and Kmart stores last quarter, the troubled retail icon recently decided to close another 72 locations by September (65 of them excluding auto centers), according to Business Insider.

Store closures have been a constant at Sears Holdings in recent years. However, what had previously been a steady downsizing has turned into a rout during 2017. This is just one more sign that Sears may have finally slipped into a downward spiral. That would be great news for rivals such as J.C. Penney that are waiting to pounce.

A long retreat for Sears and Kmart

At the beginning of 2012, Sears Holdings operated 1,305 Kmart stores and 867 full-line Sears stores in the United States. Including locations in Canada and smaller "specialty stores," Sears still had more than 4,000 stores at that time.

Since then, Sears has spun off most of its ancillary businesses to focus on its full-line Sears and Kmart stores. It has also steadily pared back its store fleets for both chains. By January, there were just 735 Kmart stores and 670 full-line Sears stores still operating.

2017 is set to be the biggest year yet for store closures at Sears Holdings. Early in the year, the company announced that it would close 150 unprofitable stores to reduce its losses, consisting of 108 Kmarts and 42 full-line Sears stores.

However, Sears Holdings' sales declines have accelerated this year. As a result, in the past few months, the company made plans to close about 30 more stores by July. It has now scheduled a third round of cuts for September, eliminating another 16 full-line Sears locations and 49 Kmart stores. This will leave the company with fewer than 1,200 stores, down nearly 20% from the beginning of the year.

Why $1B in costs cuts isn't working for Sears Holdings

Sears began 2017 with plans to reduce its operating expenses by $1 billion in an attempt to stem its losses. But with the severity of its sales declines, even $1 billion in cost cuts would not improve its profitability significantly.

Accordingly, in late April, Sears Holdings boosted its cost-savings target for 2017 to $1.25 billion. However, if store closures are driving a big part of Sears' incremental cost cuts, that doesn't bode well for the company's profit-improvement goals. Most of the operating-expense reductions will probably be offset by the impact of further sales declines related to having fewer stores.

Sears Holdings' revenue plunged 20% year over year last quarter. With more store closures coming in the next few months, the pace of its sales declines will probably accelerate. And barring a miraculous turnaround, the scale of its losses means it will run out of assets to sell within two or three years. At that point, the Sears and Kmart chains are likely to shut down for good.

Good news for rivals like J.C. Penney, Lowe's, Home Depot

Despite years of huge sales declines, Sears still generated more than $22 billion of revenue last year. And it remains a force in the major-appliance market, with sales of $3.8 billion in 2016, putting it in third place behind Lowe's and The Home Depot.

J.C. Penney, Sears' biggest rival at the budget end of the department-store market, has been positioning itself to profit from the latter's potential demise. Most notably, it re-entered the major-appliance market last year after more than a 30-year hiatus. J.C. Penney is also testing new home-services offerings, moving into another traditional area of strength for Sears.

J.C. Penney should be able to pick up a substantial portion of the sales Sears forfeits as it closes stores. Last year, it became the No. 23 major-appliance retailer in the U.S. despite still being in the early innings of its appliance rollout. J.C. Penney has tons of room for growth in this business over the next few years as it improves its offerings and as Sears declines.

bloruleshort.gif (618 bytes)

Apparel giant in store closing move amid sales drop
By Marianne Wilson
Chain Store Age
June 9, 2017

Ascena Retail Group, operators of such brands as Ann Taylor, Lane Bryant and Dressbarn, is planning to close hundreds of stores. The news came on the heels of a brutal quarter.

The company reported a net loss of $1.031 billion, or $5.29 per diluted share in its third quarter, ended April 29, which included a non-cash, pre-tax impairment charge of $1.3 billion to write down the company’s goodwill and other intangible assets. This compared to net income of $15 million last year, or $0.08 per diluted share, in the year-ago quarter.

Net sales fell to $1.565 billion, down from $1.669 billion in the year-ago period. Total same-store sales fell 8% amid a decline in store traffic across all brands. By banner, same-store sales were down 7% at Ann Taylor; 6% at Loft; 12% at Maurices; 8% at Dressbarn; 11% at Catherines; 6% at Justice; and 6% at Total Kids Fashion.

Ascena currently operates over 4,800 stores throughout the U.S. Canada, and Puerto Rico. On the chain's earnings call, president and CEO David Jaffe said the company will close more than 250 locations by July 2017. An additional 400 stores could close, Jaffe said, if the company can't negotiate reduced rent with landlords.

"Over the next two years, we expect to close or achieve substantial rent reductions in more than 650 stores, which represent almost 25% of the total store population with lease term maturity between 2017 and July of 2019," Jaffe said. "We expect our fleet optimization program will be earning accretive and will deliver working capital benefits."

No particular store brand is being targeted for the store closures.

"The store closings are determined by individual stores, not by the brand," said Brian Lynchs. There is no overarching brand point of view. It's literally the economics of the individual stores.

Jaffe said the chain's third quarter performance reflected an extremely competitive market environment, characterized by persistent store traffic declines and intense commercial activity for the chain's third performance. And he sees no let-up in sight.

"We expect these factors will remain major headwinds for the foreseeable future and reflect an accelerated shift to consumer demand toward ecommerce," Jaffe said. "Responding to the shift requires fundamental changes in retail operating model, and we've made significant progress toward transforming our business to compete in this new environment."

bloruleshort.gif (618 bytes)

Nordstrom Family Mulls Plan to Take Retailer Private
By Suzanne Kapner & Ezequiel Minaya
The Wall Street Journal
June 9, 2017

Members of the family that founded Nordstrom Inc. are exploring the possibility of taking the retailer private, signaling they are ready to double down on the business at a time when many investors see a bleak future for the American department store.

The luxury department store operator said Thursday that six Nordstrom heirs are considering acquiring the 70% of the company they don’t already own. Assuming a typical takeover premium and including the company's debt, such a deal could approach $10 billion.

The wealthy family, whose members still run the Seattle based business, is seeking to take over a company whose shares have taken a beating even though it has fared better than many of its peers. Online sales account for about 20% of Nordstrom's revenue and growth at the discount Nordstrom Rack chain has cushioned declines at the full-price stores.

The Nordstrom family would be making a long-term bet on the future of retailing, said Allen Questrom, former CEO of Neiman Marcus Group Inc., Macy's Inc. and J.C. Penney Co. "Sometimes you can't make your numbers in the short term, but you want your brand to be around in 50 years," he said.

Shares in the company, which had slid 16% this year through Wednesday's close, rose 10% to $44.63 on Thursday. As recently as 2015, the stock traded above $80 a share.

Investors have shown little faith in the health of department stores, as fewer shoppers visit malls and online rivals squeeze traditional retailers' profits. Some chains such as Macy's, J.C. Penney and Sears Holdings Corp. together are closing hundreds of locations to stem losses.

But Nordstrom, which has fewer locations and is mostly in higher-end malls, is better positioned than others, analysts and investors say. It operates about 120 full-line stores and about 215 off-price Nordstrom Rack locations. Last year, a third of its $14.5 billion in revenue came from the discount business.

"Everyone is trying to determine who will be the survivors of the Amazon. com-led nuclear winter and I think Nordstrom is one of those survivors," said Maxim Group analyst Tom Forte, adding that shares of the company are undervalued by investors scared away by the sector's wider woes.

Bill Smead, whose Smead Capital Management owns nearly half a million Nordstrom shares, said the company has been making all the right moves but the market isn't giving it credit. "It's not doing them any good to be a public company at the moment," he said. Mr. Smead, whose firm has roughly $2 billion under management, said Nordstrom "will gain share as their competitors close stores."

The company had a market value of $7.5 billion as of Thursday's close and around $2 billion of net debt. Bankers said Thursday that given the family's large stake, real-estate holdings and relative health of the business, it wouldn't be difficult to find a financing partner for a buyout.

At $46 a share, the family would need to raise around $5.5 billion to fund a buyout, estimates Chuck Grom, analyst at Gordon Haskett Research.

Privately held retailers haven't been spared the pain that has hit those in the public market. Nordstrom rival Neiman Marcus Group Ltd. is struggling with falling sales and more than $5 billion in debt from a leveraged buyout. J. Crew Group Inc. has posted 10 straight quarters of lower same-store sales.

Some analysts were skeptical of the idea of adding debt to a retailer given the underlying pressures. "We do not see the merits," wrote Citi's Paul Lejuez.

But Mr. Questrom drew a distinction between a founding family taking a company private and leveraged buyouts done by private-equity firms that typically pile on debt to juice returns and have a time horizon of five to seven years.

The Nordstrom family group includes the company's biggest shareholder, Chairman Emeritus and former CEO Bruce Nordstrom, who owns 15.4% of the company and is a grandson of the founder. It also includes his sister, Anne Gittinger, who owns 9.2%, co-presidents Blake, Peter and Erik Nordstrom, and president of stores James Nordstrom.

The group said in a regulatory filing that it was exploring taking the company private "because of the changing dynamics in the retail environment." It hasn’t made a proposal, though Nordstrom said its board has formed a special committee of independent directors and hired financial advisers to consider any offer. The company gave no further comment.

"They have always wanted to run this as a family business," said Kathy Gersch, a former Nordstrom executive who now works at management firm Kotter International. She said such a takeover would "not be a standard leveraged buyout. It's really the family buying back their company. It allows for a level of alignment that you don't get in a standard buyout."

Nordstrom was co-founded in 1901 by John W. Nordstrom, a Swedish immigrant who had joined the Klondike gold rush, and a local shoe salesman. The founders retired in the late 1920s and sold the business to Mr. Nordstrom's sons. It sold only shoes until the 1960s and didn’t have a location on the East Coast until 1988.

A third generation took over in the 1960s. The company added women’s apparel, sold shares to the public in 1971 and expanded nationally.

Nordstrom has fended off threats to its business in part by moving quickly to expand its off-price chain and buying digital startups such as menswear site Trunk Club and flash-sales site Haute Look, which have helped boost e-commerce sales.

Nordstrom's profits tumbled 41% to $354 million for its fiscal year ended in January, while sales inched up. Comparable sales fell 6.4% at physical full line stores.

-Khadeeja Safdar contributed to this article.

bloruleshort.gif (618 bytes)

Department store giant announces big job cuts as part of major restructuring
By Marianne Wilson
Chain Store Age
June 8, 2017

Hudson's Bay Co., whose banners include Saks Fifth Avenue and Lord & Taylor, has lowered the ax.

The retailer has made good on a plan, announced in February 2017, to reduce expenses by "rationalizing" its corporate functions and overhead across North America." On Thursday, Hudson's Bay announced a "transformation plan" that includes cutting approximately 2,000 positions as it looks to "flatten the organization by removing layers to make HBC more nimble and streamline the decision making process."

The company said it anticipates realizing more than $350 million in annual savings when the plan is fully implemented by the end of fiscal 2018, including the anticipated $75 million in savings previously announced in February

"Through bold, decisive actions we are creating a more agile organization that will align our cost base with the all-channel environment that we are operating in," said Jerry Storch, CEO, Hudson's Bay. "Our Transformation Plan, the result of our six-month operational review in North America, is designed to realign the company and position HBC as the retailer of the future. These changes will enable us to react faster to the ever-changing environment and evolving customer preferences to get ahead of industry developments."

The plan includes creating two distinct leadership teams, one focused on Hudson’s Bay and one dedicated to Lord & Taylor, to drive market-specific strategies. It also involves splitting digital into separate marketing and operations functions.

In addition, marketing support functions at HBC, including digital marketing, have been centralized to allow for cohesive all-channel marketing development across all of HBC’s banners. The new department, or "Marketing Center of Excellence," will operate like an in-house agency, supporting the execution of each banners’ distinct marketing strategy with comprehensive media, creative and marketing support. An interim head has been appointed while HBC searches for a chief marketing officer to lead the new function.

Over the next 12 months, the retailer expects to identify opportunities to leverage the size and scale of its business to generate significant savings. This includes aligning purchasing contracts across banners, decreasing the number of vendors, and consolidating purchases in areas like media, services and supply chain.

Here are some of the key changes:

• Alison Coville has been named president of Hudson's Bay and will have end-to-end responsibility for the Canadian banners. She was most recently senior VP and general merchandise manager for DSG.

• Liz Rodbell, who has served as president of Hudson's Bay and Lord & Taylor for the past three years, will continue in her role as president of Lord & Taylor. She will now be fully focused on leading that U.S. banner, together with a dedicated leadership team. The new streamlined organization, coupled with changes at the store operations level, will allow Lord & Taylor to accelerate all-channel strategies designed to drive the banner's digital opportunities while operating its stores more efficiently, the company said.

• Digital marketing is now part of the company's marketing center.

• Digital operations is now part of the new "Logistics and Supply Chain Center of Excellence," which is expected to increase efficiencies and leverage HBC's scale to generate cost savings.

• Store operations across all of HBC's North American banners will be centralized so that best practices and processes are shared across all stores.

• In-store sales coverage across the company's North American banners is being realigned to better serve its customers, including implementing additional training for its store-based associates in order to enhance customer interactions. Currently, these new programs have been successfully piloted in 10 stores, and HBC expects to roll out these changes to the rest of its store network in North America over the coming year.

bloruleshort.gif (618 bytes)

Sears Holdings: Weak Retail Performance Leads To Continued Service Revenue Declines
By Elephant Analytics
Seeking Alpha
June 6, 2017

Sears Holdings has seen its service revenue shrink as it closes stores and its overall revenue declines. Service revenues declined 16% between 2013 and 2016. The 1% decline in service revenues in 2016 was much improved, but service revenues then fell by 8% in Q1 2017, indicating that the downward trend remains intact.

The decline in service revenue has been somewhat less than Sears' overall revenue (and hardlines revenue) decline though, so if trends continue, a hypothetical 75% decline in Sears' overall revenues over a three year period may only lead to a 50% to 55% decline in service revenues during that same period.

However, it seems likely that the decline in service revenues would eventually approximate the decline in overall/hardlines revenues, as current Sears-bought appliance owners increasingly purchase their appliances from other places (and likely look for repair/servicing from other places as well then).

Home Services Is Shrinking According To Multiple Metrics

In 2013, Sears mentioned that its Home Services division had an active relationship with "more than 41 million households." This has declined to "nearly 35 million households" in 2016, a decline of approximately 15% over three years.

Similarly, Sears' service technician count has declined by 15% from approximately 7,500 in 2013 to 6,400 in 2016, while its number of service and installation calls has gone from over 13 million in 2013 to somewhere around 11 million in 2016. Sears reported service and installation calls separately in 2016 (nearly 7 million service calls and more than 4 million installation calls), so I'm assuming that the combined number is somewhere around or slightly above 11 million.

Service Revenues Declining By A Similar Amount

Sears breaks out service revenues in its quarterly and annual reports. The definition of service revenue "includes repair, installation and automotive service and extended contract revenue."

The 16% decline in service revenue at Sears Domestic between 2013 and 2016 is close to the percentage decline in service technicians, active households and overall call volumes during the same timeframe. However, the 16% decline in service revenue is better than Sears Domestic's 24% decline in hardlines revenue during the same time period.

Hardlines includes various items such as home appliances, consumer electronics, sporting goods, lawn & garden among other categories, so there are some products in there that have less influence on service revenue. Home appliances sales would have the most influence on Sears's service revenue.

Projecting Future Revenue

Service revenue has performed better than hardlines revenue over the past couple years, declining around 2.9% less in 2015, 7.7% less in 2016 and 6.3% less in Q1 2017. If Sears continues to close 200 to 250 stores per year and its comparable store sales continue to fall by low-double digits per year, then Sears' 2019 revenues may be nearly 50% lower than its 2016 revenues.

A larger percentage of Kmart's store base is being closed compared to Sears' store base, so Sears Domestic's hardlines revenues may fall by a lower amount such as 40% to 45%. If service revenue continues to outperform hardlines revenue by around 7% per year, then 2019's service revenue will end up around 28% lower than in 2016 in this scenario. That would put Sears's 2019 service revenue at approximately $1.51 billion.

A scenario where Sears closed stores at a faster rate and had its overall revenues decline by around 75% by 2019 might result in service revenue declining by around 52% by 2019 to approximately $1.01 billion.

Installation and delivery revenue should have a very strong correlation to current major appliance sales at Sears. A 70% decline in Sears' appliance sales would probably lead to close to a 70% decline in installations and deliveries. The decline in installations and deliveries may be slightly mitigated if Sears Hometown And Outlet's appliance sales decline slower than Sears's appliance sales. However, Sears Hometown And Outlet Stores are facing their own challenges with a 6.6% decline in appliance revenue in 2016 and a 13.2% decline in appliance revenue in Q1 2017.

The decline rate in service repair calls appears to be similar to the decline rate in delivery/installation calls, based on the numbers that Fairholme mentioned a few years ago. Going forward, the decline in service repair calls may be somewhat slower than the decline in appliance sales (and delivery/installation calls) if the decline in appliance sales increases. The reason is that the installed base of Sears-bought appliances will decrease slower than the rate of new Sears appliance sales.

For example, washers and dryers are expected to last around 10 years to 13 years, so even if Sears' appliance sales were to decrease 100% next year, Sears' service call volume may only drop by a much smaller amount (such as 25%) next year, although it would also continue to drop over time. This assumes that the majority of Sears’ appliance owners attempt to get their appliances serviced by Sears first.

Extended contract revenue may also decline slower than appliance revenues initially, since extended contract revenue would be recognized over the life of the contract. However, the quantity of new extended contracts will likely be highly correlated with new appliance sales.

Conclusion

Sears' services business appears to be in heavy decline, with a 16% decrease in service revenue between 2013 and 2016, followed by another 8.5% decline in Q1 2017. This decline isn't as bad as Sears' overall decline in hardlines revenue, though, as service revenues have declined by around 6% to 8% less than hardlines revenue in the past year and a bit.

If Sears continues to close large amounts of stores and suffer significant comparable store sales declines, service revenues are bound to drop dramatically too. It is likely that service revenues are not going to fall quite as fast as overall revenues and hardlines revenues due to Sears's large remaining base of Sears-bought appliance owners. Therefore a $5 billion to $6 billion revenue Sears may still include $1 billion in service revenue for the time being. That would still represent a 60% decrease in service revenue since 2013 though and would also continue to decline as the base of Sears-bought appliances diminishes.

Disclosure: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

bloruleshort.gif (618 bytes)

Penney poised to gain from Sears' decline, Cowen analyst says
By Carl Surran
Seeking Alpha
June 5, 2017

J.C. Penney is among the companies with the most to gain from the decline of Sears since it is in the best position to capture share and sales given similar average household income, among other reasons, Cowen's Oliver Chen says.

Also, JCP has been aggressively expanding its home department by adding appliance show rooms and is conducting home service tests - JCP previously noted their best performing stores are ones located in malls shared with Sears - and off-price retailers have significant room for expansion over the medium term with potential growth of 50%-70%, including both existing banners and new banners, Cowen says.

The firm also thinks "super value" stocks such as Costco Wholesale and Wal-Mart may benefit from share gains given existing traffic momentum and attractive low prices and merchandise margin structures.

bloruleshort.gif (618 bytes)

Sears retirees fear demise of store they loved
By Corilyn Shropshire
Chicago Tribune
June 4, 2017

The retirees have gathered monthly in a nondescript meeting room in Rosemont for years, patching in conference calls from around the country and reminiscing about the old days when they proudly worked at Sears, "where America shops."

Those mid- to late-20th century days were a time of stiff white shirts, die-hard company camaraderie and the opportunity to make lots of money. Sales and profits were up, promotions were frequent and profit-sharing was standard for many. Working for the country's largest retailer was an honor, retirees say.

But more recently, the walks down Sears memory lane have turned to worrying - about the state of the stores, Chairman Edward Lampert's turnaround plan and, closer to home, the future of their retirement and life insurance plans.

One of the 124-year-old retailer's mottos was "Sears has everything," and for its employees the mantra rang true. Over the years, however, restructuring and financial challenges eventually ended many of those popular perks.

The profit-sharing fund was dropped in 1978. The pension plan was frozen in 2005. Life insurance coverage was slashed in 1997. Last year, Sears employees who retired before 2000 lost a monthly health subsidy of $37.

Sears Holdings Corp., now the corporate entity for both Sears and Kmart, says it maintains a regular dialogue with its retirees, including a newsletter designed to keep them up-to-date on the company, and Lampert recently told the Tribune the company has honored its obligations to retirees and pension beneficiaries.

Nonetheless, since a company warning earlier this year that it's uncertain about its future, many retirees say they are less concerned about their pensions than their life insurance payout, which averages roughly $10,000, according to Ron Olbrysh, chairman of the National Association of Retired Sears Employees.

Most are 70 and older, and some are not in good health. They worry about what would happen to Sears' funding of their life insurance policies if the company files for bankruptcy.

Retirees who sat down with the Tribune to reflect on their time with the company say it was Sears' inability to look ahead and keep up with changing times that led to its decline. Company watchers agree.

"It was a great business until the people at the top decided that strategy didn't matter for them and that they would forever be able to play the same game and win," said James Schrager, clinical professor of entrepreneurship and strategy at the University of Chicago's Booth School of Business.

"This is a story we see all the time," Schrager added. "Sears was not the first, and will not be the last company to decide that strategy doesn't apply to them."

Benefits of a parent

Ron Olbrysh, 75, remembers when Sears was the place to be - not only for shoppers, but for workers.

In 1972, Olbrysh left a government job in Cleveland for work as a trademark attorney at Sears. He chose the retailer over a job at General Electric because the well-regarded retailer "made me an offer I couldn't refuse," he said.

By the time he retired in 1996, he was an assistant general counsel.

"The benefits were great," Olbrysh said. "We had profit-sharing, which was always an incentive to work at Sears."

When Olbrysh began with Sears' Homan Square headquarters on the city's West Side, employees referred to the complex as the parent.

Over the years, as the company diversified its business, picking up financial firms such as Coldwell Banker and Dean Witter, "parent" gave way to "headquarters," and the company's culture changed, Olbrysh said.

"When it was 'parent,' it was like a family. When it changed to 'headquarters,' it wasn't as close as it used to be."

By then, the retailer had moved its main offices downtown to Sears Tower (now Willis Tower), where Olbrysh and his legal department colleagues worked on the 69th floor. When the vast Hoffman Estates headquarters known as Prairie Stone opened in 1992, the Lombard resident set up office there.

In the midcentury years and even through the '70s, Sears was considered to be the "largest and most powerful retailer in the world," Olbrysh said, adding that as discount retailers nipped at its heels, Sears executives let success go to their heads. "They actually believed it, and said, 'What's this Wal-Mart? They are nothing.'"

The same thing happened when Amazon came along in the '90s, he said. Now, "they are trying to play catch up and it's not going to work."

Olbrysh believes he made the right decision when he retired in 1996 with a lump-sum early retirement package instead of a long-term pension benefit. But as chairman of the retirees group, Olbrysh has been fielding calls from retirees concerned about their pensions and life insurance benefits if the company were to file for bankruptcy.

Olbrysh has pushed for more transparency under Lampert's tenure. He has sent letters to Lampert. The group wants annual meetings to be streamed online and for Lampert to talk to the press and retirees more frequently. Earlier this month, before Sears' annual meeting, Lampert gave an interview to the Tribune, in which he blamed much of Sears' current woes on the media.

"I got out at the right time,"said Olbrysh. "All of us left on good terms with Sears. I sent four kids to college. It was a very good living. I'm thankful for that."

A second family

The "family feeling" is what Elaine Leonard loved about working for Sears. In 1967, the mother of two took a part-time sales position working evenings in the toy department at Sears' Park Forest store. She and her husband planned to buy a house and the additional income would come in handy.

"When you came to work, it felt like you were coming to your second home," she said. "You felt like it was family. You were all in it together, you were all working together."

The money she earned helped the family buy its first home in Hanover Park.

Leonard, like her counterparts, spent her years at Sears steadily rising through the ranks.

Her part-time job navigating the hustle and bustle in the toy department quickly became a full-time job as a store manager secretary at the Woodfield Mall store in Schaumburg. That led to a management training program, and then overseeing several stores and service centers from the northwest suburbs to Milwaukee. It was the manager of the toy department, according to Leonard, who saw her talent and helped propel her career.

"The company was always interested in promoting people they felt were performing to their expectations," said Leonard, 83. "And you like to think you're doing a good job, then you are offered another job by getting a promotion, (and) it feels pretty good."

In her next role, as a personnel manager at the Woodfield Mall store, Leonard traveled to colleges and universities to recruit graduates. Leonard didn't have a college degree but said new hires were required to have one. "It was a little unusual for me to be sitting there (in interviews) without the same qualifications," she said. "I thought, gee, I'm asking these kids to have a college degree, but never let on that I didn't."

When Leonard retired in 1993, she was working at Prairie Stone in the workforce diversity department. She handled everything from hiring to firing, and discrimination suits as well. "If you had a problem, you knew you could come to a manager and someone would help you ... it was like your second home."

Trading Ford for Sears

Sears retiree Richard Bruce, 80, is pictured May 25, 2017, beside a vintage plaque in his Elmhurst home. Bruce, who worked for Sears from 1960 to 1993, says he enjoyed the benefits and camaraderie at the giant retailer. (Antonio Perez/Chicago Tribune)

Richard Bruce was trained as an engineer, but in 1960 at age 24 he left a management training job at Ford Motor Co. in Kansas City, Mo., to take a lower-paying job at Sears.

He was familiar with the retailer and excited about the benefits the company had to offer. "I thought … 'I can afford to take a lower earnings because I'm going to retire very wealthy.'"

Bruce started as a catalog buyer, moved on to data processing and marketing, and by the time he retired was an executive in the human resources department.

With each promotion, the new responsibilities were like going to work at a new company. "It was challenging, it was fresh and invigorating " he said.

Plus, his wife didn't have to work, and he was able to send three daughters to college. It wasn't just the money and benefits that Bruce enjoyed. It was the camaraderie.

But over time, he said, things kept changing. "Takeaways, takeaways, takeaways," he said.

When the profit-sharing plan was terminated, he felt it also removed the incentive for talented workers to join the company.

In 1993, as then-Chairman Edward Brennan led the company through spinoffs and sales - generating large returns for investors by shedding all or part of Allstate Insurance Co.; Dean Witter, Discover & Co.; and Coldwell Banker Residential Real Estate Services — Bruce was among the employees who raised his hand for an early retirement program.

"It was a no-brainer package for people who were young enough to go out and get another job. For those of us who were close to retirement anyway, it was a gift," said Bruce, now 80.

'Sears Retirees DieHard'

Leo McCormack, 79, worked his way through Boston College in the late '50s delivering caskets and appliances for Sears.

After graduation and a three-year stint in the Marine Corps, McCormack started a yearlong Sears training program and began working in Brockton, Mass., as a department manager.

For McCormack, like many other rising Sears employees, his career was marked by a new city and a new job almost every two years.

He worked in Nashville, Tenn.; Nashua, N.H.; Peekskill, N.Y.; and Philadelphia, where he was in public relations, he said.

By the time he retired in 1993, he was the labor relations manager for the product services division, negotiating with unions on Sears' behalf. It was a job he said he was proud to do, because he was proud of what the company had to offer workers.

Looking back, though, he remembers concerns about the company's naivete when it came to keeping up with a rapidly changing retail landscape.

"Sears didn't realize that everybody that ran a (cash) register was their competition," McCormack said.

He recalled his time in the 1970s as a regional manager in Pennsylvania, learning that a Kmart in Altoona, Pa., was open for business on Sundays while Sears remained closed. At a company meeting, he asked an executive about it.

"Boy, was he mad," McCormack said. "He looked at me and said 'McCormack, Sears will never open on Sunday.'"

McCormack's retirement didn't mean he was done with his employer.

In 1997, he became one of the founding members of the retirees group and a year later joined about 100 fellow retirees sporting yellow shirts marching outside the company's 1998 annual meeting shouting "Shame on Sears." They were protesting then-Chairman Arthur Martinez's decision to reduce life insurance benefits for 84,000 retirees, saving the retailer $1.4 billion.

For the event, McCormack built a replica of a pine coffin with a sign declaring "Sears Retirees DieHard." It remains in the attic of his garage.

Freedom to act

When William "Bill" Barker started at Sears in 1958, the Scotland native said he just "needed a job." Eventually, his work at the retailer became "the best job" he ever had.

"Nobody wanted anything ... as long as we made money," Barker said.

"The top guys didn't get any hassles," he added. "I had the total freedom to act. I was like God."

Barker's career in customer service and operations management began at a store in New York, where he made $40 per week plus a 1 percent commission working in plumbing and heating.

Sears began to "put its head in the sand," in the 1960s, Barker said, as discounters began encroaching on what for years had been department store territory. "It became a real issue in the '80s," he said.

Barker, 80, recalled his time as a regional operations manager in Cleveland, where he struggled to convince his boss to move from having salespeople check out customers on their own to having a central area with cashiers. "He got really mad at me," Barker said.

Barker attends every annual meeting and is worried about what might happen to him or his wife if they lose their life insurance.

As for Lampert, "I've always had a feeling in my gut that he has something up his sleeve and Seritage (a real estate investment trust run by Lampert) is part of it," Barker said. "I can't make heads or tails of why he would put all of his money into it if he didn't think there was a pot of gold at the end."

bloruleshort.gif (618 bytes)

The Latest Sears Saga: The Company Is Suing Suppliers
By Rich Duprey
The Motley Fool
June 4, 2017

Vendor concerns regarding the company's solvency may make this more commonplace.

Don't think that just because Sears Holdings reported a profit last quarter that its vendors are any less nervous about doing business with the retailer. One-time cash infusions still mask the real and growing deficit it produces.

Yet just because the troubled retailer is still having financial difficulties also doesn't mean chairman and CEO Eddie Lampert is wrong about one of its suppliers trying to use the environment of fear to finagle better terms for itself. Not that you can blame the vendor, but Lampert has sunk a lot of his hedge fund's capital into the business to keep it afloat as a means of ensuring its suppliers will be paid, and contracts need to be honored.

A bad case of the jitters

Vendors have become increasingly nervous that Sears' financial condition will leave them holding the bag. Revenues have plunged year over year as the retailer closes ever more stores in a bid to rein in its far-flung footprint to one more commensurate with the level of customer traffic it attracts. At the end of April, the company had 1,275 Sears and Kmart locations that generated $4.3 billion in quarterly sales. That's down from the more than 1,600 stores it had a year ago that produced almost $5.4 billion in revenue.

While store closures play the biggest part in the drop, that's followed very closely by plunging same store sales, which were down by double-digit rates at both brands. Fewer stores accounted for $557 million of the lower reported sales, but lower comps represented another $417 million, and it's that number that has to be worrying its suppliers, not to mention adjusted losses widening to $222 million.

Sears reportedly lost a big account last year after toymaker JAKKS Pacific mentioned it stopped shipping product to a large, financially troubled retailer. That was followed by more reports that half a dozen other vendors had sharply curtailed shipments to Sears.

Stripped to the bone

To his credit, Lampert has dug deep to keep everyone in line, loaning Sears money through his ESL Investments hedge fund and arranging financing packages from deep pocketed investors, including Bruce Berkowitz and Cascade Investment, the investment company controlled by Bill Gates.

Yet in addition to the loans to keep it solvent, Lampert has also stripped Sears of virtually everything of value, spinning off or selling concepts like Sears Hometown & Outlets Stores and Land's End, and more recently, selling off the Craftsman brand to Stanley Black & Decker.

Although he has taken more innovative approaches with the remaining Kenmore and DieHard brands, licensing out the former's name to a third party gas grill manufacturer while rebranding at least one auto service center with the name of the latter, it's gotten to the point where there's just not much left to draw customers in. And now one supplier seems to be using the situation to get out of its contract with the company.

Kicking while he's down

One World, a subsidiary of Chinese conglomerate Techtronic Industries, reportedly threatened to sue Sears if the retailer didn't allow it to back out of its commitment to provide it with various Craftsman power tools.

In a blog post on Sears' website, Lampert excoriates One World for trying "to embarrass us in the media to force us to let them out of their contract," but he remains unbowed and fired back that the vendor wanted out of its Sears contract so it could make more tools for competitors on the cheap, using existing Sears capacity so it wouldn't have to expand or build more facilities.

Sears sold Craftsman to Stanley earlier this year for $900 million, a deal that also gives Sears the right to continue selling Craftsman products made by its existing suppliers royalty-free for 15 years. Letting One World back out would put Sears at a competitive disadvantage.

Lampert goes on to note Sears has had a nine-year relationship with the supplier and always paid its bills on time. While it will continue to do so and is fully capable of it, he's not about to let One World just walk away from its obligations. Instead, he has filed a lawsuit against the vendor to force it to abide by the supply agreement.

"Fighting like hell"

Of course, Sears has given vendors like One World a bit of ammunition to try such shenanigans when it included a "going concern" notice in its filing saying there was substantial doubt as to its ability to survive. While it was mostly regulatory boilerplate language the retailer was obligated to include, it does give suppliers like One World reason to try to back away.

Lampert has said he's "fighting like hell" to keep the company afloat, and certainly letting one vendor walk away would invite others to try as well. Soon the drip-drip-drip of supplier exits would become a deluge, so suing One World to force it to live up to its end of the deal is a necessity, not to mention the right thing to do. There are a lot of things Lampert and Sears have done wrong or could have done better over the years, but keeping its vendors in line and making them live up to their end of a bargain isn't one of them.

Rich Duprey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

bloruleshort.gif (618 bytes)

Sears says that some Kmart stores targets of security breach
By Anne D' Innocenzio
The Associated Press
June 2, 2017

Some Kmart stores were targeted by hackers, leading to unauthorized activity on some of its customers' credit cards, the retailer's parent company said.

Sears Holdings Corp. said in a blog post late Wednesday that Kmart's store payment systems were recently infected with virus-like computer code undetectable by current anti-virus systems.

It said some credit card numbers were stolen. A Sears Holdings spokesman said the investigation into the hack is still ongoing, so details on the dates of the breach, how many customers were affected and which stores were targeted, were not available. Not all Kmart stores were affected, he said. Kmart had 624 stores at the end of April.

No personal information, such as names, addresses, social security numbers and email addresses, was pilfered, the company said.

Sears Holdings, which is based in Hoffman Estates, Illinois, said it has removed the hackers' code and is confident Kmart customers can safely use their credit and debit cards in its stores.

There is no evidence kmart.com or Sears customers were affected, it added.

Sears Holdings also said that given its rollout of more secure cash register systems, it believes that the exposure of cardholder data that can be used to create counterfeit cards was limited.

"Data security is of critical importance to our company, and we continuously review and improve the safeguards that protect our data in response to changing technology and new threats," said the company in the blog post.

bloruleshort.gif (618 bytes)

Wall Street Expert Predicts 25% Of Malls Will Close By 2020
By RTT News
Nasdaq
June 1, 2017

Upsurge of e-commerce and off-price chains are pointing to a gloomy future for shopping malls?

According to Credit Suisse, around 25 percent of U.S. malls will be closed down by 2020. That means up to 275 malls, out of 1100, are finding it difficult to survive in the near future.

The study projects that there will be 35 percent market share for e-commerce in apparels in 2030, more than double from 17 percent as on today.

There are many major brands such as J.C. Penney, Michael Kors, Macy's, Sears aiming for closing their retail shops. Michael Kors announced Wednesday that it would shut down around 125 stores. The data from Credit Suisse shows that 8640 units will be closed in 2017, the biggest since 2000. The closing last year was 2056. In 2015, more than 5000 units were closed.

bloruleshort.gif (618 bytes)

Retailers' Troubles Leave U.S. Lenders Largely Unscathed
By Lillian Rizzo & Rachel Louis Ensign
The Wall Street Journal
May 30, 2017

When oil prices tumbled to multiyear lows in 2016, the pressure quickly spread to banks that lent to energy companies.

This year, a far different story is playing out for banks as the U.S. retailing industry endures a major shake-up that has led to a spike in bankruptcy filings. Changing shopper habits and the increasing dominance of Amazon. com Inc. have led retail bankruptcies to hit their fastest pace since the financial crisis-21 this year through Tuesday, according to data from S&P Global Market Intelligence. In recent months, retailers Payless Shoe Source Inc., BCBG Max Azria Group LLC and Limited Stores Co. have all filed for bankruptcy.

While many of these companies are saddled with a variety of debt, the "asset-based loans" popular with banks are among the safest. That is because the loans are typically backed by stores' inventories or accounts receivable.

Banks have made asset based loans to 15 of the 21 retailers that filed for bankruptcy since the beginning of 2017, according to a Wall Street Journal review of court filings and the S&P data. But those loans are all repaid or expected to be repaid, according to bankruptcy documents.

That has led bank executives and other industry observers to shrug off the risks these distressed retailers pose. The industry's troubles are "bad for retail, but not so bad for banks," said Glenn Schorr, a bank analyst at Evercore ISI.

On a conference call last month, J.P. Morgan Chase & Co. Chief Executive James Dimon played down the risks of retailers to the nation's largest bank. "There'll be something there, but it's nothing that will be dramatic when it's happening," he said, adding that J.P. Morgan has scrutinized its exposure to retailers, as well as property occupied by them and vendors who sell to them.

Still, the troubled industry has the potential to cause other headaches, particularly for smaller banks that do a lot of commercial real estate lending.

"This issue clearly isn't going away," said Christopher E. McGratty, an analyst at Keefe, Bruyette & Woods Inc. He expects smaller banks, some with 20% of their commercial real estate exposure focused on retailers, will start to give more disclosure soon on different types of borrowers they serve, from strip malls to big-box stores.

Overall, Keefe Bruyette estimates that banks have $270 billion of retail-related commercial real-estate loans.

Banks have taken on some of their most direct exposure to retailers through asset based loans, which typically get paid back before those to other lenders. Asset-based "lenders historically have recovered 100% of their exposure" in retail bankruptcies, said David M. Hillman, a restructuring partner at Schulte Roth & Zabel LLP.

Commercial loans to retailers are larger than energy exposure at many banks. Retailers represent Bank of America Corp.'s third-biggest industry exposure in its commercial lending book, for instance, and the bank extended $41.6 billion to the sector at the end of 2016. By contrast, the bank lent $19.7 billion to the energy industry.

Bank of America or Wells Fargo & Co. were lenders in nine of the 21 recent retail bankruptcies. The two banks have also lent money to troubled retailers that haven't filed for bankruptcy protection, like Sears Holdings Corp. and Bon-Ton Stores Inc.

Banks generally take reserves against potential losses when they see borrowers that might be at risk. In the case of retailers, the amounts generally haven't been big enough to show up in broader reserve levels at big banks, Mr. Schorr said. That is a contrast to last year, when energy lending led banks to post large increases in reserves broadly.

One reason for the difference is that in energy, the commodity-price declines were felt widely across the industry. Loans to troubled retailers, on the other hand, are balanced out by online stores and other chains that are performing better.

Another distinction is that the value of the retailers' collateral underlying the loans has held up better than in energy. "The inventory and accounts receivable value doesn't fluctuate as much as commodities' prices do," Mr. Hillman said.

This month's bankruptcy filing of rue21 Inc., a teen retailer, exemplified how banks' loans can be safe even when other lenders face losses. The retailer, which sells everything from prom dresses to candles for different astrological signs, had a $72 million loan led by Bank of America.

That loan is expected to be paid back in full from the proceeds of liquidation sales of about 400 of its nearly 1,200 stores, according to the proposed restructuring agreement.

bloruleshort.gif (618 bytes)

3 Quotes From Eddie Lampert That Show Sears Is Doomed
By Rich DuPrey
The Motley Fool
May 30, 2017

It's not me, it's you. That about sums up the views of Sears Holdings Chairman and CEO Eddie Lampert on the retailer's woes. Everyone else is the cause of the retailer's problems; it's not anything he's done.

In statements made at Sears' recent annual shareholders meeting and a rare interview given just beforehand, the hedge fund operator has railed against all the forces arrayed against him, conspiring to take the retailer down. These three quotes from those two events show just why Sears Holdings is doomed.

"We don't need more customers. We have all the customers we could possibly want."

Apparently referring to the significant investments that have been made in Sears Shop Your Way member loyalty program, one of the more transformational moves he's made over the years, Lampert told shareholders at the annual meeting that getting customers into the retailers stores is not the problem.

Lampert has used Shop Your Way to complete his integrated retail strategy, and he continues to expand the program's partnerships, such as including ride-sharing service Uber and a Shop Your Way-branded credit card with MasterCard.

Yet a lack of customers is what's caused Lampert to shed stores over the years, both by selling them to the real estate investment trust, Seritage Growth Properties, he spun off from Sears, and by renting out space in existing stores to other retailers. Certainly rightsizing Sears' footprint to match demand is called for, but what he doesn't need more of is stores; more customers, he could use.

"I feel like we're ahead of J.C. Penney, we're ahead of Macy's, we're ahead of Target, in some aspects of where the world is going."

When Lampert sat down with The Chicago Tribune ahead of Sears' annual meeting, the paper observed there's little evidence that his promised turnaround of Sears is working, but he asserted that the retailer is actually doing better than the competition.

Maybe he was talking about the move to digital, since Shop Your Way is seen as one of the few successes he's enjoyed, meager though it is. Almost three-quarters of eligible sales now come through the loyalty program, but it's basically scooping up a greater share of sales in a smaller pond.

Over the last six years, companywide sales have fallen by nearly $10 billion annually, and while much of that was the result of closing or selling off stores, it's also reflects the fact that those that remain aren't attracting customers. Comparable-store sales continue to plunge at double-digit percentage rates, meaning Shop Your Way has had little success in keeping consumers loyal.

While J.C. Penney, Macy's, and Target are indeed going through some turmoil of their own, and J.C. Penney has arguably quickly become the worst off of the bunch, even its condition doesn't seem as dire. Nor are any of them burning though as much cash as Sears.

"While we are not asking to be spared from informed opinions about our business performance, for far too long, many commentators have rushed to conclusions about the future of our company."

From relying upon financial gymnastics to boost numbers early on to refusing to invest in sprucing up his stores because he didn't think customers cared about that stuff, Lampert has made any number of decisions that have directly impacted Sears' current condition. And though the retailer has survived longer than many pundits expected, decrying media coverage as biased -- as he did in a blog post issued in conjunction with the annual meeting -- ignores the very real issues his company faces.

Lampert compared Sears' large and growing losses to those experienced by Amazon.com, but it's clear the two retailers are traveling in entirely opposite directions. It's true that headlines focusing on a potential bankruptcy do worry customers and vendors, but there's a good reason the word figures so prominently in reports, particularly when Lampert needs to inject a "going concern" notice into his SEC filings.

Cost cutting, real estate sales, and the spinoffs and sales of assets like Land's End and the Craftsman tool brand, will likely help Sears survive a bit longer, but adjusted losses are still widening. What happens when it runs out of real estate and has no more brands of value left to sell?

Separated from reality?

Sears has been on a long downward spiral, and the numbers no longer add up. Even the profit it recorded last quarter -- its first profitable period in nearly two years -- was only possible thanks to one-time events. Lambert's attempt to jawbone the company to health doesn't change that.

Lampert insists he's not in denial about the retailer's precarious situation, yet he points at finger at everyone but himself. Not everything he's done over the years was bad (I think his new DieHard auto service centers are a stroke of marketing genius, in fact), the good has been much too little and it comes much too late.

Sears' isn't alone in the difficulties it faces going up against Amazon and its ilk; the threat e-commerce represents to bricks-and-mortar retailers is broad and real. But the chief executives at J.C. Penney, Macy's, and Target aren't exhibiting the same delusions about the cause of their woes. Lambert's unwillingness to accept any responsibility for where Sears Holdings finds itself today suggests there's little hope the retailer can be saved tomorrow.

Rich DuPrey has no position in any stocks mentioned.

bloruleshort.gif (618 bytes)

Sears Holdings Stock Soared Despite Dreadful Q1 Earnings Results
By Adam Levine-Weinberg
The Motley Fool
May 27, 2017

Sears' share price jumped by a double-digit percentage on Thursday, but there was nothing in the retailer's quarterly report to justify optimism.

On Thursday morning, struggling retail giant Sears Holdings reported extremely weak results for its fiscal first quarter, just as it had predicted it would last month.

Investors were apparently expecting an even worse earnings report. Sears Holdings stock briefly soared more than 30% on Thursday, before moderating back to close with a still-considerable gain of more than 13% for the day. However, there were really no bright spots in the earnings report. All signs still point toward an eventual bankruptcy filing for Sears.

Sales and earnings both plummet

Sears Holdings' revenue plunged 20% year over year for the quarter, which ended April 29, falling to $4.3 billion from $5.4 billion. The company has been closing Sears and Kmart stores at a rapid pace recently. In early January, it announced that it would close 150 stores by the end of March. In the past few months, Sears Holdings has made plans to close at least 30 more.

Store closures accounted for about half of last quarter's revenue decline ($552 million). But the company has also experienced huge comp sales declines at its remaining stores. Comp sales fell 11.2% at Kmart and 12.4% at Sears in Q1.

Sears Holdings did post a profit last quarter thanks to a big one-time gain related to the sale of the Craftsman brand. But on an adjusted basis, its losses widened year over year.

Several media outlets reported that Sears Holdings' revenue and earnings results beat analysts' estimates, thus explaining the stock pop. However, there are only two Wall Street analysts still covering Sears. Furthermore, Sears' business is eroding so quickly that it's hard to predict the magnitude of the decline in any single quarter.

What we can say is that Sears' comp sales decline was right in line with the 11.9% estimate the company provided in late April. And its adjusted earnings before interest, taxes, depreciation, and amortization tallied to a loss of $222 million -- near the bottom of the guidance range provided a month ago.

Cost cuts aren't working

As Sears Holdings' sales have evaporated in the past few years, management has repeatedly turned to cost-cutting to keep the ship afloat, and it has stuck with that strategy in 2017. In February, the company set a target for the year of cutting annualized costs by $1 billion. In April, it increased that target to $1.25 billion.

Unfortunately, this is too little, too late. Gross margin -- the amount of money available to cover operating expenses -- declined by $247 million year over year last quarter. That's equal to roughly $1 billion on an annualized basis, offsetting 80% of Sears Holdings' planned cost cuts.

Of course, Sears won't realize the full $1.25 billion of cost savings this year. As of now, it has "actioned" just $700 million of annualized cost savings. As a result, barring a remarkable sales turnaround, Sears is on pace to report a year-over-year increase in losses during 2017, despite slashing costs to the bone.

Cash flow problems are getting worse

Finally, a close look at Sears' financial statements indicates that cash flow remains deeply negative.

In the "highlights" section at the top of its Q1 earnings release, the company stated that it paid down approximately $418 million of term loans during the quarter. However, buried later in the press release was the acknowledgment that Sears incurred $551 million of short-term borrowings in Q1. Unrestricted cash also declined by $50 million sequentially.

Thus, net debt actually increased by nearly $200 million last quarter, despite the fact that Sears received $765 million during the quarter from asset sales, primarily from the Craftsman deal. Free cash flow was around negative $900 million, compared to negative $762 million a year ago. This puts the company on track to burn another $1.5 billion to $2 billion of cash this year.

No real reason for hope

Sears Holdings' management continues to claim that the company has ample resources at its disposal to complete a turnaround. However, its earnings trajectory has been deteriorating in recent years, casting grave doubts on whether Sears will ever return to profitability.

Additionally, there are increasing signs that the company is running short of valuable assets to sell. While Sears Holdings still owns more than 350 properties, at least 90 of these have been used as collateral for loans; Sears has pledged other real estate assets as collateral for its pension liabilities. Meanwhile, the board has received bids exceeding $700 million for more than 60 properties it is looking to sell -- an average of about $12 million per property -- indicating that Sears has already sold its best assets.

Depending on how patient its vendors and lenders are, Sears Holdings may be able to stagger on for another two or three years. But based on its recent track record, its chances of surviving beyond that look pretty slim.

Adam Levine-Weinberg has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

bloruleshort.gif (618 bytes)

Children's apparel retailer taps former Sears exec as CEO
By Marianne Wilson
Chain Store Age
May 26, 2017

Hanna Andersson named a former top executive of Sears Holdings Corp. as the specialty retailer's next chief executive.

The children's apparel brand appointed Joelle Maher as president and CEO, effective May 30, 2017. Maher is a 25-year retail veteran, who served as president and chief member officer at Sears Holdings from July 2015 until she resigned in December 2016. Prior to that, Maher served as COO for Gymboree Corporation. She also held senior leadership positions at Levi Strauss & Company, Lucky Brand Jeans, Old Navy and Macy's East.

Maher will succeed Adam Stone, who joined Hanna Andersson in 2005. He was named CEO in 2010.

"It is bittersweet to make the decision to step away from Hanna Andersson - a company, brand and group of people I care so deeply about," Stone said. "I could not be more proud of the work the outstanding Hanna Andersson team has done to set the foundation for the future, and while it was a difficult decision, the time is right for me to pursue the next chapter in my personal and professional life.”

At Hanna Andersson, Maher will drive initiatives to accelerate growth, including extending the brand's reach to new customers, deepening the company's e-commerce capabilities, and continuing to build the brand across all channels. Founded in 1983 as a catalog retailer, Hanna Andersson reaches customers through catalogs, e-commerce and 80 retail locations.

bloruleshort.gif (618 bytes)

Sears Could Stay Afloat ... If It Had A Few Dozen More Tool Brands To Sell Off
By Laura Northrup
Consumerist
May 25, 2017

Given all the doom and gloom headlines about Sears Holdings Corporation, you might be surprised to hear that the company turned a profit last quarter. Until you realize that the only reason Sears didn’t lose money is because it sold its once-beloved Craftsman tool brand to Stanley Black & Decker.

That transaction will bring in around $900 million, and the buyer made an initial cash payment to Sears Holdings of $525 million. Without the Craftsman sale, the company would have posted a loss of $222 million in the first quarter of 2017, the company announced today during a pre-recorded earnings call [PDF transcript].

The last time that this happened, Sears Holdings had a profitable quarter because it sold a substantial amount of real estate to the Seritage real estate investment trust, a venture that’s able to rent out former Sears and Kmart buildings for more than four times the rent that Sears Holdings was paying.

Chief Financial Officer Rob Riecker also noted that the company reduced the value of its inventory from $5 billion to $3.7 billion by closing stores and, as he put it, "efforts to tightly manage our inventory."

He did not mention that part of the reason that inventory is tighter is that some suppliers are holding back on selling to Sears Holdings, worried that the retailer is at increased risk of bankruptcy in the near future. Chairman and CEO Eddie Lampert blames suppliers' fears on media reports of the actual state of the company, claiming that vendors are taking advantage of "dire predictions" about the company to get better terms and break contracts.

That tighter management of inventory confused some Kmart employees, who didn't believe what their own bosses were telling them and dished to Business Insider that they suspected their stores were about to close after "warehouse purges" began.

Keeping less merchandise on hand seems to be working in some stores, but works less well when the retailer keeps a store open while landlord Seritage is "recapturing" store space to lease to another business that will pay more.

The company is pinning its hopes on extracting more value from its proprietary brands, which could mean licensing them, selling them in more places, or expansions like Kenmore televisions and DieHard tires and branded auto repair centers.

At the same time, competitors see that Sears is vulnerable, and JCPenney is trying to steal some of the home services market and sell major appliances as Sears shrinks. Home Depot is doing the same.

Manifesto-writing CEO Lampert, for his part, keeps pinning his hopes on the Shop Your Way Rewards program. This quarter, he's bragging to investors about the growth of the company's new VIP program. Members can reach VIP status after spending $800 in a calendar year, which includes spending on cards linked to the Shop Your Way account, the Shop Your Way Citi card that used to be a Sears store credit card, rides booked through Uber, and any shopping at former Sears Holdings businesses like Lands' End.

"We remain focused on driving the growth of our Shop Your Way ecosystem and are pleased with the traction we gained with our VIP membership base, which more than doubled in the last year," Lampert said in a statement distributed with the quarterly results.

bloruleshort.gif (618 bytes)

Sears holds wreath-laying ceremony for Gold Star families
By Daily Herald Report
May 25, 2017

With Memorial Day approaching, Hoffman Estates-based Sears Holdings held a wreath-laying ceremony with Gold Star families Thursday at its headquarters, where it also carved a patriotic display into the lawn.

The 80-foot by 68-foot installation was of the iconic image of raising the flag on Iwo Jima in World War II. Sears also made several such installations at VFWs across the country.

Sears' commitment to supporting veterans and military families dates back to World War I. Sears is celebrating the 10th anniversary of its annual Heroes at Home campaign with Rebuilding Together, raising funds and assisting military families in need by making critical repairs and modifications to their homes.

Heroes at Home has raised $21 million and served 14,250 veterans. Through July 29, Sears is encouraging customers to donate to Heroes at Home at their local Sears store or online.

Sears is also doubling its everyday military discount on select product categories during the week of Memorial Day. Military and first responders can get 40 percent off regular price and 10 percent off sale price tools, work boots, watches, fine jewelry and sporting goods.

bloruleshort.gif (618 bytes)

Sears Turns First Quarterly Profit in Nearly 2 Years on Cost Cuts
By NEWSMAX
May 25, 2017

Sears Holdings Corp. reported its first quarterly profit in nearly two years, as the retailer benefited from the sale of its Craftsman brand and a program to cut $1.25 billion in costs, amid doubts about its ability to continue as a going concern.

The company's shares were up 17 percent at $8.74 in early trading on Thursday.

However, sales continued the years-long decline, hurt by lower demand for groceries, apparel and home appliances at the retailer's Sears and Kmart stores.

Sears, once the largest U.S. retailer, has been struggling to adjust to the changing retail landscape and rising competition from Wal-Mart Stores Inc., Target Corp. and Amazon.com Inc.

Sales at Sears' U.S. stores open more than a year fell 12.4 percent, while at Kmart it declined 11.2 percent in the first quarter ended April 29.

The company said in April it expected a net profit of between $185 million and $285 million for the first quarter, through a cost-cutting plan, which included store closures and cutting management jobs.

Selling and general expenses decreased about 16 percent to $1.27 billion in the quarter, leading to a near-third drop in total costs to $4 billion.

Sears said it cut up to $700 million in costs to date since announcing the plan in February.

The company in March sold its Craftsman tools brand to Stanley Black & Decker Inc. for an upfront payment of $525 million.

Net income attributable to Sears' shareholders was $244 million, or $2.28 per share, compared with a loss of $471 million, or $4.41 per share, a year earlier.

Excluding such one-time items, the company reported a net loss of $2.15 per share.

Revenue fell 20.3 percent to $4.30 billion.

Sears, which has been closing stores and divesting businesses for years to cope with falling sales and a growing debt pile, warned in March about its ability to continue as a going concern.

Up to Wednesday's close, the stock had fallen 18 percent since the retailer raised going concern doubts.

bloruleshort.gif (618 bytes)

Sears: 'Better Than Expected' Doesn't Cut It
By James Brumley
Seeking Alpha
May 25, 2017

Congratulations to Sears Holdings shareholders, who were largely vindicated by Tuesday's 25% bullish romp from the stock. Revenue as well as earnings both rolled in better than expected for its first quarter of the fiscal year, and investors were understandably excited.

As has been the case for so many quarters for the struggling retailer now, however, a second, closer look beyond the headlines reveals this company's odds for an actual turnaround continue to deteriorate.

Take Another Look at ALL the Numbers

The good news: Sears earned $2.28 per share on sales of $4.3 billion. Analysts were only calling for revenue of $4.05 billion, and though the actual per-share operating loss ended up being $2.15, that was still better than the anticipated loss of $3.05 per share.

When the best thing you can say about an earnings report is "it could have been worse," though, that's anything but a compelling quarter. Indeed, revenue was down 20% year-over-year, and the non-GAAP/operating loss grew from $199 million in the same quarter a year earlier to a loss of $230 million last quarter. EBITDA -- a metric well touted in the past when it improved -- fell from -$181 million a year earlier to -$222 million for the quarter ending in April. Same-store sales were down 11.9%.

And those last couple of data nuggets are worth reiterating. That is, last quarter, revenue was down 20% year-over-year, and the EBITDA loss grew from $181 million in the same quarter a year earlier to a loss of $222 million last quarter. Same-store sales were down 11.9%.

It's this ugly reality that essentially negates any of the bullish arguments being made of the company. Better liquidity, lowered expenses, culling of dead-weight stores and the monetization of its assets are all fine endeavors, but until any of it starts to improve sales and improve the bottom line, there is no 'turnaround' taking hold. At best, CEO Eddie Lampert is just buying time.

And after a decade of trying, if the turnaround effort was going to take hold, we would have seen some evidence of it by now. Again, same-store sales fell 11.9% last quarter... a number that's been getting worse rather than better.

To that end, it was something CFO Rob Riecker said rather than Lampert that forces shareholders to question just how much traction the turnaround work is really getting. Riecker commented:

During the first quarter we took decisive actions to reduce our cost base and drive operational efficiencies which allowed us to make significant progress on our restructuring program. We also remained focused on increasing our financial flexibility and creating value from our asset base to ensure we continue to meet our financial obligations and fund our transformation.

It's a great sound-bite to be sure. It's just difficult to believe any degree of cost-reduction and greater operational efficiencies have been significant enough to matter. Last quarter's gross margin rate, which is the difference between what it pays to buy merchandise and the price at which it sells those goods, fell from 21.8% to 21.6%. Selling and administrative expenses as a percentage of revenue grew from 27.9% in the first quarter of last year to 29.5% for the first quarter of this year. Interest income grew from $85 million a year earlier to $128 million last quarter... one of the costs of its improved liquidity.

And it's in this light a reality becomes clear -- Sears is trying to shrink its way to success, but is failing to do so. Revenue is deteriorating at a faster rate than costs are falling. That's actually been the case for a while, but it's reaching alarming proportions now simply because Sears is running out of pieces of itself to sell.

Conclusion

Kudos to the company for renegotiating the $500 million worth of debt coming due in July. Now only $100 million of it needs to be paid, and the remaining $400 million now isn't payable until early next year. And, kudos for whittling down its pension obligation by $515 million. That should make a measurable even if not meaningful dent in its ongoing costs. Debt is sliding lower as well.

None of it matters as long as cash is being consistently burned though, and it is. As Iszo Capital's Brian Sheehy calculated it following Thursday's earnings report, the retailer is burning $189 million per month. With only $70 million left on a line of revolving credit and $264 million in cash, the company could once again be out of money by the end of June. At that point it will have to borrow again, sell another asset (and thus reduce its ability to drive revenue), or least likely of all, issue stock... stock that not many investors would take a risk on buying.

Celebrate the day's big gain, but don't think for a minute Sears is any closer to a recovery. If anything, it's further away.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

bloruleshort.gif (618 bytes)

Sears gets breathing room from creditors
By Molly Smith & Katherine Chiglinsky
Bloomberg News
May 23, 2017

Sears Holdings gained some breathing room in its comeback effort thanks to deals with some of the biggest names in finance.

Lenders including billionaire Bill Gates' Cascade Investment agreed to give the struggling retailer more time to repay debt. And MetLife Inc. will take on pension obligations for about 51,000 retirees, Sears said Tuesday in a statement.

Those retirees generally started receiving monthly payments of $150 or less on or before Dec. 1, 2016, Sears spokesman Howard Riefs said.

The change shouldn't affect retirees' benefits, he said. Pension benefits that MetLife takes on will no longer be covered by the Pension Benefit Guaranty Corp.'s insurance program but will be backed by life insurance guaranty associations for the states where retirees live, Riefs said.

Once the country's largest retailer, Sears has racked up billions of dollars in red ink over the past five years amid a broader department-store slump as shoppers opt for discounters and Amazon.com. Chief Executive Officer Eddie Lampert has shut stores and raised cash by selling or spinning off assets, including the Craftsman tool brand and Lands' End clothing business.

Under one deal announced Tuesday, Sears wins more time to repay most of a $500 million secured loan facility that was to be due in two months. The company will repay just $100 million in July and extend the remainder of the loan until January, with an option to push out the maturity another six months. The lenders include Cascade and JPP, an entity tied to Lampert, who has thrown the company lifelines before.

Sears also said it will pass off $515 million in pension obligations to MetLife. That transaction will reduce volatility and expenses, helping the retailer reach its target to cut debt and pension obligations by $1.5 billion this fiscal year.

Longer life spans, and bond yields that are near historic lows, have made it harder for employers to generate the returns that they expected on funds set aside to pay retirees. J.C. Penney Co., another ailing retailer, struck a similar deal in 2015 with MetLife's rival Prudential Financial Inc.

For employers like Sears that transfer pension risks, "where it 'helps' is that they don't have to worry about their assets keeping up with the growth on the liability side," said Bloomberg Intelligence credit analyst Noel Hebert. He added that the retailer remains underfunded on overall pension obligations.

The risk-transfer deals add assets under management for insurers like MetLife and are a natural hedge to their traditional death-benefit businesses. That's because longer life expectancy makes insurance policies more profitable even while increasing costs for pensions.

"We believe our 90-plus years of experience in this market and expertise in managing transferred pension liabilities allows us to add value and helps our clients feel secure that their risks are well-managed," MetLife said in an emailed statement. Sears didn't return a message seeking comment.

Chicago Tribune’s Lauren Zumbach and Nick Turner of Bloomberg News contributed.

bloruleshort.gif (618 bytes)

Sears Holdings Corp Still a Bankruptcy Threat Despite Debt Deal
By James Brumley
InvestorPlace
May 23, 2017

Sears stock holders need to put a big, red X on their calendars over July 10

Sears Holdings Corp hasn't been easy to own at any point over the past eight years. But in a month and a half, owning Sears stock will become an outright exercise in raw nerve.

Why's that?

July 10 is the first day the struggling retailer could declare bankruptcy without undoing the mid-2015 sale of several dozen to stores to a specially-formed REIT called Seritage Growth Properties. That was a honey of a deal for the real estate investment trust that - oh yeah - also happens to be run and largely owned via a hedge fund by the same Eddie Lampert who currently owns a big chunk of SHLD stock and is also serving as Sears' CEO.

Conflict of interest? You bet.

That's not to say Sears will be submitting its Chapter 11 paperwork to a bankruptcy court at 8 a.m. on July 10. Lampert almost seems to have convinced himself he can still salvage the imploding company, and will certainly be emboldened by Tuesday morning's news that the maturity date of some $500 million worth of debt coming due in July has been pushed back to the beginning of 2018.

It is to say, however, that from any point beyond July 10, Sears stock holders shouldn't act too surprised if they see the "B" word in a headline.

The Letter of the Law

The date in question is established in section 548 of the Federal Bankruptcy Code, which explains (emphasis mine):

"The trustee may avoid any transfer (including any transfer to or for the benefit of an insider under an employment contract) of an interest of the debtor in property, or any obligation (including any obligation to or for the benefit of an insider under an employment contract) incurred by the debtor, that was made or incurred on or within 2 years before the date of the filing of the petition… if such transfer or obligation was either made with actual intent to hinder, delay, or defraud present or future creditors, or was made for less than reasonably equivalent value, and (1) while the debtor was insolvent or rendered insolvent as a result of the transaction, or (2) left the debtor with an unreasonably small capital, or (3) the debtor intended to incur or believed it would incur debts that would be beyond the debtor’s ability to pay such debts when they matured."

The transfer of those 235 store locations to Seritage happened on July 7, 2015. The first business day that would fall two years after that mark is Monday, July 10, of this year.

Intent - as is the case with much of the law - will be the sticky wicket. The $2.7 billion deal with Seritage could still only be done if someone was able to prove the whole plan was to shift valuable assets off of Sears' books to prevent them from being claimed by creditors in the event of a bankruptcy filing. That's usually tough to do.

In this particular case, Lampert didn't do himself any favors by exercising a controlling interest in the buyer and the seller. Past July 10, the law shouldn't (theoretically) matter anymore.

The End of the End

If you think Sears is going to be able to hang on much past that point, think again.

The company did just buy itself some time and flexibility. SHLD was going to have to come up with $500 million it didn't have to pay back the principal on debt coming due in July. Now payment is due in January. Sears has also annuitized $515 million worth of its pension liability, ultimately lowering its cash costs incurred by paying those 50,000-plus retirees.

That won't be enough. Sears lost $607 million last quarter, and it wasn't an unusual quarter.

The latest chapter in the saga: What little goodwill Sears may have been able to support with its vendors was weakened last week when the company chose to follow through on threats made just a few days earlier. It filed a lawsuit against one of its tool suppliers that alleges a breach of contract.

The vendor, One World Technologies, is arguably in the wrong in that it didn't want to honor its initial agreement. In light of Sears' recent financial difficulties, the supplier sought to reduce its risk should the retailer go under. As they say, though, a deal is a deal. Should the worst-case scenario materialize, One World could fight for its share of the company’s assets in a bankruptcy court.

But the suit itself has much bigger damaging consequences than just one soured relationship with a vendor. Other suppliers of Sears merchandise have to be aware that the retailer just turned a partner into an adversary. Not looking to be the next target in a lawsuit, those other vendors may only be willing to work with Sears on very restricted terms going forward.

Count it as another mortal blow.

Bottom Line for Sears Stock

July 10 is the proverbial opening of the window for the retailer, but don't be surprised if an actual Chapter 11 filing doesn't materialize right away (assuming one materializes at all).

Remember: Lampert may have driven the company into the ground, but he's not stupid. He has to know he has to sell the idea that his intent was to give the company a good shot at surviving as long as it could while he was trying to get traction with a turnaround effort. A July 10 filing would be a little too obvious.

Nevertheless, SHLD has fewer and fewer assets to sell to supply much-needed cash - if only to continue burning it. It's difficult to imagine any other outcome for the once-iconic retailer.

In the event of a bankruptcy, Sears stock will effectively be worthless. Liabilities of $13.2 billion far exceed assets of $9.3 billion, and that's assuming the company would be able to sell its assets at their fair price in a bankruptcy liquidation. Bondholders are first in line before SHLD shareholders, and there's arguably not even enough to pay debt holders back.

Brace yourselves.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

bloruleshort.gif (618 bytes)

Sears: A Terrible Risk
By David Butler
Seeking Alpha
May 23, 2017

Comebacks are awesome. They're the quintessential American tale. Sears Holding Corp. is not one of them. The stock is in a space where even the healthy players are taking hits. The progressive revenue declines, weaker gross margins, and mounting losses are creating a debt situation that cannot be overcome. Trying to play a turnaround here is a recipe for losses in the portfolio.

Business isn't improving

Year after year, sales get worse. The fourth quarter did nothing to albeit concerns. Revenues of $6.05 billion were more than 17% less than the year prior. That might have been okay if cost cutting measures from store closures outpaced the declines. That is not the case. Gross income declined 12.6% to $1.31 billion. These kinds of margins don't come close to covering expenses; and the company reported a net income loss of $607 million. That's a 4.6% increase in losses year over year.

For the full year, $1.3 billion of revenue declines were credited to Kmart/Sears store closures. Comparable store sales declines contributed to a $1.4 billion decline from the year before. Kmart stores had sales declines of 5.3% while Sears store sales fell 9.3%. Fallout in home appliance, apparel and consumer electronics were the main culprits.

The debt is too much

Shedding assets in restructuring is supposed to lead to reduced costs and a lessening of losses. For Sears, it just seems to be decreasing total equity. Sears has been going through store closures like candy as they attempt to cut out failing locations. At the beginning of the year they were targeting 150 more for closure, now the number appears to be more like 180. The collective closures haven't seemed to make any difference as net income continues to fail. By the time they remove all their toxic assets, will the company actually be large enough to cover the payments on the $3.81 billion of long term debt?

Management has mixed motives

Sears CEO Eddie Lampert has a pretty personal stake in Sears as his investment company ESL Investments owns almost half of the company. This could explain more than a little about why the company hasn't found chapter eleven yet. Things were better in the early 2000's when Lampert got involved with Sears; but since then things have only gone downhill. It seems to me that Lampert either didn't see the shift in trends before taking control of Sears, or simply isn't good at retail. At this point, he just doesn't want to lose his investment.

He has taken criticism from many for seeking out max profits without doing due diligence in terms of updating stores and keeping the customers coming. I've been in a Sears recently. They are pretty rough. The poor management is obvious when you look at the fallout. Sales were over $50 billion ten years ago. Now they're hovering over $20 billion.

At this point, it actually seems that Lampert may benefit more from slowly selling everything off. Store locations have been spun off to Seritage Growth Properties. Seritage is run and partly owned by Lampert. It is essentially taking the useful properties from Sears and leasing them out to other businesses. While this may benefit Lampert and Seritage investors, it certainly creates a conflict of interest in terms of trying to keep Sears alive. The more locations that Seritage takes over, the less sales potential Sears really has. This is especially true if they keep taking prime properties since they're more easily leased to those willing to pay.

Too much to handle

The cash position is tedious at best with $286 million in cash. If the company keeps losing $607 million a quarter, there's no doubt that Sears will need more borrowing to keep going. That in turn will just drive up the debt, and drive down the stock price. My prediction is that Lambert won't give up until the company can't service the debt payments. They've already sold off Craftsman and burned through most of the money they made from selling off control of locations to Seritage.

At this point, I think Lampert will simply try to "maneuver" the liquidation in a way that best benefits Seritage as a real estate holder. His hedge fund owns 40% of Seritage, and will probably be his best chance at saving face. In other words, the CEO of Sears doesn't seem as interested in Sears at this point as he is in its properties. The stock is a terrible investment.

Disclosure: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

bloruleshort.gif (618 bytes)

2017 Retail Bankruptcies Are Piling Up (and There's No End in Sight)
By Daniel B. Kline
The Motley Fool
May 19, 2017

Some call it the "Retail Apocalypse," and blame the rise of the internet, while others see the growing number of retail bankruptcies as a sort of market correction for chains not built to compete in 2017. However you view it, the number of casualties has been piling up. In fact, through the first three months of 2017 nine retailers sought bankruptcy protection, according to CNBC . That matches the total number of retail bankruptcies in 2016, and puts the year on pace to tie 2009's record, where 18 chains filed for bankruptcy protection, according to CNBC.

Those numbers have continued to grow in Q2 2017 with Rue21, Payless, and Bebe filing in April. And, after the recent round of disappointing earnings news reported by many retailers, there's no reason to believe the second half of they year won't continue the trend.

How Bad Could This Get?

Rising interest rates present further problems for distressed retailers, making it harder and more expensive to raise needed capital. That could be the tipping point that sends some of the 19 companies on Moody's Investor's Service March list of distressed retailers (which includes Rue21 and Payless, which have already filed for bankruptcy protection) into bankruptcy.

Those companies reportedly had over $3.7 billion in debt that matures over the next five years with about 30% of it due by the end of next year. As sales at the chains, which include well-known names like Sears Holdings (NASDAQ: SHLD) , David's Bridal, and Gymboree, continue to fall, rising interest rates could make it harder to refinance and push debt out.

Which areas could be hit hardest?

So far, apparel players, especially ones targeting younger shoppers, have been the hardest hit. In addition to Rue21, The Limited, Wet Seal, and BCBG Max Azria, have all filed for bankruptcy protection this year.

Going forward, however, apparel chains have only the third biggest risk of defaulting on their debt. behind electronics retailers, and department stores, which have the highest risk, according to Bloomberg .

Department stores may be struggling the most visibly, with Sears Holdings teetering on the edge of extinction , and J.C. Penney, and Macy's struggling. Of those three, only Sears appears headed toward bankruptcy protection in the near future, but the other two are increasingly vulnerable if current operating conditions worsen.

In addition to the bankrupt players in apparel space listed above, the entire category could be negatively impacted by the woes facing department stores. If a mall loses an anchor store like Sears, J.C. Penney, or Macy's, that impacts traffic to the whole shopping center. That could create a sort of domino effect, drawing down customer counts across an entire mall.

What's next for retail?

More chains are going to go out of business and close more locations. In addition, the loss of so many chains, and the shrinking of others will cause some shopping malls to close or contract.

For retailers to survive, they will need to find models that give consumers a reason to visit their stores. Both J.C. Penney and Macy's have starting doing that by integrating store-within-a-store concepts, and integrating the online and real-world shopping experience.

What's very clear is that few brick-and-mortar retailers are immune and that for many, things will get worse before they stabilize. There's no one blueprint for competing in this new reality where consumers have much less reason to leave their house. Competing in that marketplace will require a major pivot from many traditional retailers, and some won't be able to make that happen.

bloruleshort.gif (618 bytes)

J.C. Penney checks into its newest business - hospitality
By Deena M. Amato-McCoy
Chain Store Age
May 19, 2017

A department store chain is pursuing a new business opportunity in a $200 billion market.

J.C. Penney is now offering business-to-business solutions for the hotel and lodging industry, as well as the multi-unit residential industry. The retailer has launched a program to supply hotels, vacation rentals and properties managed by commercial property groups with blankets, pillows, towels, window treatments and even major appliances. Penney is putting together an outside sales force for the initiative.

"The U.S. hospitality industry represents approximately $200 billion annually - and a significant opportunity for J.C. Penney to gain market share and drive increased revenue per customer with major appliances and a renewed focus on soft home goods," said Marvin Ellison, the chain's chairman and CEO. "Our entry into the B2B program reinforces our home refresh initiative, while providing new and innovative ways to achieve sustainable growth and profitability. Our broad assortment of private brands in soft home give us a unique cost and value advantage in this new and exciting space."

The new B2B program utilizes Penney's nationwide fleet of brick-and-mortar stores and its vast supply chain. It also benefits from the retailer's experienced sourcing organization. By hedging raw materials, working with a strong supplier base in over 30 countries and implementing a rapid production cycle time, Penney can gives business clients "the assurance that they are receiving the best quality products when they need them," the company said.

"The move to B2B makes a lot of sense," said Maureen Mullen, chief strategy officer at consumer brand consulting firm L2, told MarketWatch in a phone interview. "For one, [J.C. Penney] is entering an area that Amazon is not playing."

The initiative comes at a critical time for Penney. The retailer got off to a slow start in its first quarter, reporting disappointing sales.

bloruleshort.gif (618 bytes)

Target gets in bed with popular mattress-in-a-box brand
By Marianne Wilson
Chain Store Age
May 18, 2017

An online start-up has turned to a traditional retailer to help grown its brand.

Target Corp. has entered into a partnership with Casper, an online brand credited with disrupting the mattress category. Target will start selling the brand's mattresses and other products, including a few exclusive items, beginning on June 18.

Launched in 2014. Casper quickly developed a cult following for its mattress, which is made of memory and latex foams, and delivered in a box. The mattress, available in a variety of sizes, comes with a 100-day money-back trial. Prices range from $550 (twin) to $1,150 (king).

"At Target, we strive to bring guests amazing new products and exciting partnerships, said Jill Sando, senior VP, merchandising, home, Target. "We love Casper's brand and innovative products - and we really love the idea of giving our guests a simple way to get a better night's sleep, with everything they need in one convenient place."

Target has sold mattresses online for a while, including brands such as Sleep Comfort, Serta and Sealy. But as part of this deal, Casper will become the only mattress brand available online through Target.com, said Amy Koch, a Target spokeswoman.

The Casper mattress will be available (online only) in a variety of sizes. But other Casper products, including pillows and sheets will be available in select Target stores and on the retailer’s website.

In addition, Target will be the exclusive vendor of two new Casper items: a mattress topper, called Casper Layer, and a flexible seat, called Casper Lounger. Both products will be sold in Target stores and on its website.

"Since our launch online three years ago, we've seen a huge demand from customers who want to experience the Casper brand in person," said Philip Krim, CEO and co-founder of Casper. "Partnering with Target allows us to bring Casper products directly to consumers in-store on a national scale

Target has sold mattresses, including such brands as Serta and Sealy, online for some time. But as part of its new partnership, Casper will be the only mattress brand available online at Target.com, the Minneapolis Star Tribune reported.

bloruleshort.gif (618 bytes)

Department stores have lost more jobs than coal mines
By Chris Isidore
CNNMoney
May 18, 2017

America's long-standing love affair with shopping at malls and department stores may be nearing an end.

"The traditional mall as we know it is doomed," said according to Greg Portell, a retail consultant at A.T. Kearney. "When was the last time a mall closed that people missed, other than the people who worked there?"

And retail workers are taking a huge hit.

Between 2001 and 2016, jobs at traditional department stores fell 46%, according to Labor Department data.

That's a much steeper drop than other troubled industries. For example, coal mining jobs dropped 32% during the same 15 years. Factory employment fell 25%.

Related: Retail train wreck continues

About 60% of department store employees are female, compared to 47% of workers overall. Minorities, the elderly and teenagers are also far more likely to find jobs in department and discount stores than they are elsewhere. Teenagers hold 8% of department store jobs, compared to 3% of jobs overall.

"For the young, it's a rite of passage in learning how to work, how to deal with customers," said Amanda Nicholson, professor of retail practice at Syracuse University.

Some 3,300 store closings have been announced so far this year, according to Fung Global Retail & Technology, a retail think tank. That's double the number in the same period in 2016.

Related: Retailers cut tens of thousands of jobs. Again

This year will likely see the largest number of store closings since the Great Recession, according to Portell.

Further proof of the struggle stores face emerged this week. A raft of retail icons posted disappointing financial results: Macy's, JCPenney, Kohls, Dillards and Nordstrom. Each of them told the same grim tale about losing sales and market share as Americans shop elsewhere.

The trouble isn't likely to end any time soon.

Competition from online rivals like Amazon is continuing to intensify, and chains such as Walmart and Target are investing more money in online shopping, rather than in traditional stores.

Americans are spending more money than ever shopping, according to government figures. But every retailer that reported financial results this week said that sales at stores open at least a year had declined from a year earlier.

Some chains are struggling just to survive.

Abercrombie & Fitch announced this week that it is looking for a buyer for the company. And the CEO of Sears Holdings, which owns the Sears and Kmart brands, told investors that vendors are treating the company "like a pariah" since it warned investors earlier this year it may not be able to stay in business.

Sears Holdings warned investors in March that it can no longer promise it will remain in business. It is not in bankruptcy, but it has posted losses of more than $10 billion since 2010, and debt has soared while the value of its stock has tumbled.

"There are some chains that are already obsolete and hanging on by a thread," said Marshal Cohen, chief industry analyst at NPD Group.

bloruleshort.gif (618 bytes)

Forget Sears Holdings Corp (SHLD) Stock, Buy Seritage Growth Properties (SRG) Instead
By Will Ashworth
InvestorPlace
May 18, 2017

At least Seritage has a better than 50% chance of survival, unlike SHLD

Eddie Lampert and the entire Sears Holdings Corp turnaround reminds me of the kid in school who blamed the dog for eating his or her homework instead of admitting that it didn't get done.

Lampert's May 10 interview with Chicago Tribune reporter Lauren Zumbach is a must-read for anyone long SHLD stock. It's as if the Sears CEO is channeling the Donald Trump administration's penchant for plausible deniability.

Retail is undergoing significant change at the moment and department stores of all price points, not just Sears, are having a tough time adapting to the new playing field. Fair enough.

Is Lampert Out of Touch?

In the Chicago Tribune article, Lampert oddly is about as conciliatory as he's ever been, but he still comes off sounding like a spoiled child.

When asked by Zumbach if Sears was having troubles dealing with suppliers, according to the article:

"We're fighting like hell to change the way people do business with us," Lampert responded. "And my view is, we're the customer. If you're a vendor, and want to do business with us, then you have to treat us like a customer, you don't treat us like a pariah."

Any investor reading that last sentence ought to run away from SHLD stock as fast as they possibly can. These are not the words of a man fully in control of the situation.

bloruleshort.gif (618 bytes)

Here's How Home Depot Is Trying to Drive One Last Nail Through Dying Sears
By Lindsay Rittenhouse
MSN Money
May 17, 2017

While Sears Holdings Corp. CEO Eddie Lampert is busy railing on his vendors in blog posts, Home Depot is preparing to thieve even more of the retailer's once lucrative tools and appliances sales.

"We have an appliance retailer that recently announced store closings, basically going out of business, and we're seeing sales coming our way in an environment where they're liquidating the stores," Tome said, hinting at the impact of HHGregg's bankruptcy. "It's very interesting." In an interview with TheStreet, Tome explained $5 billion in sales -- mostly in tools and appliances -- could be up for grabs for Home Depot should Sears also go under like HHGregg.

Sears, along with a litany of other issues including that its same-store sales plunged 11.9% since the start of the year, has lost a ton of market share in its key appliances business. To preserve cash, the company has cut inventory in appliances which has only made the impact of store closures worse.

In 2015, Sears' market share in appliances fell to 19%, pushing it to number three on TWICE Magazine market research partner The Stevenson Company's list of the top 50 appliance retailers, just under Home Depot. In 2014, the retailer managed to retain the number two spot, below Lowe's which pushed struggling Sears out of the top slot three years ago. At one time, Sears had a 40% share of the appliance industry.

Twice senior editor Alan Wolf said Stevenson's 2016 data on appliance sales will be released on June 5, but predicted that the results will likely not be pretty for Sears.

"Based on successive same-store sales declines in appliances in Sears Holdings' quarterly earnings reports, and round after round of store closures, I don't think it's a stretch to project that Sears' namesake retail chain will show another sales decrease for calendar year 2016," Wolf said in an email to The Street.

bloruleshort.gif (618 bytes)

Sears loses $6 million patent lawsuit to father-and-son company
By Gina Hall
Chicago Business Journal
May 16, 2017

Sears has lost a $6 million patent lawsuit to a suburban Chicago-based father-and-son company.

A jury in U.S. District Court in Chicago ruled that Sears (NASDAQ: SHLD) and its tool supplier, Apex Tools, infringed on the patents of LoggerHead Tools, according to Crain's Chicago Business.

The jury awarded LoggerHead $6 million in damages.

LoggerHead is located in Palos Park, Illinois and run by Dan Brown Sr. and son, Dan Jr.

The company sells what is called the Bionic Wrench, a tool that can adjust similar to pliers but also maintains the grip of a wrench. The product sold 10,000 units when it debuted on QVC and was a hot seller at both Sears and Ace Hardware, per the report.

Sears then started selling a similar product called the MaxAxess made in China by Apex. While the original Bionic Wrench sold for $24.99, Sears' version cost $11.99. The Browns spent five years of litigation costs to bring Sears and Apex to court.

"The court already rejected all of Loggerheads' claims against Sears specifically," a Sears spokesperson told Chicago Business Journal. "Although we're disappointed in the jury's finding on the patent claims, Sears is being defended and indemnified by Apex on those claims."

LoggerHead could make more money off the lawsuit than the newly awarded $6 million. In addition to winning the patent infringement trial, the Browns won "willful infringement" trial and the U.S. District Court could triple the damages due. That would increase the amount Sears owes to $18 million.

The troubled Chicago-based Sears has lost more than $10 billion in the past few years and weak earnings are causing executives to question the business' sustainability. Sears has already closed retail stores, sold real estate and recently completed the sale of its Craftsman tool brand to Stanley Black & Decker for $900 million. Sears is considering selling its other businesses, including Kenmore appliances and DieHard car battery brands.

bloruleshort.gif (618 bytes)

Wary Vendors May Mean the End for Sears Holdings
By Daniel B. Kline
The Motley Fool
May 16, 2017

CEO Eddie Lampert wrote a blog post explaining the company's latest woe and how it's fighting back.

When a company starts to struggle, and the media begins to report on its possible bankruptcy, vendors get spooked. No company wants to ship merchandise it will either not get paid for, or that it will receive pennies on the dollar for in a bankruptcy filing. There's no exact formula for when a vendor might decide to either cut a merchant off, ask for cash up front, or demand better terms in order to account for the potential risk of not getting paid, but it happens as the perceived risk of default increases.

That's what's happening to Sears Holdings, a company that has already issued a formal warning that it may not survive. CEO Eddie Lampert considered that March 21 SEC filing a technicality, but some of the chain's vendors are less optimistic about the company's chances for survival. That has led to the CEO lashing out against some of the chain's suppliers, whom he sees as trying to profit from the situation.

"As I explained last week, there have been examples of parties we do business with trying to take advantage of negative rumors about Sears to make themselves a better deal -- a deal that is unilaterally in their interest," he wrote in a May 15 blog post. "In such a case, we will not simply roll over and be taken advantage of -- we will do what's right to protect the interests of our company and the millions of stakeholders we serve." Sears Holdings owns both Sears and Kmart.

A difficult fight

Lampert used the word "rumors" and cited "the recent wave of dire predictions about our company's future," without acknowledging that the company itself did declare that it may not be able to survive. The March 21 SEC filing acknowledged that its "historical operating results indicate substantial doubt exists related to the company's ability to continue as a going concern." It also noted optimism, however, writing "We believe that the actions discussed above are probable of occurring and mitigating the substantial doubt raised by our historical operating results and satisfying our estimated liquidity needs 12 months from the issuance of the financial statements."

Lampert has aggressively tried to play off that SEC filing as a legal requirement while laying out his plans for a turnaround. Those efforts involve selling off assets, closing stores, and building the Shop Your Way digital platform.

The media has been skeptical that those plans will work while acknowledging that Sears still has assets. While the company has significant debt, it can likely meet its cash needs for this year, and probably 2018, assuming it can sell off its remaining assets at the expected prices.

Vendors should be scared

In Lampert's blog post, he calls out one specific vendor, One World, which he notes is a subsidiary of Techtronic Industries, a conglomerate based in China with over $5 billion in revenues. He said that the company, which Sears has purchased from for nearly a decade, refuses to meet the terms of its current agreement.

"One World has informed us of their intention to take the very aggressive step of filing a lawsuit against us as they seek to embarrass us in the media to force us to let them out of their contract," he wrote.

Lampert argues that Sears has lived up to its agreements, paying One World more than $868 million since 2007 for various tools it sells the retail chain. He also noted that his company has paid its bills on time.

The problem is that while Sears may be able to force vendors to honor existing contracts, the reasonable fear that the chain at some point won't pay its bills means this probably won't be an isolated incident. Lampert has basically been publicly pleading for vendors to support his company, and that support is clearly wavering.

What happens next?

If Sears could report some concrete evidence of an imminent turnaround, vendors might be placated. The problem is that even though Lampert remains optimistic, data does not back him up.

It's reasonable for vendors to be wary and for some to even decide Sears is not worth the risk. If that happens, it means the end for the company, because even if it still has cash available to spend, if nobody will sell it goods, then empty shelves will put it out of business.

That likely won't happen all at once, but even a few vendors refusing to work with the company starts to create holes in the chain's offerings that leave certain shelves bare. In stores that are already somewhat depleted by the chain's attempts to control inventory to manage cash flow, that could create a negative cycle.

If a shopper visits Sears and he or she does not find what he or she was looking for, then not only is no purchase made, there's also no reason to come back. That's a cycle the company has to stop if it has any hopes of surviving.

Daniel Kline has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

bloruleshort.gif (618 bytes)

Sears tanks after CEO eviscerates top tool vendor he says is trying to cancel its contract
By Hayley Peterson
Business Insider
May 15, 2017

Sears CEO Eddie Lampert is taking his feud with a top tool supplier public.

In a blog post on Monday, Lampert threatened legal action against One World Technologies, a subsidiary of the China-based Techtronic Industries that manufactures power tools and other products under the Craftsman brand.

He said One World was trying to "embarrass" Sears and "take unfair advantage" of the retailer by changing the terms of its supplier agreement, or threatening to cancel its contract with Sears altogether.

"One World has informed us of their intention to take the very aggressive step of filing a lawsuit against us as they seek to embarrass us in the media to force us to let them out of their contract," he wrote. "But Sears has nothing to be embarrassed about - we have lived up to our word under our contract, and we will take the appropriate legal action to protect our rights and ensure that One World honors their contract."

Sears' stock fell 12% after the blog post was published.

One World Technologies and Techtronic Industries did not immediately respond to a request for comment.

Lampert said Sears had helped One World "build a formidable presence in the tool industry" over its nine-year relationship with the vendor. He said Sears had paid the company more than $868 million since 2007.

He said the supplier was trying to take advantage of "negative rumors" about Sears to sweeten the terms of its contract with the company.

"We will not simply roll over and be taken advantage of," he wrote.

Last week, Lampert told the Chicago Tribune that some vendors had been treating Sears like a "pariah" and questioning its ability to pay for orders "because there are a lot of articles that are speculating, and there are elements of truth, but they're certainly designed to scare people."

"If you're a vendor, and want to do business with us, then you have to treat us like a customer," he said. "You don't treat us like a pariah."

Sears' sales have been cut in half since 2007, and the company has been closing hundreds of stores and selling off assets including real estate and brands like Craftsman to raise money. The company has also been borrowing money from Lampert's hedge fund, ESL Investments, to keep funding operations.

There has been widespread speculation on Wall Street that the company is nearing bankruptcy, especially after Sears in March revealed "substantial doubt" about its ability to stay in business.

Here's the entire blog post from Lampert:

"Last week, at our annual meeting of stockholders, I said that Sears Holdings needs the support of our members, vendors, lenders and the communities we serve to succeed. I also shared my view that while we are not asking to be spared from informed opinions about our business performance, the recent wave of dire predictions about our company's future have done harm to our business.

"I also discussed the hard work we are doing with our vendors to meet their concerns. These efforts have resulted in a meaningful reduction in their counterparty risk with Sears Holdings - to the point where nearly all our vendors have a level of credit risk that is both affordable and appropriate given the relationships we have and our history of always meeting our obligations.

"But, as I explained last week, there have been examples of parties we do business with trying to take advantage of negative rumors about Sears to make themselves a better deal - a deal that is unilaterally in their interest. In such a case, we will not simply roll over and be taken advantage of - we will do what’s right to protect the interests of our company and the millions of stakeholders we serve.

"Today, we are taking a stand against one vendor that is trying to take unfair advantage of us: One World, a company with whom we have had over a nine-year business relationship, has threatened to refuse to perform under their Supply Agreement unless we agree to what we believe are unreasonable demands. One World has informed us of their intention to take the very aggressive step of filing a lawsuit against us as they seek to embarrass us in the media to force us to let them out of their contract. But Sears has nothing to be embarrassed about - we have lived up to our word under our contract, and we will take the appropriate legal action to protect our rights and ensure that One World honors their contract.

Additional Background on One World

"One World is a subsidiary of Techtronic Industries, a conglomerate based in China with over $5 billion in revenues. One World makes various power tools and related accessories for Sears under the Craftsman brand. For over nine years, One World has enjoyed significant benefits from its relationship with Sears - we have paid One World more than $868 million since 2007 - a relationship that helped One World build a formidable presence in the tool industry. Sears has paid and continues to make all payments to One World as they come due, and we are fully capable of continuing to meet our obligations under the Supply Agreement.

"There are important competitive reasons why we will fight hard to hold One World to honor our agreement. One World also manufactures power tools for other companies - by reducing its commitment to Sears, One World can do more business with those other companies by diverting resources now committed to Sears without incurring the cost of expanding its manufacturing or outsourced procurement capacity.

"If we allowed One World to break their agreement, it would effectively reduce the flow of products they are required to deliver to Sears, harming our ability to sell tools, supply parts, and provide goods to Sears' members and customers. We won't allow that to happen. We are generally not a litigious company, but we will fight back to protect our legal rights, hold One World to its contractual agreements, and ensure that our customers are not affected by this business dispute.

"As I have said, I believe Sears Holdings can continue to operate as a very significant member-centric integrated retailer with a large number of stores as long as we receive the support of our vendors and other stakeholders. It is important to note that we purchase more than $13 billion a year in goods and services to offer our members in Sears and Kmart in-store and online. Across our entire vendor base, we have always met our payment obligations and are confident that the steps we are taking to improve our financial strength and reduce our operating losses will ensure that we will continue to be a strong business partner for many years to come."

bloruleshort.gif (618 bytes)

Vendors Could Force Sears Into Bankruptcy
By Wyco Researcher
Seeking Alpha
May 15, 2017

Vendors could force Sears Holding Corp. into filing for bankruptcy. Currently, the vendors are treating Sears as a "pariah". Eddie Lampert gave an interview with Chicago Tribune last week and replied to a question asking whether the company has enough time saying, "We have as much time as our vendors and our lenders and our shareholders are willing to give us." Since Lampert and Bruce Berkowitz control 85% of the equity and are major holders of debt, is he implying that Sears' future is up to vendors and, to a lesser degree, other lenders?

In the same interview, he blasted the media and commentators, "Not only have these predictions been off the mark and based on incomplete and selective information or biased sources, but they have also been harmful". The key word here, in my opinion, is "harmful". It seems Mr. Lampert is asserting that these reports have had a very negative impact on Sears's relationship with vendors.

During that interview, Mr. Lampert never denied having trouble getting needed products or on terms that the company can deal with. That lack of denial raised many eyebrows. At the annual meeting, he stated that the media was trying to "scare our vendors". In my opinion, just reading the financial filings over the last few years "scares" vendors. Of course, the comment at the annual meeting drawing the most attention is his bazaar assertion that, "We don't need more customers. We have all the customers we could possibly want".

Vendors' confidence has also been shaken by a revolving door of executives. There have been three different CFOs within the last year. Robert Schriesheim left last October. His replacement, Jason Hollar, left last month. The current CFO is Rob Riecker. In addition, the president of Kmart left in March, the head of retail services left in April, and last December, the president of Sears left.

The numbers show that vendors have been stricter with financing terms, since the merchandise accounts payable/merchandise inventory ratio has steadily declined. This means Sears has been forced to use cash to pay for merchandise and/or the time period to pay has been shortened.

You need merchandise to sell to stay in business, and half empty shelves, in my opinion, indicate a dubious future for the company. Mr. Lampert's recent ranting could indicate that the vendor relationship problem has become more acute. In the near term, this vendor/inventory issue could be the key driving force behind any stock price movement.

What Happens When Sears Files For Bankruptcy?

Vendors

Besides forcing the company into bankruptcy, vendors' cooperation is needed during bankruptcy to stay in business, and that is not an easy task. Using the recent Payless Holdings LLC (privately held) bankruptcy case, "critical" vendors are being paid their pre-petition claims, provided that they agree to continue to ship merchandise to Payless stores. If they stop shipments/services after being paid, Payless will attempt to recover the cash paid under Section 529 of the Bankruptcy Code. This arrangement is being structured so that Payless still can operate in Chapter 11 bankruptcy. Normally, these pre-petition claims are treated as unsecured claims, which have a low-priority standing to get any recovery under a reorganization plan. Therefore, this is a strong incentive to cooperate.

The problem with Sears is determining "critical" vendors, since they sell such a wide variety of products, unlike Payless, which just sells footwear products. If it takes the same path as Payless, Sears may face litigation from the "non-critical" unpaid vendors, but it could be a method to maintain the flow of important merchandise during bankruptcy.

Bills of vendors that deal with a company during bankruptcy are classified as administrative claims, which are often paid continuously during the bankruptcy process. Therefore, there is low risk for vendors of not getting paid for merchandise shipped to Sears while it is in Chapter 11. I consider this as one of the key reasons for the company to file for bankruptcy - so that vendors will be more willing to ship to it during the upcoming Fall and Christmas shopping season.

Leases

When a retail store files for Chapter 11 bankruptcy, it does not get a free ride on its lease payments. Under Section 365(d)(3) of the Bankruptcy Code, the company must continue to pay its lease payments or it must reject its leases and vacate during the first 60 days. The company is given up to day 120 to reject or assume the leases, and if it does not give notice to the landlord during that period, it is assumed that it is rejecting. In addition, the company can file a motion to get an extension for an additional 90 days, which would give it a total of 210 days to assume or reject leases. During this time period, it must continue to make timely lease payments.

This 210-day period is critical for Sears. It would give the company until early February 2018 to assume/reject leases and vacate the properties, if it files for bankruptcy on July 10 (or soon after) as I expect.

The timing of the bankruptcy in July would enable Sears to benefit from increased foot traffic during the Christmas shopping season for stores with leases being rejected and closed. The liquidation markdowns may not have to be as large to attract buyers during Christmas season just prior to the store's closing. Smaller liquidation markdowns would also reduce the negative impact of competition with other Sears/Kmart stores which are not slated to close. Other retailers, such as J.C. Penney, will most likely be negatively impacted by nearby Sears/Kmart store liquidation sales.

Some of its shopping center landlords may want Sears out of their properties. These landlords may assert in court that the company is unable to assure future performance of a lease in a shopping center. Under 365(b)(3), Sears needs to adequately assure:

a) ... the source of rent and other consideration due under such lease, and in the case of an assignment, that the financial condition and operating performance of the proposed assignee and its guarantors, if any, shall be similar to the financial condition and operating performance of the debtor and its guarantors, if any, as of the time the debtor became the lessee under the lease;

b) that any percentage rent due under such lease will not decline substantially;

c) that assumption or assignment of such lease is subject to all the provisions thereof, including (but not limited to) provisions such as a radius, location, use, or exclusivity provision, and will not breach any such provision contained in any other lease, financing agreement, or master agreement relating to such shopping center; and

d) that assumption or assignment of such lease will not disrupt any tenant mix or balance in such shopping center.

Sears will be able to cherry-pick which leases it wants to reject, but shopping center landlords could file objections with the bankruptcy court to the company assuming/assigning valuable leases. If these landlords are successful, investors, especially holders of Sears's debt, who are expecting it to get cash for assigning (selling) leases and rebuilding the company around select profitable locations, may be disappointed because of bankruptcy laws.

(Note: The impact of lease assumption/assignments on Seritage Growth Properties and other REITs is important, but the impact on them is beyond the purposes of this particular article.)

Recent News

Last week was a terrible one for holders of retail stocks, as brick-and-mortar retail stores reported poor quarterly results. Sears has still not announced when it will report. Last year, the company announced on May 12 that it would release 2016 first-quarter financials on May 26. Sears has not responded to my inquiry about when it will announce the earnings release date this year. Since it is expected that there will be some update on the refinancing of a $500 loan that is due July 7 in the release, any delay in announcing the quarterly release date makes investors nervous.

On April 21, a press release included guidance for first-quarter results. The comparable store sales figure is expected to decline 11.9%. Because of the gains on the Craftsman sale, the announced earnings are anticipated to be great - a profit for a change. A profit, before other charges, of $185 million-285 million was the guidance range.

A profit for Sears sounds great, but if you look into the data, worries continue. The adjusted EBITDA guidance range was ($230) million-($190) million, which compares to ($181) million in the first quarter last year. These worsening numbers are in spite of the $700 million annualized cost savings achieved. Using a very simplistic approach, the $700 million annualized cost savings translates into $175 million quarterly savings. Therefore, the first-quarter EBITDA loss would be significantly worse without the cost-cutting plan.

The April 21 news release included a statement about receiving 60 separate bids in excise of $700 million for real estate. Without specifics, it is difficult to assess how much of a positive or negative these potential sales could be. If the company is selling low value real estate at a respectable profit, this would be beneficial, of course. If, however, it is selling key properties just to raise cash for supporting continued operations, it would be just another poor management decision.

Conclusion

The issue with vendors is becoming worse. While Mr. Lampert is blaming the news media, its financial filings are more than enough to scare vendors away. Sears cannot survive without merchandise to sell. Because of bankruptcy laws, vendors actually may be more willing to deal with the company after it files for bankruptcy than prior to filing, because post-filing claims have a higher priority to get recovery than pre-petition claims. Effectively, vendors are pushing Sears into bankruptcy.

Disclosure: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

bloruleshort.gif (618 bytes)

Sears CEO's master plan to profit off the demise of his stores is taking a turn for the worse
By Hayley Peterson
Business Insider
May 14, 2017

• Sears is closing stores and turning them over to Seritage Growth Properties. The stores are being leased out to higher-end businesses like Whole Foods and Pottery Barn.
• Seritage and Sears are both run by the same man, billionaire Eddie Lampert.
• Investors once saw Seritage as a way to profit from Sears decline, but now they're worried that it will struggle to keep pace if Sears goes bankrupt.


A bustling San Diego mall that's home to high-end stores like Nordstrom, Tiffany, and Restoration Hardware is defying the decline of shopping centers across the US and undergoing a massive $700 million expansion. One store in the mall — Sears — won't survive long enough to reap the benefits of the redevelopment.

Desperate for cash, Sears Holdings sold the property in 2015, along with dozens of other prime locations, signing deals to rent the space from its new owner.

Now the company that bought those outlets is pulling the plug on the San Diego store, which has been an anchor of the Westfield UTC shopping center for more than 40 years. Seritage Growth Properties, the real-estate owner, has already siphoned off a chunk of the store and leased it out to Williams-Sonoma and Pottery Barn Kids. This summer, it will take over the rest.

It's a lucrative move for Seritage. As Sears retreats from one of its most promising locations and fires dozens of employees, Seritage says it can triple the rent by turning the space over to the new high-end tenants.

This same scenario is playing out across the country, as Seritage picks up the pace of its takeovers of Sears stores. Seritage also reached new agreements in April to take over the entire Sears store at Aventura Mall in Miami, Florida — one of the most profitable malls in the country — and at malls in Dallas, Texas; Carson, California; and Charleston, South Carolina. It has already leased partial space in 123 Sears stores to other tenants, and it has completely taken over 24 stores.

'Widely anticipated demise'

It is no secret that Sears is in crisis. Under the control of Chief Executive Eddie Lampert, the stores have suffered from years of underinvestment and sales have collapsed — falling by half since 2007. Lampert has at various points, either directed billions of dollars to share buybacks that only benefit investors — draining the business of vital resources — or focused on a loyalty membership strategy that has yet to prove its value even after several years.

Lampert and his hedge fund own 58% of Sears — the value of a stake that has dwindled as the share price has fallen over the years. Sears, once America's largest retailer, now has a market value of about $1 billion. Seritage is worth more, closer to $1.4 billion.

If Seritage can profit from Sears' retreat from brick-and-mortar retail, that's good for Lampert. In addition to being Sears CEO and largest shareholder, he is Seritage's chairman and his hedge fund owns about 40% of the real estate investor's limited partnership, as well as 8.5% of the voting power in its common stock. He has also recently extended credit to Seritage that it will use to redevelop the Sears stores. Seritage and Sears declined to comment for this story.

The fact that Lampert stood on both sides of the real estate sale as CEO of Sears and chairman of Seritage has already prompted a lawsuit. The suit said that the Sears stores were worth far more than $2.7 billion and that Lampert stood to benefit regardless thanks to his dual roles at the companies. Lampert, Sears' board of directors, and Seritage settled the lawsuit for $40 million this year.

But lately, analysts and investors have started to worry about Seritage too. Analysts say the speed at which Sears is unraveling could actually imperil Seritage, because it would lose a key tenant — which is responsible for about 60% of Seritage's rental income — much faster than it anticipated and may not have the resources to redevelop stores fast enough. Bets against the stock are also rising.

Seritage is "in a race to hasten redevelopment of former Sears-leased space in order to prepare for its lead tenant’s widely anticipated demise," Floris van Dijkum, managing director at Boenning and Scattergood wrote in a recent note. "While management continues to deliver strong releasing spreads and attractive returns, we see a looming cash shortfall without a major capital raise."

Lampert's brainchild

After creating Seritage, Lampert orchestrated a massive real-estate deal in 2015, in which Sears sold 235 stores and interest in an additional 31 stores to Seritage. Sears raised $2.7 billion from the sale and rented back the store space from Seritage.

The transaction, known as a sale-and-leaseback agreement, is relatively common, especially among traditional retailers looking to raise money from valuable real estate that they have owned for decades.

Sears needed the deal. The retailer was at the end of its rope with net losses ballooning to more than $8 billion in the five years leading up to the transaction so the $2.7 billion payment gave Sears a new lifeline.

Under its lease terms with Sears, Seritage has the right to recapture half or all of the space in the Sears and Kmart stores it owns, and then turn that space over to a new tenant. It has rented space to new tenants — like Whole Foods, Dick's Sporting Goods, and AMC— in more than 140 of these already.

Seritage can also get paid when Sears exits a lease early. If base rent outweighs earnings over a 12-month period, Sears can break the lease — but has to pay Seritage a full year of rent to do so.

Sears, which is closing more than 150 stores this year, exercised this right on 17 stores last September, filings show.

The bet that Seritage can profit from Sears real estate has drawn some deep-pocketed backers. Bruce Berkowitz’s Fairholme Capital, a longtime Sears investor, owns 12% of the company's shares and billionaire investor Warren Buffett holds a 7% personal stake.

"A very important fact is that Seritage clearly proves the point about the value of the real estate remaining at Sears," Berkowitz told Fairholme investors on a conference call last November.

Over the edge

The agreement with Seritage, while bailing out Sears, also pushed many stores into loss-making territory once they began paying rent and as sales failed to rebound, according to a former Sears executive who asked to remain anonymous for fear of legal retribution for speaking about the company.

"Sears is paying hundreds of thousands of dollars in rent per store, when before, Sears owned these properties," the executive said. "A lot of the stores are now unprofitable because of that."

On top of paying rent to Seritage, Sears reimburses the company for taxes and maintenance on the stores it owns.

These payments totaled $194 million in 2016 and $133 million in 2015. Meanwhile, Sears has been burning through cash at a rate of more than $1 billion per year and selling off real estate and other assets to stay afloat.

Stores have been laying off employees, cutting bonuses, and slashing work hours to stanch the losses.

"The team has been beaten down," the executive said. "They haven't gotten raises or bonuses in God knows when."

Seritage struggles

With this backdrop, what might've been seen as an opportunity for Seritage, is now being flagged as a risk. The company's shares have fallen more than 24% in the last year amid expectations of a possible bankruptcy filing by Sears.

Short interest in the stock — that is trades placed by investors who are betting it will decline further — have reached the highest level in its history, according to Matthew Unterman, Director at S3 Partners, a financial analytics firm.

"Even including all signed not open leases, [Seritage] would have a $12 million shortfall if Sears stopped paying rent," writes Dijkum, the Boenning and Scattergood director. "Thus, an imminent bankruptcy could leave the company owned by bondholders with equity holders potentially wiped out."

So Seritage has a huge incentive to recapture as many Sears stores as possible as quickly as possible — especially in high-traffic malls like Westfield UTC — and turn them over to new, higher-paying tenants. Sears pays Seritage about $4.45 per square foot in rent, whereas Seritage's non-Sears tenants are paying about $15.23 per square foot, according to Seritage.

If Seritage can keep turning over Sears stores to new tenants — therefore reducing its reliance on Sears for rental income — before a possible Sears bankruptcy, then the company could turn out to be a good long-term bet.

But some investors are giving up on that idea, worried that Seritage's timeline to capitalize on Sears' assets is shrinking. Mohnish Pabrai, managing partner of Pabrai Investment Funds purchased Seritage shares for his funds about a year ago and recently sold them all, according to Barron's.

"If Sears doesn’t file until 2020, Seritage is fine," he told Barron's. "It is possible they are fine if there is a late-2019 filing. Any filing before that means taking extraordinary measures."

bloruleshort.gif (618 bytes)

Sears CEO blasts critics for 'harmful' speculation
By Nathan Bomey
USA Today & Chicago Sun-Times
May 12, 2017

Sears CEO Eddie Lampert passionately defended his strategy for rehabilitating the troubled department-store chain on Thursday, as the retailer fends off mounting speculation that it is headed toward bankruptcy.

The typically press-shy Lampert said in a blog post that the company is "fighting like hell" to turn the corner, repeating a phrase that he delivered a day earlier in a rare interview with the Chicago Tribune. He also reportedly made similar comments at the company's annual meeting on Wednesday.

The tough words didn't matter much to investors Thursday as Sears shares became caught in the retail-stock undertow of Macy's earnings miss. Sears shares fell 9.6% to close at $10.16, down $1.08. The stock is still up about 10% on the year.

Taken together, Lampert's communications reflect a newly assertive phase for Sears as it grasps for a turnaround following a period of escalating losses and store closures.

Lampert blasted the "many commentators" who "have rushed to conclusions" about Sears' future.

"Not only have these predictions been off the mark and based on incomplete and selective information or biased sources, but they have also been harmful," Lampert said. "We have spent a lot of time educating many external stakeholders - we need each other for success - and while it hasn't been easy, we are still here and fighting hard."

The speculation, however, was partly fueled by Sears, which told the Securities and Exchange Commission in March that there was "substantial doubt" it would survive.

The company recently sold its prized Craftsman brand for $900 million to raise capital, announced 150 store closures and set a goal of $1.25 billion in cost cuts for 2017.

Sears has already shed $700 million in costs, Lampert said Thursday.

He also argued that the company's enhanced loyalty program, dubbed Shop Your Way, paired with a store credit card are generated "transformational changes to our business."

When asked by the Tribune in an interview published Wednesday why the company would not file for bankruptcy, Lampert cited "a lot of human costs to doing it," including the potential impact on pensioners.

"We have as much time as our vendors and our lenders and our shareholders are willing to give us," he said in that interview. "It's up to us to basically demonstrate to people that we can drive results to get people behind us."

bloruleshort.gif (618 bytes)

Sears turnaround requires keeping customers
By Gina Hall
Chicago Business Journal
May 11, 2017

Sears Holdings CEO Ed Lampert said Wednesday that he's not in denial regarding his troubled retail chain and blasted media coverage of the company's turnaround.

Speaking at Wednesday's annual shareholder meeting at the company's Hoffman Estates, Illinois headquarters, Lampert said Sears (NASDAQ: SHLD) has plenty of customers to drive his turnaround plans.

"We don't need more customers. We have all the customers we could possibly want," Lampert said, according to The Chicago Daily Herald. "We just need to do a better job to keep them."

"I give you my assurance I am not in denial," he said, per Fox Business.

Sears stock rallied in after hours trading, currently up 6.8 percent to $11.24 per share.

Lampert lashed out at the media for targeting Sears with "extreme headlines."

"I felt we were unfairly singled out," Lampert said, per The Herald. "There's been a lot of headlines, including those on social media, and people want their stories to stand out, I understand that. Everyone wants people to read what they write ... These have been extreme headlines written about us for the past 10 years. But we're still here."

The troubled Chicago-based department store has lost more than $10 billion in the past few years and weak earnings are causing executives to question the business' sustainability. The company, which was a stalwart of American business after WWII, has been unable to adapt to online sales and competition from the likes of Wal-Mart and Target. In March, the company said in its annual report filing that it had "substantial doubt" that it could continue to operate.

The CEO said that customers could expect smaller stores in the future and is optimistic the company will recover if it can get a fair shake in the news media.

"We have data on where it's working and where we need to improve," he said. "Some unfair descriptions of our company have caused a lot of damage."

Earlier, Lampert said he is resistant to filing for bankruptcy protection due to the "human costs" of the process.

bloruleshort.gif (618 bytes)

Sears CEO: 'We Were Unfairly Singled Out'
By Anna Marie Kukec
Daily Herald (Chicago)
May 11, 2017

Sears Holdings Corp. Chairman Edward Lampert said Wednesday the media for years has "unfairly singled out" Sears' struggles in the retail industry and "we don't need more customers."

Lampert said during the annual shareholder meeting at the company's Hoffman Estates headquarters that shoppers should expect more smaller stores in the future as the company looks at ways to improve business.

But he used most of his time addressing the roughly 100 shareholders and employees to blast the media, pointing to negative headlines from years ago forecasting the end of the retail giant and mentioning how other retailers, like J.C. Penney, Target and Macy's, were struggling as well.

"I felt we were unfairly singled out," Lampert said. "There's been a lot of headlines, including those on social media. And people want their stories to stand out, I understand that. Everyone wants people to read what they write. ... These have been extreme headlines written about us for the past 10 years. But we're still here."

The parent of Sears and Kmart stores has had a bleeding bottom line for years. In March, Sears said in a federal filing that it had "substantial doubt" about its future. Yet it said it will remain steadfast and remain open.

Still, the company has continued to close or reduce stores and cut its workforce. The latest round was in February when 130 jobs were cut, mostly at the headquarters. Sears also closed 68 Kmart and 10 Sears stores and laid off hundreds more nationwide in 2016.

Sears Holdings has roughly 1,500 stores left and executives are looking at ways to change those platforms, such as smaller stores or partnering with other companies. Stores could be remodeled after one that was launched last year in Fort Collins, Colorado, which is about 10,000 square feet and focuses on the best-selling appliances.

Lampert said the problem with the negative press is the effect it has had on its workforce and executives as well as how vendors do business with the company.

"The biggest impact has been on our associates and how we recruit talent," Lampert said. "And vendors. They want our business, but they'll use those negative headlines to negotiate better terms for themselves."

Lampert also said some headlines focused on vendors claiming they won't want to do business with Sears anymore, when in fact, Lampert said, maybe Sears doesn't want to do business with them.

Earlier this year, Sears agreed to sell its Craftsman tool brand to Stanley Black & Decker Inc. for about $900 million. Lampert, who also has invested millions into the company, spun off Craftsman, the Sears Hometown & Outlet business and Lands' End clothing line.

"We don't need more customers," Lampert said. "We have all the customers we want. We just need to do a better job to keep them."

He said the people who shop with Sears and Kmart are online and in the store frequently and spend more money each time. Those are the customers they want to focus on in the future.

"We have data on where it's working and where we need to improve," he said. "Some unfair descriptions of our company have caused a lot of damage."

There's a "pileup effect," he said. When negative press affects the people of the company and its long-standing vendors, it makes business more difficult, he said.

"This is reprehensible," he said, "and it's been going on for too damn long."

bloruleshort.gif (618 bytes)

Sears CEO on Turnaround Try: 'I Am Not in Denial'
By Matthew Rocco & Jeff Flock
Retail FOXBusiness
May 10, 2017

Sears Holdings CEO Ed Lampert on Wednesday tried again to reassure investors that the floundering retailer can turn things around, pushing back against warnings that Sears and Kmart are nearing the end.

Sears, once the largest retailer in America, has been put under a microscope after a dramatic fall from the top. Sears has booked annual losses for six straight years, shedding more than $10 billion, and ratings agencies such as Fitch have identified Sears as a retailer at risk of collapsing in a tough environment for the broader industry.

But Lampert, whose hedge fund ESL Investments is Sears' largest shareholder, attacked reports that Sears may be facing bankruptcy in the near future, calling the coverage "unbalanced" and damaging to the company's business relationships with vendors.

"We don't need more customers. We have all the customers we could possibly want," Lampert said at Sears' annual shareholder meeting. "As soon as we start making money, people are gonna say, 'How did I miss this?'"

"I give you my assurance I am not in denial," he added.

Investors drove up shares of Sears, which rallied 5% to $11.04. However, the stock has still lost 18% over the last year.

Sears has shuttered hundreds of Sears and Kmart stores to cut costs, while prime locations were put into a real estate investment trust. Sears also faces steep pension obligations. In order to keep the company running, Sears has borrowed millions of dollars from Lampert in recent years.

In January, the Hoffman Estates, Ill.-based retailer agreed to sell its Craftsman tool brand to Stanley Black & Decker for $900 million. The Kenmore and DieHard brands remain up for sale, and Sears is exploring ways to "maximize the value" of its Sears Auto Centers and home services unit, the company noted in its most recent quarterly report.

Sears created a firestorm in March with its annual report, which included new language acknowledging "substantial doubt" about its future. CFO Jason Hollar later wrote a blog post on Sears' website to clarify the filing, saying Sears remains a "viable business that can meet its financial and other obligations for the foreseeable future."

bloruleshort.gif (618 bytes)

A Giant's Collapse - The long, hard, unprecedented fall of Sears
By Kim Bhasin & Lance Lambert
Daily Herald (Chicago)
May 10, 2017

In 1989, Sears Roebuck & Co. ruled America as its biggest retailer. It loomed over rivals from a perch high above Chicago, inside what was once the world's tallest building-one bearing the company's name.

The fall from that height may finally be nearing an end.

Over the course of almost three decades, the company now based in Hoffman Estates experienced what industry observers described as one of the most monumental collapses in business history. Despite its union with Kmart -- the second-largest retailer from that era -- and a stated belief that it can still turn things around, Sears is teetering on the edge of disaster.

The latest bad news was revealed in March, when Sears acknowledged "substantial doubt" about its future, sending the stock plummeting, its worst decline in more than two years. S&P Global Market Intelligence declared Sears the U.S. retailer most vulnerable to defaulting in the next year. A Fitch Ratings study of retail bankruptcies also listed it as a company with a high risk of failure.

The combined decline of Sears and Kmart, in terms of sales, is unprecedented, said Greg Portell, an analyst at A.T. Kearney. The seeds were planted by poor decision-making in the 1980s, during which time the company made a real estate play instead of focusing on selling. No senior executive over the next 28 years was able to put stops in place to prevent the slide.

"The management mistake that Sears made, in retrospect, was that they never got to a spot where they could stop the free fall," said Portell.

It has been a slow, painful fall for these once-dominant brands. Sears, in particular, was synonymous with suburban American consumerism. It dominated retail and changed the way people shopped through its revolutionary catalogue business-the Amazon.com of its era. Kmart accomplished a lot as well, rising to a spot right behind Sears by peppering the nation with its Super Center big box shops and luring droves of shoppers with the promise of deep discounts, including of course the Blue Light Special.

In 1994, Sears and Kmart raked in a combined $111.4 billion, compared with powerhouse discounter Wal-Mart Stores Inc.'s haul of $111.9 billion. All three retailers ranked in the top 15 in revenue, among companies in all industries, in 1995. Since then, they've gone in different directions. Sears and Kmart have watched their customer bases shrink amid a never-ending string of store closures. Wal-Mart's sales grew almost fourfold over the next decade, as the behemoth tripled its locations and embarked on mass international expansion. Sears and Kmart each chose to trudge along, with little change in strategy.

In 2002, Kmart filed for bankruptcy protection after years of weak sales and stiff competition from Wal-Mart. The chain and its 2,100 or so stores were in dire shape, gasping under a pile of debt while unable to get enough shoppers through the doors. At one point, Kmart's biggest food distributor stopped shipments after the retailer was unable to make payments. Kmart would emerge from bankruptcy under the control of hedge fund billionaire Eddie S. Lampert and his firm, ESL Investments.

Then came the merger, then the biggest tie-up in the annals of retail. Since then, Sears and Kmart have been slowly dismantled by Lampert. Implementing a culture of warring tribes, one in which divisions would battle it out for resources, little cash was funneled back into reviving physical stores. Chunks of the business were sold to keep the lights on. In January, the company sold the famous tool brand Craftsman to Stanley Black & Decker Inc. for about $900 million.

"He did nothing to maintain the stores-nothing to spiff them up and make them a nice place to go shopping," said Robin Lewis, a longtime industry analyst and chief executive of the Robin Report. "You've got young people today that don't even recognize Sears as a place where they would go. I think people will just forget about it."

Once, Sears was the disruptor-not the disrupted. When the Sears catalogue first appeared on doorsteps in the 1890s, it fundamentally changed how Americans shopped. Back then, much of the population lived in rural areas, and they bought almost everything from little shops at rural junctions. These general stores had limited selection and charged exorbitant prices. They were the only game in town.

"The Sears catalogue had an even bigger impact in 1900 than Amazon has had today," said Robert Gordon, a professor at Northwestern University and author of "The Rise and Fall of American Growth." Like today's e-commerce powerhouse, the Sears catalogue provided shoppers more choice than ever, and at lower prices. Sears freed shoppers from the tyranny of the local general merchant and improved their living standards. "The cost of living went down the minute Sears became available," said Gordon.

Searching for parallels of Sears's fall through business history, Gordon could find none.

"There is nothing like the decline of Sears and Kmart," he said.

Howard Riefs, a spokesman for Sears, said the company has made strides in combining physical stores with digital initiatives, such as allowing consumers to purchase online items they can later pick up in person. As for the risk disclosed in the March filing, Riefs said that while historical performance prompted that statement, Sears's financial plans and forecast "do not reflect the continuation of that performance."

Sears is focused on improving and has made "decisive actions" in recent months, he said. "Despite the risks outlined, we are confident in our financial position and remain focused on executing our transformation plan." The focus of that plan is "how we can make shopping easier," said Riefs. "We believe the key is to truly integrate the shopping channels. It's a combination of store and online and mobile. It's not just one thing anymore."

bloruleshort.gif (618 bytes)

Sears CEO: 'We're fighting like hell to change the way people do business with us'
By Lauren Zumbach
Chicago Tribune
May 10, 2017

After the sixth consecutive year of losses and several rounds of store closings, Sears Holdings Chairman and CEO Edward Lampert says he's still committed to reversing the department store chain's slide by turning Sears into a 21st-century merchant focused on catering to its best customers.

In an interview Tuesday, Lampert acknowledged Sears' struggles and admitted that the turnaround is taking longer than expected. But he also complained about media coverage speculating on a possible bankruptcy, saying it is undermining the company's efforts and has made it tougher for Sears and Kmart to work with suppliers.

Investors are leery too. In the past year, shares have fallen 23 percent and closed Tuesday at $10.52 a share.

Lampert, who rarely talks publicly about his plans to turn around Sears and Kmart, will have the chance to make his case with shareholders Wednesday at the company's annual meeting at its Hoffman Estates headquarters. The following interview has been edited for length and clarity.

Q: Sears has been talking about a turnaround for years now, and saying it hasn't done enough to adapt to changes in retailing since the 1990s. If it didn't happen then, before e-commerce, before so many mall-based retailers were struggling, how are you going to make it happen now?

A: Preparing the company for this day and age is something we've been working on for the last dozen years. The challenge for us internally as well as externally is to be able to demonstrate to the world that what we've built is something that can stand up against the best competition that's out there.

Q: There's going to be a point at which time isn't on your side any more, and a lot of people would say we're at that point. From the outside, it's hard to see evidence it's working. What are we missing?

A: I'm not sure it's a question of what's being missed. If you're looking to the left and things are happening to the right, you're missing things because you're not looking to the right, not because it's not happening. Costco came out last year with a new card and everyone was talking about it and writing about it. When we come out with our card, people only talk about closing stores. It is true that on the left, we're closing stores. We're not making money. On the right is where we're going. A lot of these things are happening and they're happening in plain sight.

The recession in 2008 to 2009, coupled with the changing behaviors, has changed the game not (just) for us but for everybody. We felt the impact earlier because we started in a weaker position, but we also moved earlier.

I feel like we're ahead of J.C. Penney, we're ahead of Macy's, we're ahead of Target, in some aspects of where the world is going. Some of them have greater financial resources than us or certain advantages in certain categories. Clearly we have our challenges. Every time people use the word bankruptcy, somebody who reads that doesn't get past that word. It makes it very unfair for us, and it's a very uneven playing field for us.

Q: Why not file for bankruptcy protection?

A: There are a lot of human costs to doing it. I don't know the details of each of the pension plans, but typically plans have some form of reservation or restricted benefits. We've honored all of our obligations to our retirees and pension beneficiaries. It's been very, very hard to afford.

The choice that I've made, the choice of the company and board to honor those obligations, it's something we took very seriously but it's come at a tremendous cost.

It doesn't help that you have to put $4.5 billion in a pension plan when you're trying to deal with an industry that's undergoing tremendous transformation and has a very large footprint you need to maintain and update as well.

Q: We've also not seen growth on the top line. At the annual meeting last year, you said the Shop Your Way membership rewards program had fallen short on execution. Are you seeing signs that's changing?

A: We've not only integrated the (Sears) credit card with Shop Your Way in a deeper way, we dramatically improved the value proposition on the credit card. (New partnerships with other companies that give members ways to earn and redeem rewards) have the opportunity and the promise to change your relationship with Sears and Kmart. You may shop Sears and Kmart 10 to 12 times a year. But if you're using your credit card every day, and we continue to build out other partnerships, that's where the company's going.

I could argue that this transition phase is taking a lot longer than it should and that may be a fair argument. If we were making a meaningful amount of money it would enable us to move much faster in our transformation. But we've made a lot of decisions we would rather not so we can make those pension payments, so we can make vendors more comfortable when they're questioning, 'Are you going to be able to pay or not pay,' and why are they questioning it? Because there are a lot of articles that are speculating, and there are elements of truth, but they're certainly designed to scare people.

Q: Are you having trouble getting the products you need, getting companies to do business at terms you can deal with?

A: What I would tell you is if you found out your next-door neighbor lost his job and had their house for sale and was falling on hard times, and they ask you to borrow $10, how many questions would you ask them about their ability to repay you? If they ask for $50,000, that would be very different. We've reduced risk by eliminating a lot of our pension liability, reducing the size of our bank facility, we reduced the risk by closing stores and reducing the size of the company.

We're fighting like hell to change the way people do business with us. And my view is, we're the customer. If you're a vendor, and want to do business with us, then you have to treat us like a customer, you don't treat us like a pariah.

I'll take an even playing field, I'll take an uneven playing field, but what I won't do is basically not even let us on the playing field or let the game be fixed by people exploiting a certain amount of uncertainty.

Q: Does Sears still have time?

A: We have as much time as our vendors and our lenders and our shareholders are willing to give us. It's up to us to basically demonstrate to people that we can drive results to get people behind us. We're trying to be proactive with our vendors, we're trying to be proactive with our members, with our employees, associates, etc., to explain that the reality is a lot better than the perception. The reality needs to be better than it is for us to really demonstrate to people that the transition is starting to take hold.

bloruleshort.gif (618 bytes)

How Sears CEO Lampert cashes in as stores cash out
By Buzinvestors
May 7, 2017

Sears CEO Lampert Eddie Lampert, the press-shy CEO, chairman and largest shareholder of Sears Holdings, may be all that's standing between the beleaguered department store chain and bankruptcy.

The conventional wisdom is that Lampert will suffer massive losses if Sears perishes, since he has pumped hundreds of millions from his personal fortune into the company. And while there's no question he has a lot at stake, a closer look suggests that the billionaire investor has shielded some of his investment from annihilation in the event of Sears' demise.

Through a series of transactions over the last several years, Lampert has extracted significant value from Sears and may secure additional assets if the company goes belly up, according to public filings and interviews.

Sears, which operates both the Sears and Kmart chains, is teetering, having failed to reinvent itself under Lampert's leadership in the digital age. After a recent $900 million sale of its Craftsman brand, store closures and other cost cuts, Sears warned late Tuesday that there's "substantial doubt" that it will survive.

Lampert owns about 48% of Sears stock, according to the company's annual report, including holdings through his hedge fund, ESL Investments. Besides his stock, Lampert holds about $381 million in unsecured notes issued to Sears. Those holdings could be obliterated in bankruptcy.

Sears Holdings focuses on connecting digital and physical shopping experiences such as the Shop Your Way ® platform that offers Sears and Kmart customers a social shopping experience as well as member-only rewards. The company has a market cap of $1.01 billion.

bloruleshort.gif (618 bytes)

Coming soon: The Walmart Dash button?
By Deena M. Amato-McCoy
Chain Store Age
May 5, 2017

Amazon's signature Dash button may be getting some competition from a rival very soon.

A patent filing by Walmart reveals that the retail giant could be developing an Internet of Things-based device that tracks how shoppers use products in their homes and then electronically reorders merchandise.

The retailer's proposed device relies on IoT tags, which could be comprised of Bluetooth, radio frequency identification (RFID), infrared, or near-field communications (NFC), among other technology options. Besides monitoring product usage, this smart tag would be programmed to automatically re-order merchandise, as well as track expiration dates and product recalls, according to the patent filing, called "Retail subscription in Internet of Things environment."

Walmart's approach is to put a "modern spin" on subscription services. "Previous generations enjoyed some subscription services, such as the daily receipt of fresh milk from a local farm by a mailman," the patent reported. "Modern subscription services include the use of computers and the Internet, where a consumer can order online a subscription of goods ranging from wine to razors to the book-of-the-month, which may be shipped from the factory to the consumer's home."

The technology would directly compete with Amazon's vast portfolio of Dash buttons. The Wi-Fi connected devices, which are dedicated to a specific brand, enable Prime members to stock up on merchandise from the brand simply by pushing the button. Product is automatically re-ordered from Amazon.com, and shipped free with Prime shipping. The online retailer currently features a fleet of more than 300 branded buttons, according to the online giant.

Unlike Amazon's trademark Dash button however, Walmart's smart device won't require shoppers to push a button to initiate their re-orders. Specifically, the retailer’s proposed device will "associate a tag with items, [be] a tracking device for collecting data on the tags associated with the items, and a management system that monitors changes in the use of items, including analyzing use patterns to determine when items should be replenished, replaced or upgraded."

Walmart filed the patent on October 19, 2016, but there are no details on when the device will be available.

This is also not Walmart's first patent filing. The retailer was recently granted a patent that would allow the chain to use drones to shuttle merchandise between departments and dedicated delivery locations within its stores.

bloruleshort.gif (618 bytes)

Look for remaining Sears and Kmart stores to get smaller
By Paula Gardner
MLive Michigan
May 4, 2017

Sears and Kmart shoppers soon may notice the chains' stores getting smaller - or sold.

Trimming store sizes is one strategy that Sears Holdings Corp., their parent company, is using as it seeks to cut $1.25 billion from annual structural costs. Another strategy is the sale of its owned properties, many of which are Sears stores.

At the same time, the real estate trust that took over 224 former Sears and Kmarts in 2015 is actively "recapturing" portions of 10 stores in Michigan that have been leased to either chain.

An additional Kmart in Michigan - located in Macomb County's St. Claire Shores - could face closure as Seritage Growth Properties diversifies its full U.S. portfolio, which is about 80 percent dependent on rental income from Sears Holdings.

Both moves to generate cash from real estate come as Sears Holdings continues a restructuring effort to combat "continued softness" in store traffic during the first quarter, following concerns raised in March over its continued viability.

"(W)e will ... continue to closely evaluate the longer-term viability of stores where a clear path to return to profitability is not in sight. We are determined to take all necessary actions to improve the performance of Sears Holdings and will leverage our lease optionality to reconfigure our stores and reduce capital obligations," said Edward Lampert, chairman and CEO, in a recent statement from Sears Holdings.

There are 18 Sears stores in Michigan and 28 Kmart stores. So far this year, Sears and Kmart have closed at least 150 stores across the U.S., along with 92 in-store pharmacies and 50 auto centers. That affected 10 Kmart stores and one Sears location in Michigan, with an additional Kmart in Livonia closing in early April.

Now - following first quarter results that showed an 11.9 percent year-over-year sales drop - Sears Holdings is looking at where stores may be too big for a single tenant, or which underperforming stores may be more suited to closing then sale.

"Our strategy is to use the real estate we occupy productively," said Howard Riefs, director of corporate communications at Sears Holdings, in an email.

"To this end, we aim to generate enough profit from our operations and, if we can't do that, derive profit by using the property in other ways. "

Seritage, meanwhile, is marketing Sears and Kmart stores that it owns. The REIT's agreement with Sears Holdings allows for a "recapture" of its stores leased to Sears or Kmart, in amounts ranging from 50 percent to the full store. Some stores are closed; others remain operational.

That's recapturing is how the Sears at Woodland Mall in Grand Rapids closed, with mall owner PREIT taking that store and two others in the U.S. back to release to new tenants. Von Maur department store replaced Sears.

Across the U.S., Sears already has been selling some of its most profitable locations. Outside of the properties that moved into Seritage, the chain typically owns its stores, many of which are anchor positions in the regional malls.

"It's like throwing them a lifeline to them to keep them from going out of business," said Phil Cody, broker at the Cody Co. in Milford.

Sears has selectively turned to leasing stores, notably when they close.

"Over the last seven years, we have executed leases in stores with other retailers such as Primark, Whole Foods, DICK's Sporting Goods, Nordstrom Rack, Forever 21, West Elm, ALDI and others," Riefs said.

Across the 10-property Seritage portfolio in Michigan, the annual rental income averages $7.5 million with an average rate of $4.07 per square foot.

According to the Seritage annual report released in March, At Home is a tenant in three of the buildings: Ypsilanti; along with pending store openings in Macomb Mall and Oakland Mall.

bloruleshort.gif (618 bytes)

Sears Holdings: Sales Decline Offsets Its Cost Cutting Initiatives
By Elephant Anayltics
Seeking Alpha
May 3, 2017

Sears Holdings provided some updates on April 21, mentioning that its comparable store sales continue to decline rapidly. Sears is also increasing its cost savings target, but even with those increased savings, its Adjusted EBITDA may end up no better than in 2016 if it can't slow down its comparable store sales decline from the -11.9% it is at so far in 2017.

I previously discussed my belief that Sears is intent on surviving a few more years and that it is capable of doing so. However, those calculations were based on Sears holding its comparable store sales decline to the mid-to-high single digits. A consistently larger comparable store sales decline may force Sears to throw in the towel earlier since the continued cash burn would outweigh the potential benefits of staying in business to the value of Sears's remaining assets.

Comparable Store Sales Decline Offsets Cost Savings

Sears's comparable store sales continue to decline at an alarming rate, with an -11.9% comparable store sales decline in Q1 2017 so far, worse than my baseline scenario of -7% comps for 2017. This results in Sears estimating that its Q1 2017 Adjusted EBITDA will end up between negative $190 million and negative $230 million, lower than Q1 2016's negative $181 million Adjusted EBITDA. I think Q1 2017 comps might end up slightly better than -11.9% since April has been better for retailers with the tax refunds fully caught up. Sears is probably still looking at a double-digit comparable store sales decline for Q1 2017 though.

Sears is also increasing its annualized cost savings target from $1 billion to $1.25 billion. It is closing additional stores as well as Sears Auto Center locations and some Kmart pharmacy operations. It is important to note that the $1.25 billion in cost savings also comes with a revenue/gross margin hit that partially offsets the cost savings.

For example, I previously estimated that Sears would close 225 stores during 2017, resulting in a bit over $500 million in cost savings, but only a $90 million improvement in annualized EBITDA. I think the $1.25 billion in cost savings might be closer to $700 million in terms of actual effect on EBITDA after factoring in the lost sales.

Despite those cost savings, Sears may not be any better off due to its comparable store sales decline. A -11.9% comparable store sales decline (over a full year) appears to end up offsetting most of Sears's cost savings initiatives and would put its run rate near the negative $808 million Adjusted EBITDA it had in 2016.

Sears did mention potential growth in Home Services, which would be a nice boost for it. However, I am sceptical that Sears can turn that around given the long-term decline in Home Services (from over 11 million service calls in 2010 to "nearly seven million" service calls in 2016).

Real Estate Update

Sears also mentioned that it had received bids totaling over $700 million for over 60 separate real estate properties so far, which appears to indicate a price of around $11 million to $12 million per store. I'd imagine that this is probably somewhere between the same to somewhat more than than the average value per owned store for Sears's remaining real estate portfolio. While there is the argument that Sears is potentially not putting its top remaining properties up for sale, there is also the high likelihood that purchasers would mostly be interested in Sears's A and B properties since there is tepid demand for C and D properties in general.

Sears can get a good amount for its best remaining A properties though, as shown by the reported $73.5 million price for its Westfield Montgomery location. This is a REMIC location that is 204,600 square feet in size, resulting in a high price of $359 per square foot. It is also probably the most valuable remaining Westfield location that Sears owns, as the Sears at Westfield UTC is owned by Seritage and the Sears location at Westfield Southcenter is around 15% smaller than the one at Westfield Montgomery.

The value for Sears's leased stores is probably much less on average than its owned stores. Certain stores such as Vornado's Manhattan Kmarts are quite valuable. However, most of Sears's leases are for Kmart stores in much less valuable locations than Manhattan. For example, Brixmor mentioned a few years ago that they paid around $2.5 million combined to buy back the leases from four Kmarts. These Kmarts were located in relatively affluent areas compared to the average Sears property as well (Brixmor mentioned that the 5-mile average household income for the area around three of the Kmarts was over $100,000 per year). For comparison, less than 15% of Seritage's properties have a 5-mile average household income of over $100,000 per year.

While the earlier February receipt of $105 million in gross proceeds for two leased stores and one owned store has been cited as evidence that Sears's leased stores have significant value, there has been no detail provided about how that breaks down. As a result, it cannot be ruled out that the owned store represents most of the $105 million.

For example, Pennsylvania Real Estate Investment Trust mentioned that it recaptured the Woodland Mall, Capital City Mall and Magnolia Mall locations from Sears. I am uncertain whether those are the stores involved in the February transaction that Sears announced, but the owned location would be worth most of the transaction value if that was the case. The Woodland Mall location was owned by Sears (the other two were leased by Sears), and that location is around 63% larger than the other two stores combined, and that mall also has significantly higher sales per square foot.

Challenges To Maximizing Real Estate Value

Although getting new tenants into old Sears and Kmart locations may result in significant increases in rental income, redeveloping or re-tenanting those properties also costs a large amount of money. For example, Seritage is spending around $140 per square foot to redevelop properties for new tenants. Seritage made $187 million in Adjusted EBITDA in 2016, while it has around 37 million square feet in wholly owned properties. At the $140 per square foot rate, it would cost Seritage a total of $5.2 billion to redevelop and re-tenant all its wholly owned properties, or around 28x its 2016 Adjusted EBITDA.

If Sears wants to maximize its real estate value, it needs to be able to survive for a number of years, until potential buyers (such as the REIT that owns the associated mall) have both the interest in and the available capital for redeveloping a location. Some REITs have already picked through Sears's locations to purchase the ones that they are most interested in redeveloping. Those REITs would probably purchase the remaining Sears locations in their malls if offered those locations at a discounted price. However, Sears would probably find it hard to get a better price for those remaining locations since the associated REIT may not be interested in committing the money to redevelop those non first-tier locations for many years.

Conclusion

Sears is struggling to keep its comparable store sales decline out of the double digits. This is a major threat to its plans to reduce its cash burn, as a double digit decline will offset most of the effect of its cost savings initiatives. Sears does appear intent on surviving a while longer though, with its sale of top remaining locations such as Westfield Montgomery as well as getting over $700 million in bids for other store locations. If it can't reduce its comparable store sales decline though, these proceeds will quickly get eaten up by the retail operations again.

The high cash needs of the retail operations are detrimental to Sears's attempts to maximize its real estate value since REITs have a limited redevelopment budget and Sears's second-tier locations are not high priority and thus won't fetch a strong price for Sears.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

bloruleshort.gif (618 bytes)

Eddie Lampert And Bruce Berkowitz, Meet Jeff Bezos
By Mark Gottlieb
Seeking Alpha
May 3, 2017

Eddie Lampert is the chairman and CEO at Sears Holdings) and ESL Investments while Bruce Berkowitz is the founder and chief investment officer of Fairholme Capital Management. Jeff Bezos is the visionary founder and CEO of Amazon. Unless Eddie Lampert finally has near-term plans to close the rest of the Sears Holdings stores and monetize them, I recommend that alternative exit strategies be considered.

Sears Holdings and Amazon both have issues. At Sears, the company is bleeding cash and its retail stores are becoming less and less relevant in the face of an online selling world and with so little being invested in merchandise and a store look that could help bring back its dwindling customer base. Sears currently has a market value of $1.1 billion. Amazon has been a smashing success, now with a market cap of $461 billion, 419 times the market value of Sears. Amazon has been smashing lots of retailers during its 23 years of existence.

How you might ask might Amazon benefit by acquiring Sears Holdings? Amazon excels in the digital forum, but faces limitations in terms of its physical footprint and it wants to grow in the brick and mortar world.

The acquisition of Sears Holdings would become Amazon's answer to omnichannel and the proven revenue synergy of consumers' ability to shop online and offline, the convenience of proximity for pick up and returns, and facilitation of even greater delivery speed. So just as Wal-Mart's 5,000 stores also serve the purpose of distribution centers, so would Amazon's 1,503 acquired Sears/Kmart stores. Amazon already has stores in a handful of big cities and on college campuses and it has plans to open up more. It could take on the supermarket industry by storm with its Amazon Fresh stores.

The real estate assets would be the primary reason for Amazon's interest in acquiring Sears Holdings. However, there are several other valuable assets and operations, which Amazon could enhance and grow. Robin Lewis of The Robin Report spoke about Amazon acquiring Sears Holdings here. Rob Howard, CEO of Grand Junction, also predicted Amazon will Buy Sears earlier this year.

Sears Holdings could also provide diversification to Amazon. Just as Google has gotten into self-driving cars and Jeff Bezos has personally diversified by acquiring The Washington Post, Amazon could play more in the retail world by acquiring Sears Holdings. The commercial real estate market may be changing with anchor stores closing and being replaced by a combination of discount retailers, entertainment complexes, grocery stores, fitness centers, and even doctor's offices. However, people still often go to and spend at the mall. Could the day come when instead of a Sears store, its location is transformed into a high-tech Amazon store that sells everything you'd expect from an Amazon (just about everything).

It could contain standalone Amazon brand stores or a single store with departments focusing on electronics and computers, Amazon fresh, books, home goods and tools, beauty and health, toys, kids and baby, clothing and shoes, jewelry, sports and outdoors, automotive and industrial, and even home services.

The standalone store could even compete with warehouse clubs with a wider variety of products. Amazon Prime members could get discounted pricing at Amazon stores. There could even be Amazon movie theatre multiplexes which could have previews of other movies coming and previews of Amazon's original shows they stream which can be viewed by Amazon Prime members.

Acquiring Sears Holdings would mean acquiring a treasure trove portfolio of locations throughout the USA not currently owned by Seritage Growth Properties which they could keep for their own use or lease to whoever they want to lease out to. They could close all the Sears Holdings locations (mostly Sears and K-Mart) and could even utilize a REIT structure for all the real estate like with the properties Seritage Growth Properties has acquired. If they are not ready to take the U.S.A. on by storm with a huge Amazon footprint at retail sites, they can work up to it.

The vast real estate holdings often include more than a single Sears store. Amazon has a reputation for successfully ramping up concepts they have researched and believe in quickly. They also would get Shop Your Way, a social shopping platform offering members rewards for shopping at Sears and Kmart as well as with other retail partners across categories important to them which they could blend in with Amazon.com.

Amazon has $20 billion in cash but they would need to convince Eddie Lampert and Bruce Berkowitz Fairholme Capital Management to sell their combined 85% stake in Sears Holdings and certainly at a price higher than the current market price of Sears Holdings. I believe a Sears Holdings exit strategy for Eddie and Bruce such as a sale to an Amazon would make sense to me.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

bloruleshort.gif (618 bytes)

Clothes May Help Amazon Kill Department Stores
By Daniel B. Kline
The Motley Fool
May 2, 2017

Amazon has quietly become a major player in the apparel/fashion industry.

In fact, in the United States the company has become the number two player in the category with $20.3 billion in clothing gross merchandise sales in 2016, and a 7.4% of the overall market, according to a Morgan Stanley study. Only Wal-Mart has a bigger piece of the pie, and Amazon's gains have come at the expense of Target and department stores including Macy's, Kohl's, J.C. Penney, and Sears, according to the Morgan Stanley research. All of those chains are struggling on some level or teetering on the edge of bankruptcy in the case of Sears.

Now, Amazon has major plans to increase its apparel sales. The company plans a massive hiring push in the space and has a number of new private-label brands. Perhaps most importantly it also has a new Alexa-enabled tool designed to help customers look their best.

How is Amazon attacking fashion?

As of the end of April Amazon had nearly 450 jobs with the word fashion in the title or prominently in the description posted on its careers page, eMarketer reported. Many of those openings are related to the seven private-label apparel brands it has introduced for Prime members, Goodthreads, Amazon Essentials, Paris Sunday, Mae, Ella Moon, Buttoned Down, and Lark & Ro.

The company has not promoted these brands much, but items from them are for sale on its website. They include basics and fast fashion for both men and women. In addition the Mae line offers women's underwear and bathing suits.

"Amazon will use private label selectively, which should both enhance the offering and induce traditional apparel vendors to sell to Amazon," KeyBanc Capital analyst Ed Yruma wrote in a research note. "...While apparel is one of Amazon's fastest-growing categories, more work must be done for the business to scale. We expect the challenges the company has faced in courting the fashion community to remain, but we think Amazon will continue to evolve its strategy."

Fashion won't be easy for Amazon as consumers in the space are selective, but the company should be able to help its cause with its new Alexa voice assistant-powered Echo Look. The company explained how the device will work in its Q1 earnings release.

Amazon introduced Echo Look, an entirely new category of device that combines everything you love about Alexa with a hands-free camera and built-in style assistant. Simply ask Echo Look to take a photo or short video so you can see your outfit from any angle, share your look with friends, or get a second opinion on what to wear using Style Check, which combines machine learning algorithms with advice from fashion specialists.

Echo Look costs $199.99 and is only being sold by invitation at first. It's going to be at least some time before a meaningful number of Prime members own one, but it's easy to see how the technology might be used to expand Amazon's fashion business.

Amazon makes it easy

Physical retailers have an advantage when it comes to clothing because consumers can try things on before buying. That's an edge Amazon could eventually erode or eliminate using technology. Look does not quite do that yet, but the device could evolve or the online retailer could find other ways to create virtual dressing rooms.

Where Amazon can beat most retailers is price and if it can establish its private brands as hip or at least as hip as what gets sold in department stores, it can eliminate the need to go to a department store. Wal-Mart, of course, may be cheaper than Amazon on some items, but in general that chain is not in competition with retailers like Macy's and Kohl's or even J.C. Penney and Sears.

Amazon has the potential to create brands that higher-end customers want. That's very bad news for struggling department stores that can't stand to lose any more business to the online giant. Amazon may not quickly figure out fashion, but it has gotten some of the way there. Its past history shows that when it targets a market, it usually figures out how to take a chunk of it and with apparel it's already well on its way.

Daniel Kline has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

bloruleshort.gif (618 bytes)

Sears Is Experiencing A Lot Of Pain
By Daniel Jones
Seeking Alpha
April 26, 2017

On April 21st, Sears Holdings announced that it had stepped up its cost-cutting program and gave an update on its progress so far. In response to the news, the firm's share price closed down 7% on April 24th, and that's on top of the 1.8% decline they saw the trading day leading up to that. Seeing as how I have covered some recent developments concerning the retailer, I figured it would make for a good idea for me to look over these and give my thoughts on what it all means for investors in the business moving forward.

Management's updates

Earlier this year, Sears announced that it would be cutting costs during 2017 by around $1 billion. This would be driven by a series of changes, such as supply chain optimization, changes in product mix, and shuttering bad-performing locations. So far, to-date (according to management), savings have already come in at $700 million on an annualized basis. This has been driven by (among other things), 150 store closings of non-profitable locations, the closure of 92 underperforming pharmacies located within certain Kmart stores, and the decision to shut down 50 Sears Auto Centers. Some members of management have been removed from the company and the firm said that they have also benefited from changes in their supply chain too.

If this is accurate, it's quite fascinating in such a short time. Surely, closing down non-profitable locations is a wise idea but the difference drawn there between non-profitable ones and the underperforming operations shuttered piques my interest. This is because I could guarantee that any money-losing company with many billions in sales can cut costs. All I need to do is let their sales fall by 80% or 90% of what I want their costs to drop by. Forgive my tongue-in-cheek, but the fear that this illustrates is whether management is closing things down that do still make money for the sake of reaching their cost-cutting targets.

Having said all that, and with the progress management has alleged, Sears said that they now intend to increase their cost-cutting target for the year, raising it from $1 billion to $1.25 billion. It will be interesting to dig into its financials and see exactly how this is happening but if management can cut costs by more than sales are declining by, then that's a positive. Moving on that train of thought, the company did also say that comparable store sales so far this year have fallen hard, dropping 11.9% on a combined basis. This goes to show not only Sears' poor business model but the pain the brick-and-mortar retail industry as a whole is contending with.

Even though sales have fallen hard year-over-year, net income for the quarter, before factoring in impairments or anything else that is irregular, should be between $185 million and $285 million. EBITDA, on the other hand, should still be negative, likely to the tune of between $190 million and $230 million. This compares to negative EBITDA of $181 million in the first quarter of 2016, which leads me to reiterate my concern that their cost-cutting might actually be driven more by sales decreases than anything. If so, it's nothing special.

The last piece of relevant data that I saw in their release was management's statement that they had achieved, so far, over $700 million worth of non-overlapping bids on over 60 different properties that they are looking to divest themselves of this year. It's hard to tell what the end result will be here, but my guess is that this number will grow over the next several months as management winds down what assets they've identified as problem areas and focus that cash on debt reduction.

What's the end game for Sears?

Generally when I write about a company, I refrain from saying, definitively, where I think it's heading. This is because I truly don't know. Instead, I take the stance of writing about a firm's merits or weaknesses, and then I state whether I own it, am considering buying it, or am staying away. In rare cases, however, I will make a call about the fate of a business and this is one of those instances. Based on everything I know about Sears, I do not have faith that it will survive for the long haul. While survival for the next 12 months is possible, I would be shocked if, absent a sale to Lampert and/or Fairholme, or some other major event, the company is still around in 24 months.

The retail space is already getting slammed, with recent estimates suggesting that up to 8,600 locations in this space could close this year alone. No company, over an extended period of time, has been devastated as much as Sears but the reason is more than just the industry; it has to do with poor management too. Tales of underinvestment and a Darwinian survival strategy adopted by upper management within the firm are likely true and, despite management's insistence that they are doing what they can for the firm (they seem to be trying now at least), their entire approach to running a retailer has been flawed from the start.

Takeaway

In the end, I don't know exactly how Sears will play out. In a prior article, I said that it's possible the firm could have attractive asset values that aren't priced into its books and this could provide upside for shareholders but the end result, with sales continuing to fall, will probably be more of an enrichment for its debtholders like Lampert and Fairholme.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

bloruleshort.gif (618 bytes)

Sears Holdings Just Offered More Proof That It's Doomed
By Adam Levine-Weinberg
The Motley Fool
April 25, 2017

Sales and profitability are still headed downhill at Sears Holdings, and the company is running out of assets to sell as it tries to stave off bankruptcy.

Bizarrely, Sears Holdings stock has more than doubled since early February despite mounting evidence that the company is stuck in a death spiral.

However, last Friday, Sears gave investors even more reasons to run for the hills. First, Sears revealed that sales have continued to plunge since the beginning of fiscal 2017. It also provided ugly earnings guidance for the first quarter. Furthermore, another top executive just bailed out. And to top things off, it looks as if Sears' real estate monetization efforts are losing steam.

Another terrible investor update

During 2016, Sears Holdings' comparable-store sales declined 7.4%. In theory, this performance should create easy comparisons for the company in 2017. But in the past few years, sales slumps at Sears have typically been followed by even deeper declines.

Sure enough, in Friday's update, Sears stated that comp sales have plunged 11.9% since the beginning of the year. As a result -- and despite the company's massive cost cuts -- first-quarter adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) will be negative $190 million at best, and perhaps as low as negative $230 million. Those figures compare with negative $181 million in the first quarter of 2016.

Of course, adjusted EBITDA excludes various costs. The fact that adjusted EBITDA remains deeply negative means that Sears has probably continued to hemorrhage cash this quarter.

Given the depth of Sears' woes, it's perhaps not surprising that CFO Jason Hollar recently stepped down after less than a year on the job. There's not much a CFO can do to stop the bleeding at Sears if the company's revenue continues to plummet.

More cost cuts coming

In light of Sears Holdings' plunging revenue, the company has increased its cost-cutting target for 2017. Sears now hopes to reduce costs by $1.25 billion on an annualized basis.

Some of these cost cuts come from common-sense moves such as closing money-losing stores and reducing overhead. However, some of Sears' cost cuts aren't likely to boost its profitability in the long run. For example, Sears is closing 92 underperforming pharmacies in its Kmart stores. Doing so might save money, but it will also further depress store traffic at those locations.

Sears is also closing or downsizing some stores on high-quality real estate that are then being "recaptured" by Sears Holdings spinoff Seritage Growth Properties. These stores are probably quite profitable, since they're in high-traffic locations. The lost profits will outweigh any cost savings from the store closures.

In effect, Sears Holdings is finally starting to pay the price for its 2015 deal to sell 266 stores to Seritage. While Sears received a cash windfall of $2.7 billion, Seritage now has the right to evict it from numerous high-profile locations in favor of higher-paying tenants.

The real estate strategy is running out of room

Sears Holdings' update on its real estate activities was perhaps the worst piece of news for investors. In the past few years, through the Seritage deal and various smaller transactions, Sears has raised billions of dollars by selling off real estate. However, it's starting to run out of valuable properties to sell.

As recently as February, Sears raised $105 million by selling three stores, for an average of $35 million per property. By contrast, the company said on Friday that it has bids totaling over $700 million for more than 60 properties it's marketing -- an average of $12 million or less per store.

Sears has fewer than 400 owned properties left, and it hopes to raise at least $1 billion from real estate sales this year. It may need to sell 20%-25% of its remaining real estate portfolio to reach that goal.

The end is gradually approaching

Sears Holdings' vast real estate portfolio has given the company plenty of breathing room to turn its business around. However, it has squandered the opportunity. Sears continues to burn cash at a rapid rate. Last year, free cash flow was negative-$1.5 billion.

Despite its troubles, Sears isn't likely to declare bankruptcy this year. In the first several weeks of 2017, Sears increased its liquidity by nearly $600 million, mainly through the sale of its still-popular Craftsman brand. Its planned real estate sales will give it even more breathing room.

However, Sears will find itself back in dire straits by this time next year, with fewer assets left to sell off. Within two or three years, the company could be forced to declare bankruptcy. By the time that happens, there may not be anything left at Sears worth saving.

Adam Levine-Weinberg has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

bloruleshort.gif (618 bytes)

Sears just lost its CFO for the second time in 6 months ahead of a looming financial deadline
By Hayley Peterson
Business Insider
April 22, 2017

Sears has lost its second chief financial officer in six months, just as it begins talks with lenders over a looming debt payment.

Sears CFO Jason Hollar has left the company to "pursue another career opportunity," the company said. Hollar was appointed to the role in October 2016 following the departure of Robert Schriesheim, the company's CFO since 2011.

Sears has named Rob Riecker to replace Hollar, effective immediately. Riecker was previously Sears' controller and head of capital markets activities.

Hollar is the fifth member of Sears’ senior executive team to leave the company in the last four months.

John Moore, formerly Sears’ head of retail services, left the company this month. Last month, the company lost former Kmart president and chief member officer Alasdair James.

Jeffrey Balagna, formerly Sears' executive vice president, and Joelle Maher, formerly Sears' president and chief member officer, left in December.

The turnover comes as the company struggles to cut costs and revive business following years of declines in customer traffic and sales. Sears has been selling off assets to stay afloat as it burns through cash.

It is facing a looming payment in July from the maturation of a $500 million loan facility, and said it is in talks to evaluate refinancing options for the loan, and will provide an update on the status of those efforts prior to the end of May.

The company also provided an update on planned cost savings, saying it would close 50 Sears Auto Center locations and 92 pharmacies at Kmart stores.

The company has already closed 150 Kmart and Sears stores this year, and more closures are on the way. The company has informed several Sears and Kmart stores that they will close by July.

Sears also said it's reviewing bids in excess of $700 million for more than 60 of its real estate properties. The company sold off its Craftsman brand in January to Stanley Black & Decker for about $900 million to be paid out over the next several years.

bloruleshort.gif (618 bytes)

Sears Holdings updates on restructuring progress
By Clark Schultz
Seeking Alpha
April 22, 2017

Sears Holdings discloses that it is evaluating bids for real estate totalling more than $700M.

Amid a cash crunch, the company also boosts its annualized cost savings program target to $1.25B from $1.00B.

The cost savings program includes the closure of 92 underperforming pharmacy operations in certain Kmart stores and 50 Sears Auto Center locations.

Sears reports that FQ1 same-store sales fell 11.9%. The retailer expects to report adjusted EBITDA of -$230M to -$190M.

Sears also has a new top number cruncher in place as it promotes Rob Riecker to the CFO position. Riecker was serving as the controller.

Shares of Sears are up 44% YTD.

bloruleshort.gif (618 bytes)

Sears Holdings Bankruptcy Filing Expected On July 10 Or Soon After
By Wyco Researcher
Seeking Alpha
April 19, 2017

An imminent bankruptcy filing by Sears Holdings Corp. is not likely. A bankruptcy filing on or just after July 10, however, is extremely likely. There are a number of legal issues that impact the filing date. Filing for Ch.11 may actually be beneficial for Eddie Lampert and his cronies.

July 7 - $500 Million Loans Due

There is a $500 million secured loan due July 7. These loans were made by entities associated with Lampert, and payment by Sears could be subject to a "clawback" under section 547 of the Bankruptcy Code if Sears files for bankruptcy within one year because Lampert is an insider. (For non-insiders, the look-back period is only 90 days.) Lampert would be forced to return the money to Sears' bankruptcy estate.

In order to avoid this clawback issue, Sears and Lampert would have to be very careful in drafting a new loan agreement that pays the maturing one and creates a new loan. For example, the maturing one had an upfront fee of 1% plus a 1% funding fee for an amount drawn. Even if the $500 million eventually is not subject to a clawback, any new fees could be. They need to make sure "that such transfer was... intended by the debtor and the creditor to or for whose benefit such transfer was made to be a contemporaneous exchange for new value given to the debtor."

If they pay the loan using funds from another lender, which is highly unlikely, there would be a very strong case for a clawback. An easy solution to this problem is not paying the loan and file for bankruptcy. (Of course, this is not the sole reason to file.)

July 7 - Second Year Anniversary of Asset Sale

The effective date for the $2.7 billion sale-lease back deal with Seritage Growth Properties was July 7, 2015. The possibility of fraudulent conveyance has been talked about frequently by investors and vendors. This is not a new issue.

Section 548 of the Bankruptcy Code covers this issue: "(a)(1)avoid any transfer … that was made or incurred on or within 2 years before the date of the filing of the petition, if the debtor voluntarily or involuntarily- (i) received less than a reasonably equivalent value in exchange for such transfer or obligation; and... (ii) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation; (ii)(iv) made such transfer to or for the benefit of an insider, or incurred such obligation to or for the benefit of an insider..."

July 8 is the first calendar date to avoid the fraudulent conveyance issue. Since July 8 is a Saturday, July 10 would be the first business day to file.

Approaching Fall and Christmas Shopping Season

Many vendors have been worried that SHLD would go bankrupt and that they would not receive full payment for the money due to them under bankruptcy. Some may have been willing to still deal with SHLD because they thought the bankruptcy risk was impacted by the two-year fraudulent conveyance issue, which would reduce the risk of a filing. As it gets closer to the 2-year anniversary, vendors may become much more reluctant to deal with Sears and, therefore, have fewer and fewer product brands on their shelves.

After a bankruptcy filing, purchases from vendors are post-petition trade claims. These have a higher priority standing than pre-petition trade claims. If SHLD files for Ch.11 and is able to keep from going into Ch.7, some vendors may be more willing to deal with Sears knowing that the new post-petition transactions have better chance of being paid in full.

The current modest short squeeze in SHLD reflects the ability to borrow stock and does not reflect an improvement in financial conditions. This stock price increase is not a proxy for actual positive changes in operations. One wonders if vendors are being deceived by the stock price improvement and are now more willing to deal with SHLD. I think that the recent insider buying was an attempt to pop the stock price and encourage vendors to continue to ship summer merchandise.

Other Timely Events

There is a modest interest payment due July 15, and $43 million in notes mature October 15.

July 10

I think the earliest date SHLD will file for bankruptcy will be July 10. The sooner they file, the better in order to get vendors to ship fall and Christmas merchandise to their stores. Otherwise, they could have fewer and fewer brands on their shelves. Depending on the DIP financing, vendors may be more likely to ship to Sears post-petition.

I do also not think that the two anniversary and the due date for a $500 million loan that was signed in April 2016 is just a coincidence. The loan maturity was timed for a potential bankruptcy filing if operations continued to weaken.

As SHLD burns cash, they are moving closer to Ch.7 liquidation…The faster they file for Ch.11 improves their chances of not being forced into liquidation.

Chapter 11 - A Possible Positive For Lampert

First Gain - Dilution Of New Equity For Other Stakeholders

Many companies file for bankruptcy to reduce their debt and deleverage. While it is fairly easy to completely cancel unsecured debt, it is not as easy to eliminate secured debt. Secured debt holders cannot be forced to accept equity under a reorganization plan - they have the right to demand an auction/sale of their collateral. Therefore, Lampert will have to be very creative to offer secured claim holders just enough recovery, but not too much, to get their approval for a plan.

At this point, it is pretty much up to Eddie Lampert if and when SHLD files for bankruptcy. Many investors assume that since he owns so much SHLD stock and debt that he would never want to file unless it is absolutely necessary. That line of thinking may be incorrect. There are actually many reasons why he would actually be better off after a new SHLD emerges from a Ch.11 bankruptcy. (Not a Ch.7)

Lampert and certain preferred fund managers, such as Bruce Berkowitz, may end up with a greater financial interest in a new SHLD after it exits Ch.11 bankruptcy because other current stakeholders are either wiped out or receive highly diluted new stock. It is important to consider Lampert's total amount of recovery and not just the recovery for each of his specific holding.

This is what I am expecting to happen under a Ch.11 reorganization plan: Equity and unsecured debt holders, in my opinion, will get no recovery. They will be cancelled and get nothing.

Some of bank loans get cash and full recovery. The $100 million pension secured claim will get cash. This cash and future working capital will come from a rights offering and a possible other new security offering, such as a privately-placed convertible preferred. Secured debt will get the equity in a new SHLD and some combination of rights, cash, new debt. The positive kicker here for Lampert is the new equity will be highly diluted. The positives of the dilution will flow to Lampert and his cronies, while the negatives of the dilution will flow from the rest of the secured debt holders…

Second Gain - Pension Liability Reduction

The pension liability could be greatly reduced in bankruptcy, but the actual pension assets would not be included in the bankruptcy estate that are distributed to various stakeholders. They have a $1.75 billion pension and post-retirement benefits liability on their balance sheet, and they have been forced to make large cash contributions to the plan (plan is legacy old employees) because projected benefit obligations are $5.165 billion and the plan's assets are only $3.567 billion. They made a $317 million cash payments towards benefits in 2016, and they are forecasting that they will need to make $312 million contribution in 2017 and $297 million in 2018.

Terminating a pension plan liability in Ch.11 is not the same as terminating a standard contract, which often is fairly easy to do in bankruptcy. The termination follows ERISA requirements. The most likely method that Lampert would try is to use the "distressed termination." SHLD would have to satisfy one of the following financial distress tests:

• The bankruptcy court has determined that the company will not be able to reorganize with the plan intact and approves the plan termination or;

• It has been demonstrated that the sponsor cannot continue in business unless the plan is terminated or;

• It has been demonstrated that the costs of providing pension coverage have become unreasonably burdensome solely as a result of a decline in the number of employees covered by the plan.

(Note: the fourth possible distress test is seeking liquidation in bankruptcy.)

The termination gets more complex because of an agreement in 2016 with Pension Benefit Guaranty Corporation - PBGC. PBGC has a secured $100 million lien on assets, which would be part of a higher priority claim class.

The attempt to terminate the pension plan gets even more complicated because the current U.S. Treasury Secretary Steven Mnuchin is on the three-member PBGC board that would make the decision. Mnuchin was on SHLD board and was Lampert's college roommate. He also still holds SHLD investments. While he has agreed to recluse himself, it does complicate the issue.

Even if the plan is not terminated, the pension liability, except the $100 million secured claim, would be treated as an unsecured claim and have lower priority than secured claims. This is potentially a huge savings for Lampert.

Third Gain - Terminate Leases

Under Ch.11, they will be able to terminate leases. With only profitable stores and greatly reduced leverage, a smaller business model may be successful.

Conclusion

July 10 is most likely the earliest date that SHLD would file for bankruptcy. They would no longer have to worry about fraudulent conveyance for the SRG deal. There are actually advantages for Lampert to have a filing, but that does not mean there are advantages for retail holders of SHLD stock and bonds.

I rate SHLD common stock a strong sale. I rate SHLD debt a strong sale for retail holders because I envision a potential Ch.11 reorganization plan that would be greatly disadvantageous for retail holders because of their inability to participate in certain capital raising schemes contained in a plan. A change from Ch.11 to Ch.7 may, however, make for a fairer distribution to retail debt holders.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a short position in SHLD over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

bloruleshort.gif (618 bytes)

This REIT Is Positioned to Profit From Sears Holdings' Slow Demise
By Adam Levine-Weinberg
The Motley Fool
April 18, 2017

Seritage Growth Properties would be happy for its largest tenant to go bankrupt -- just not too quickly.

Sears Holdings has been moving inexorably toward bankruptcy in recent years. Sears' management has touted some minor successes along the way, yet the company continues to bleed cash at a rapid rate. Meanwhile, its strategy of selling off assets to cover its losses is clearly unsustainable.

All of this would seem to be bad news for a landlord that leases more than 85% of its space to Sears Holdings. Yet Seritage Growth Properties is actually counting on Sears to continue downsizing and eventually disappear. As long as Sears can remain in business for a few more years, Seritage has very bright long-term prospects.

The Seritage strategy

Seritage Growth Properties is a real estate investment trust that Sears Holdings spun off in mid-2015 as part of its efforts to convert its real estate assets into cash. Seritage has interests in 266 properties. Most of these are owned outright, but 31 of the properties are owned by joint ventures.

Today, Sears and Kmart occupy the vast majority of Seritage's real estate. However, both sides want to change that over time.

Under the master lease between Sears Holdings and Seritage, Sears can pay a termination fee and get out of the leases for certain underperforming stores. Meanwhile, Seritage can gradually recapture space from Sears -- up to half of the square footage, for most properties -- allowing it to bring in more lucrative tenants.

This arrangement is mutually beneficial. Sears Holdings gets to keep operating at all of these stores while paying below-market rent. Meanwhile, Seritage has a temporary source of income while it works to redevelop its properties.

Good progress so far

Since late 2015, Seritage Growth Properties has made meaningful progress in redeveloping sites and reducing its dependence on Sears Holdings. As of the end of last year, Seritage had re-leased roughly 2 million square feet of space currently or formerly occupied by Sears Holdings. This represents about 5% of Seritage's total square footage.

The average base rent for properties that Seritage re-leased has surged from $4.20 per square foot to $18.62 per square foot. This highlights just how much Sears is underpaying relative to market value today.

Seritage has numerous additional projects in the pipeline as it works to replace Sears and Kmart with higher-paying tenants across its portfolio. This includes some high-profile properties in big, wealthy metro areas.

Based on the leases signed during 2016, Seritage increased its annual base rent from third parties (i.e., tenants other than Sears Holdings) from 24% to 36.1% of the company total. Because new tenants are paying dramatically higher rents, Seritage could probably replace all of the rent it currently gets from Sears Holdings by re-leasing just 20%-25% of its space.

A bumpy road with a big potential payoff

After a surge of investor enthusiasm in early 2016, shares of Seritage have tanked over the past year. Nearly 35% of its shares have been sold short as it has become something of a proxy for investors betting on Sears' demise.

Indeed, if Sears folds in the next year or two, Seritage could be in trouble. For now, Seritage still gets the vast majority of its revenue from Sears. Furthermore, it wouldn't be easy for Seritage to raise enough capital to redevelop its entire portfolio at once. (And of course, there would be a glut of available space if Sears goes bust, driving down rents.)

However, Sears still owns hundreds of real estate properties, and it continues to sell them off at a steady pace to generate cash. It also hopes to monetize some of its big brands and ancillary businesses, such as Kenmore, DieHard, Sears Auto Centers, and Sears Home Services. Thus, while Sears may not be a viable business in the long run, it will probably be able to stumble along for a few more years before being forced into bankruptcy.

The longer Sears can hold on, the better off Seritage will be. Five years from now, Seritage will probably have diversified its tenant mix enough that even an outright liquidation at Sears wouldn't cause it undue trouble. Between now and then, it just needs to keep making steady progress toward replacing Sears and Kmart with new tenants paying higher rents.

In the long run, Seritage is likely to redevelop its entire portfolio, capturing much higher rents in the process. This would dramatically increase its earnings power, driving big gains for patient investors.

Adam Levine-Weinberg has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

bloruleshort.gif (618 bytes)

Retail Stores Devastated, Suffer Massive Job Losses
By F. McGuire
NewsMaxFinance
April 18, 2017

American retailers are closing thousands of stores and going bankrupt at a rate not seen since the recession, with thousands of workers losing their jobs in a "slow-rolling crisis" that is reportedly devastating the U.S. economy.

"This is creating a slow-rolling crisis," Business Insider cited Mark Cohen, the director of retail studies at Columbia Business School, as saying. "The people that work in retail stores will lose their jobs, then spend less money in retail stores because they are no longer employed. That creates a cascade of economic challenges."

Since October, about 89,000 workers in general merchandise stores have lost their jobs, which is more than the number of people employed in the entire U.S. coal industry, the New York Times reported.

Cohen explained that both coal miners and retail workers don't have a skill set of abilities that is easily transferable to another line of work.

"The retail industry, which employs about one out of every 10 American workers, typically pays low wages but provides employment to people in every age bracket, as well as those who are low-skilled and need flexible scheduling options," Business Insider explained.

"So when these workers lose their jobs, they can have a hard time finding other employment," BI reported.

"The coal miners are out of luck," Cohen told BI. "Retail workers are in the same boat," he said.

"Brick-and-mortar closings will continue to expand throughout the year," Cohen said. "There is no reason why they would abate."

E-commerce players, led by the industry giant Amazon, have made it so easy and fast for people to shop online that traditional retailers, shackled by fading real estate and a culture of selling in stores, are struggling to compete. This shift has been building gradually for years. But economists, retail workers and real estate investors say it appears that it has sped up in recent months, the Times explained.

Between 2010 and 2014, e-commerce grew by an average of $30 billion annually. Over the past three years, average annual growth has increased to $40 billion.

"That is the tipping point, right there," said Barbara Denham, a senior economist at Reis, a real estate data and analytics firm. "It's like the Doppler effect. The change is coming at you so fast, it feels like it is accelerating."

"There is a sea change happening in the retail industry," Cohen, a former executive at Sears, who now runs the retail studies program at Columbia Business School, told the Times. "And that is bringing a sea change in employment."

To be sure, Steve Beaman, chairman the Society to Advance Financial Education, has told Newsmax TV that mass store closures and layoffs by Sears, Macy's and Kmart only prove that the retail industry continues to undergo a sea change because of online shopping.

And this seismic shift may soon extinguish a cultural landmark of the recent past - the American shopping mall.

JD Hayworth asked Beaman on Newsmax TV's "America Talks Live" if malls are a relic of a bygone era.

"My personal opinion is they are," he said. He cited many requiring adults to chaperone those under the ages of 21 or 18.

"So we're already going to see the demise of it being the hang out for kids and I think that will change the retailing habits of it. The overall security concerns of the bricks and mortar retailors is going to become a draining cost on them. So, they're going to think more and more let's go to the internet," he said.

From his viewpoint, Newsmax Finance Insider Jeff Snyder said the retail malaise just may be indicative of a deeper economic malady.

"When analyzing the shift in consumer preferences it is usually presented as 'all or nothing,' meaning that shoppers leaving brick-and-mortar stores are bestowed with a convenience option that they are exercising," Snyder wrote for Newsmax Finance.

Instead, the shift toward online may not be separable from the "weak demand environment" at all. In other words, if consumers have become fickle about bargains and finding the lowest price, that may be just as much macro-economic as micro-economic.

It may be that online retailers are best positioned in a downward economic transition because they can offer better prices without having the burden of the huge sales distribution costs that come with operating physical stores.

That seems to be the judgment of the world's producers as this "manufacturing recession" continues on and on.

bloruleshort.gif (618 bytes)

Should Sears and Kmart Become Online-Only Stores?
By Rich Duprey
The Motley Fool
April 17, 2017

Maybe it's time for Sears Holdings to consider the unthinkable. No, not seek bankruptcy protection, though that's likely in the cards if it doesn't do something soon, but rather follow some other retailers in becoming an online-only retailer.

With Payless filing for bankruptcy protection and closing stores, the number of retail bankruptcy filings so far in 2017 has already surpassed the total number of retailers that went under last year. In the news recently is a report that mall-based Bebe is trying to forestall a bankruptcy filing by becoming a hip e-commerce-only women's retailer, and that might be a way for Sears and Kmart to avoid what's increasingly looking like an eventuality for them.

Death looms large

The number of companies on a Moody's Investor Services list of distressed retailers is the highest it's been since the Great Recession, though with Payless succumbing, the number is now reduced by one to 18. Other stores on the list include Claire's, J. Crew, True Religion, and Sears Holdings.

The impact from e-commerce leaders like Amazon.com on one side and discount retailers such as T.J. Maxx on the other has caused rumors to circulate that even more financially sound retailers like Macy's may get bought out, while office supplies retailer Staples is reportedly considering having private equity firms take it out of the public spotlight. If they're seeing the future as too much to handle on their own, how can a financially distressed company like Sears Holdings hope to make it? It probably can't, and that's why the online-only option is intriguing.

Stripped down to its essentials

For one, although it's still rare for a retailer to scale back to being exclusively an online brand, these days it's becoming more fashionable. Just this past January, The Limited closed all 250 of its stores and moved its clothing sales online, while Kenneth Cole announced in November it was closing all but two stores as it moved its business online as well.

Before that, bankrupt Filene's Basement -- a discount retailer that closed down in 2011 but was apparently ahead of its time considering the success T.J. Maxx, Ross Stores, and other similarly situated discounters are having -- was revived in 2015 by Macy's as an online-only discounter.

Sears and Kmart aren't quite the same kind of retailers as these others, as they have a far more diverse product lineup consisting of not only apparel, but also appliances, consumer electronics, lawn and garden equipment, tools and hardware, automotive parts, household goods, toys, housewares, and sporting goods. Sears also has a number of services, including home repair and installation, and auto work.

If both Sears and Kmart went the online-only route, the transition wouldn't be easy, but it wouldn't be an insurmountable hurdle to get over, either.

Different, but the same

Apparel has been one of Sears Holdings' weakest segments, with sales falling 12% last year and serving as the leading cause of margin contraction at both Sears and Kmart. Incurring store expenses to support this failing line of business makes it a natural choice to move online, but it could also just as easily sell dishwashers, refrigerators, lawn mowers, and tools through its website -- and at lower cost. It would be a modern-day version of the Sears catalog, where once upon a time, you could even order a house.

While Sears' auto service centers couldn't be moved, neither would they have to be, and the rebranding Sears is contemplating under the DieHard banner is a smart decision that could make the stand-alone stores an even more cost-effective option.

Sears is already selling its stores to its Seritage Growth Properties real estate investment trust, which is converting the vacant spaces into smaller units for specialty retailers to occupy. Sears could continue shedding its real estate and transition its merchandise online.

Although Sears stock jumped after Chairman and CEO Eddie Lampert bought up even more company shares , there's been nothing to suggest a long-term move toward financial health. It may take time before Sears Holdings declares bankruptcy, but if it follows the lead of some of its equally troubled peers and moves both its Sears and Kmart brand online before doing so, the once-venerated retailer might still be able to survive for many more years to come.

Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon.

bloruleshort.gif (618 bytes)

Judicial Branch Key to Issues Impacting Retail
By Deborah White
Chain Store Age
April 14, 2017

In "Democracy in America," political theorist Alexis de Tocqueville wrote, "there is hardly a political question in the United States which does not sooner or later turn into a judicial one." Nearly 200 years later, this statement rings true - maybe now, more than ever.

The political landscape in 2017 remains uncertain but one aspect is clear: a fully functioning judiciary is vital to the health of our democracy. While all eyes may be on the executive and legislative branches of government - specifically during the first 100 days - our judicial branch holds the key to many decisions that impact virtually every economic sector. Retail especially.

As the nation's second largest private sector employer, the retail industry supports a workforce of over 42 million Americans in thousands of locations nationwide. The breadth of the industry is wide and so are the areas we touch. From commerce and trade to labor and innovation, retail plays a vital role in growing our nation’s economy.

As president of the Retail Litigation Center (RLC), I believe in the importance of educating the courts about the retail ecosystem. The RLC has filed briefs in its name alone, led retail and business coalition briefs, and lent the retail industry’s voice to the amicus briefs of other significant organizations. Collectively, these efforts now total 100 briefs filed.

In its 100th brief, the RLC supported Macy's petition for certiorari to the U.S. Supreme Court in Macy's v. NLRB. At issue is whether the National Labor Relations Board (NLRB) properly certified a unit of cosmetics employees in a single store as an appropriate bargaining unit after a majority of the same store's employees voted against the union's bid to organize the whole store. In an effort to educate the Court, we explained the importance of the longstanding presumption that the "whole store" is the appropriate bargaining unit in the retail context, as well as the harm that will be caused to retail employees, customers and retail companies if the NLRB's ruling is allowed to stand.

This is just one of the many examples of how court decisions impact the retail industry at large. As we focus on advocating for retail moving forward, it's important to look back on some of the more pressing cases facing America’s retailers:

• Kirtsaeng v. Wiley & Sons (U.S. Supreme Court). The RLC led amicus briefs both in support of certiorari and on the merits in this case that considered whether the "first sale doctrine" should apply to goods first sold overseas and then imported into the United States. Failure to hold that the doctrine applied could have subjected retailers to significant litigation for copyright infringement for the $2.3 trillion of goods that retailers import. The Court cited the RLC's brief in support of its decision.

• DMA v. Brohl (10th Circuit). The brief explained the significant disadvantages that "brick and mortar" retailers face under the U.S. Supreme Court's outdated Quill (1992) and Bellas Hess (1967) precedents that today give large online retailers a significant tax advantage over their local retail counterparts. Supreme Court Nominee Judge Gorsuch wrote a concurring opinion in the 10th Circuit's favorable decision in which he recognized the commercial advantage Quill and Bellas Hess give to online retailers but also noted that these particular precedents seemed designed to "wash away with the tides of time."

• Expressions v. Schneiderman (US Supreme Court). In a case challenging the validity of a state law that prohibits merchants from surcharging products for credit card fees, the RLC - joined by three trade associations - filed an amicus brief urging the Court to recognize that, regardless of the validity of the specific statute, merchant communication to consumers about credit card fees is "speech" subject to higher constitutional protection.

Although the Court did not reach the statute itself, Chief Justice Roberts, writing for a unanimous Court stated, "In regulating the communication of prices rather than prices themselves, [the statute] regulates speech." The decision, thus, sets a high bar for government restrictions on merchant communication to consumers about credit card fees and surcharging.

With a new year comes new legal challenges and opportunities. Retailers deserve representation across all three branches of government - legislative, executive and judicial. Our industry should continue to focus on educating the courts to help them understand the retail community and the issues of greatest importance to it.

bloruleshort.gif (618 bytes)

3 Reasons Target Is Not the Next Sears
By Bob Ciura
Yahoo Finance
April 14, 2017

Target is struggling to find its place in the retail landscape. It is a discount retailer, yet it has trouble competing with Walmart, particularly when it comes to groceries. It wants to be a leader in e-commerce, yet it lags far behind Amazon.com.

What is happening to Target may ring a bell.

Some investors may conclude that Target is following the same path as Sears Holdings took to irrelevancy.

Potential investors interested in Target are likely enticed by the company's high dividend yield, currently at 4.5%. Target is a Dividend Aristocrat, a group of companies in the Standard & Poor's 500 that have raised dividends for 25-plus years.

But dividends are reliant on the health of the underlying business. Sears was once a dividend payer, too.

Fortunately, Target and Sears are much more different than they are alike.

A willingness to adapt

Sears is in a death spiral. It lost $2.2 billion last year, roughly double the loss from 2015. With escalating losses, there are legitimate concerns about Sears' ability to remain an ongoing concern.

The company ended last year with $3.57 billion in long-term debt and another $1.75 billion in pension liabilities, compared with just $286 million in cash.

In response, the company is cutting costs and selling off assets wherever it can. It recently announced a new $1 billion cost-reduction program, including the closure of 150 stores.

And, in January Sears sold its crown jewel brand, Craftsman, to Stanley Black & Decker for $900 million.

These are the key components of Sears' turnaround efforts.

But with sales crumbling - comparable-store sales declined 10.3% during the holiday period - selling off assets and cutting costs is akin to tossing furniture overboard while a ship is sinking.

Sears finds itself in this position, largely because it effectively ignored the trends sweeping through the retail business over the past several years.

Specifically, Sears completely missed the push toward modernized stores, low prices and greater digital capabilities. All the while, Sears has become notorious for messy shelves, scattered product assortments and under-staffed stores.

Improving this required capital investment, which Sears CEO Eddie Lampert was notoriously reluctant to do. In the chairman's letter to shareholders, dated March 1, 2007 (the first year after the merger of Sears and Kmart) Lampert makes it clear:

"Unless we believe we will receive an adequate return on investment, we will not spend money on capital expenditures to build new stores or upgrade our existing base simply because our competitors do."

In 2006, Sears spent $816 million for share repurchases, 72% more than the $474 million used for capital reinvestment in the business.

Over the past decade, Sears woefully underinvested in its business. It has been in decline ever since.

While share repurchases help boost earnings per share, they are not very helpful if comparable sales are declining at a double-digit rate.

Meanwhile, Target stock crashed when it drastically reduced its own earnings guidance for fiscal 2017.

Target expects adjusted earnings per share to decline 16% to 24% for the fiscal year. But the major difference with Target is that the reason for the earnings decline is mostly due to the internal investment it is making.

It will be much more active on price to better compete with Walmart.

In addition, Target is accelerating investment in its e-commerce platform. It is making notable progress there. Target's digital channel sales doubled in the past three years.

Lastly, Target is renovating its stores to make them more appealing as a consumer experience. It is also building small-format stores under the CityTarget and TargetExpress banners to gain entry in urban areas and college campuses. Target plans to more than triple its small-store count by 2019.

While this investment carries a significant negative impact to fiscal 2017 earnings, these are necessary strategic moves to make Target more competitive.

They are the exact kinds of moves that Sears refused to make.

Target is run by retail people

While Target CEO Brian Cornell has only been at the helm since 2014, he has an extensive background in retail.

Cornell's recent job titles include acting as CEO of Sam's Club from 2009-2012, and CEO of PepsiCo Americas Foods from 2012-2014.

It is at least reassuring to know that the CEO has spent many years in the consumer products and retail industries.

By contrast, Sears Holdings is a company led by a hedge fund manager and is run like one.

In principle, there is nothing wrong with a hedge fund manager running a retail business, provided that individual has an intimate knowledge of the industry.

But the Wall Street mentality often succumbs to short-term thinking. Hedge funds too often place heavy focus on quarter-to-quarter performance.

The retailers that have succeeded in the past have done so by listening to what the consumer wants, knowing the retail business model inside and out and investing when necessary to respond to changes in consumer behavior.

Lampert exhibited little of this in his tenure as Sears CEO. For the most part, his focus was on the stock price while the rise of e-commerce and the erosion of the shopping mall were completely glossed over.

It should not be surprising to see that Lampert put so much focus on the share price. He owns just shy of 32 million shares of Sears, which makes him the company's largest shareholder.

However, the share price is a function of earnings. Focusing on the share price above all else, while neglecting to invest in the business, is letting the tail wag the dog.

At some point, the long term becomes the short term. Sears' inability to listen to what consumers wanted has caused it to lose billions of dollars of shareholder wealth.

Dividend track record

Sears does not pay a dividend, which given its operating losses and fundamental deterioration should come as no surprise.

Meanwhile, Target has increased its dividend for 45 years in a row. Not only is Target a Dividend Aristocrat, with five more annual dividend hikes, it will become a Dividend King.

Dividend Kings are stocks with 50-plus consecutive years of dividend increases. There are just 19 Dividend Kings.

Of course, a dividend track record is only as good as the business model supporting it. Dividends alone won't stop Target from becoming the next Sears.

But even when Sears was doing relatively well, its dividend track record was spotty at best. For example, while Sears had been paying regular quarterly dividends since 1993, it cut its dividend by 43% in 1995.

Then, Sears suspended its dividend payout in 2005, after the merger with Kmart and the creation of Sears Holdings. At the time, Sears stated in an SEC filing related to the merger that it did not expect to pay dividends "in the foreseeable future." This was a less-than-reassuring sign.

While there is nothing inherently wrong about a company not paying a dividend, from a financial perspective, a dividend does help keep a company's management team honest. Paying a dividend compels management to be more disciplined when it comes to allocating capital.

A dividend at least serves as an added protection against a company using excess cash flow on ill-fated acquisitions, or spending an excessive amount of money on share buybacks.

Sears is guilty of this on both counts.

Final thoughts

At first glance, there seem to be similarities between Sears' dramatic decline and the troubles currently facing Target. However, there are many key differences between the two in terms of corporate culture and capital allocation.

While Target is investing in re-imaging its stores and competing in digital, Sears is conducting a fire sale and cutting costs to buy itself more time. However, it increasingly appears as though Sears is simply delaying the inevitable.

There is no guarantee that Target's turnaround efforts will work, but it has demonstrated a willingness to adapt to a changing retail environment in ways that Sears never did.

For these reasons, Target is not the next Sears.

Disclosure: I am long Target and Walmart.

bloruleshort.gif (618 bytes)

JC Penney postponing store closures and liquidation sales
By Courtney Reagan
CNBC
April 13, 2017

Maybe it's the memories that are bringing shoppers out to the closing J.C. Penney stores.

No matter the reason, customers are showing up.

As a result, the retailer has postponed the liquidation sales and closure dates for the 138 stores it plans to shutter this year, the company told CNBC exclusively.

"Ever since the company announced its store closure list, those stores have seen better-than-expected sales and traffic," J.C. Penney spokeswoman Daphne Avila said.

"This is not an uncommon response when you announce a store closure. Local shoppers will come out for a variety of reasons — some out of nostalgia and some who are just looking for a great deal."

It's "prudent to continue selling through our spring and summer merchandise at the current promotional levels and begin our liquidation sale a month later than originally planned," Avila continued.

The liquidation will now begin May 22 instead of April 17 as originally scheduled. The new closure date of July 31 is about six weeks later than J.C. Penney originally planned.

Penney's said earlier this year that it would close 138 stores in a bid to cut costs and focus on its most profitable locations. The company expects the closures to save it some $200 million a year, which will help it whittle down the $4.3 billion it has in long-term debt.

J.C. Penney is far from the only retailer closing down stores. Macy's and Sears are also turning off the lights in shopping centers across the U.S. as they adjust to shoppers' changing tastes and the shift to online spending.

Still, Penney's CEO Marvin Ellison has remained adamant that physical stores matter. Not only do they offer shoppers a place to touch and feel items, but they serve as hubs for picking up, distributing and returning items.

"We believe the future winners in retail will be the companies that can create a frictionless interaction between stores and e-commerce," Ellison said in a statement announcing the company's closure plan in February.

—CNBC's Krystina Gustafson contributed to this report

bloruleshort.gif (618 bytes)

Will Retiree Benefits Survive Sears Liquidation?
By Ronald Olbrysh
Narse Chairman
April 12, 2017

Recently, Sears Holdings said what was becoming increasingly obvious to most investors, not to mention anyone who's been in Sears store lately: "Substantial doubt exists related to the company's ability to continue as a going concern."

Coming after seven straight years of huge losses, this announcement seems a milestone on a road that has only one likely outcome.

The sad truth is that it's highly probably that 2017 will be the last year Sears has before filing for bankruptcy protection. If not this year, then almost certainly 2018.

According to Mark Cohen, former chief executive of Sears Canada and a professor at Columbia Business School, where he's the director of retail sales, Chairman Lampert "Has stripped Sears of its assets. It's the longest liquidation in retail history. His reputation in the retail community is that he's a financial pirate."

So if the company goes under, what happens to Sears's retiree pensions and earned life insurance? The linked article below will provide you with the answers.

What Happens to Retirees' Pensions and Life Insurance if Sears Declares Bankruptcy?

bloruleshort.gif (618 bytes)

The Ups and Downs of the Sears Empire
By Sara Paretsky
The New York Times
April 12, 2017

Sears recently announced that it had "substantial doubt" about its ability to stay in business. The company has been declining for almost half a century, but that was still a jolt: I grew up in rural Kansas in the 1950s, and Sears was part of my life, as it was for most people in small towns.

Although the company had stores all over America, they were in the big cities and towns. We went only once to the Kansas City store, when I was about 6, when a neighbor drove us there to shop for bedding - my parents didn't learn to drive until some years later.

The size of the store terrified me - floor after floor with display shelves twice my height. Although every aisle showed something different, in their symmetry they all looked the same to me. I got lost and thought my parents would be so angry that they wouldn't bother to look for me. Fortunately my resourceful older brother tracked me down before I spent the rest of my childhood riding the elevators, bleating piteously.

The rest of the time, we shopped through the catalog. My mother bought all her appliances from Sears, along with the husky-size jeans my brothers and I needed. Twice a year, Mom carefully filled in the order forms for everything from children's underwear to Craftsman tools and Kenmore vacuum cleaners, enclosed a check and waited for delivery.

When she'd finished shopping, my brothers and I got to use the catalog to make paper dolls or soldiers. Special catalogs had fabric samples that I could use for bedspreads and carpets in my dollhouse.

My mother herself, during her Depression childhood, had cut out pictures of grand pianos and diamond tiaras and presented them as her wish list for presents.

Our Jewish family stood out like giraffes in our small Kansas town: stared at and commented on but rarely targets of hostility. We were even more rarely targets of reverence, but the local Kenmore repairman belonged to a Protestant sect that believed, with Calvin, that Jews were the first called by God. The repairman thought working for a Jewish family brought him close to holiness, and he would never charge my mother for fixing her Kenmore washer or dryer.

When I heard the news that Sears might be closing, that repairman was the first person I thought of. I'm sure, like my mother, he has been dead many years, but he exemplified what Sears meant in small towns across the country. Unlike Amazon and other contemporary retail behemoths, Sears had employees who were part of our communities.

Sears was the Amazon of its day. It sold everything: dishes, appliances, clothes, toys, groceries, motorcycles, car parts and even houses that you could construct bit by bit from the catalog. Having moved its headquarters from Minneapolis to Chicago, the company officially opened its 40-acre warehouse in 1906 to hold merchandise for national distribution. Retail stores would come later.

When I moved to Chicago in 1968, Sears was the world's largest retailer. It employed about 350,000 people; its insurance company subsidiary, Allstate, dominated the auto and homeowners market. It had long outgrown its million-square-foot warehouse and had regional distribution centers three or four times that size.

In 1970, with antiwar and civil rights protests roiling the country and the economy stagnant, Sears broke ground for a new headquarters building in downtown Chicago. It wanted three million square feet of office space and it wanted a monument to its historic market success - from small Minneapolis watch company in 1886 to retail giant in 1970.

I couldn't afford Sears when I first moved here - everything I bought came from Goodwill. Besides, I've never overcome my 6-year-old's anomie inside giant retail spaces. The fluorescent lights, the mind-numbing Muzak and the miles of aisles disorient me.

The store where I used to daydream was Marshall Field - another vanished icon - where I'd try on $2,000 frocks in the 28 Shop and imagine myself at opening night at the opera.

By the time the Sears Tower was topped in 1973, the company had already begun to decline. The marketing strategies of the past century didn't work against muscular young competitors like Walmart. Sears closed stores; it eliminated products; it sold off Allstate, its most profitable subsidiary; but it wasn't able to stop the bleeding.

A friend took a job at Dean Witter, the brokerage house Sears bought in an effort to stanch the flow. I'd visit her at Sears on our lunch breaks, where the smell of stale popcorn made the store seem dreary and old. It was a far cry from the company's prime, when you could visit the dentist or podiatrist while you were buying a house, a tombstone or a dining room set.

The London-based Willis insurance company took over naming rights for the tower when Sears's rights expired. The building is now officially Willis Tower, but for me and millions of other Chicagoans, it will always be the Sears Tower.

bloruleshort.gif (618 bytes)

Sears Holdings: Rumors Of Its Death Are Greatly Exaggerated
By Elephant Analytics
Seeking Alpha
April 12, 2017

Summary

Sears appears quite likely to survive until at least the second half of 2018. There is also a reasonable path for it to survive longer.

Pension plan situation has been helped by the improved return on assets.

Sears's merchandise payables are decreasing as a percentage of inventory, potentially indicating increasing supplier unease.

Continued survival has a detrimental effect on Sears's net asset value due to its large cash burn though.

Sears's chance of recovery remains low.

There has been renewed talk about Sears Holdings going bankrupt soon due to the going concern warning in its 10-K. However, Sears's plans to sell at least $1 billion in real estate during 2017 combined with its announced cost cutting measures indicate that it is intent on making it through the 2017 holiday season at the very least.

If things go reasonably well for Sears (such as mid-to-high single digits comparable store sales declines combined with continued cost cutting), there may even be a way for Sears to hang on for at least a couple years beyond that (to at least 2020).

I still don't see much value in Sears other than as a trading vehicle, though. Sears is like a critically ill patient on life support, with a quite low chance of recovering. Sears can be kept alive for a while, but the cost of doing so will likely continue to eat up its remaining assets.

Path For Continued Survival

There does appear to be a reasonable path for Sears to continue surviving for multiple years, albeit at the cost of further diminishing its net asset value.

If Sears closes around 200 to 250 stores per year between 2017 and 2019 (with store metrics similar to the announced 2017 store closures), and has comparable store sales declines of -7% per year, it may end up with around $13.1 billion in sales run rate in 2019. If Sears also cuts $450 million in annualized selling and administrative expense by 2019 (in addition to what was recently announced as part of its 2017 cost savings plan and in addition to the direct savings from closing 200 to 250 stores per year), then it could get its selling and administrative expense down to around $3.33 billion. This would put Sears at negative $421 million in adjusted EBITDA in 2019.

This scenario would leave Sears with estimated cumulative adjusted EBITDA of approximately negative $1.4 billion between Q3 2016 and Q3 2019. Pension plan contributions during that time period would require another $900 million (before applying the $250 million Craftsman payment), while capital expenditures may add another $300 million. After accounting for interest and store closing costs, Sears would have a $3.95 billion shortfall over those three years.

The 40% inventory reduction from all those store closures should net Sears $1.3 billion after allowing for a further decrease in its payables as a percentage of inventory.

In this scenario, Sears needs to raise $2.65 billion in additional funds (since Q3 2016) in order to make it to Q3 2019 (whereupon it should theoretically be able to survive until mid-2020 due to the holiday season drawdown of inventory).

The Craftsman sale will contribute at least $775 million towards this during the time period, while its announced $105 million in real estate proceeds plus another $1.0 billion in targeted real estate sales would bring this up to around $1.88 billion. That leaves Sears needing around another $770 million in asset sales or financing during this three-year period. Sears also has a number of debt maturities during this time period, although I'd assume that Lampert would provide the debt refinancing in those cases.

This situation appears reasonably achievable to me, although there remains a significant possibility that Sears can't even do -7% comps. As well, the asset sales may add additional costs such as rent expense for Sears that would push its cash needs upwards.

Merchandise Payables Decrease

Sears also needs to convince its suppliers that it will continue to be around for a while. One potential indication of increasing supplier unease is Sears's merchandise payables to merchandise inventories ratio. This has gone down from 32.8% at the end of 2014 to 30.4% at the end of 2015 and 26.5% at the end of 2016.

The decreasing percentage may indicate that suppliers are asking for shorter payment terms from Sears and that some suppliers are even requiring cash payment upfront.

I expect this percentage to continue declining, which will somewhat offset Sears's ability to use inventory reduction as a source of cash flow. For example, if Sears reduces its inventory by 25% due to continued store closures, it would theoretically reduce its cash requirements by $728 million if payables remained constant at 26.5% of inventory. However, if payables fell to 22% of inventory instead, then Sears would reduce its cash requirements by $595 million instead if it reduced total inventory by 25%. This is a difference of $133 million.

Improving Pension Plan Situation

A positive for Sears is that its pension plan situation appears to be improving, although it will still likely require significant company contributions.

Sears mentioned in its 10-K that it estimated that its domestic pension contribution would be $312 million in 2017 and approximately $297 million in 2018. For comparison, in its 2015 10-K, Sears estimated that its domestic pension contribution would be approximately $416 million in 2017. The $104 million reduction in estimated 2017 pension contributions has been largely the result of a strong 16.08% return on pension plan assets in 2016, which has helped reduce Sears's pension plan funding deficit to $1.598 billion. Sears's pension plan issue was previously exacerbated by its -7.35% return on pension plan assets in 2015 and its 1.49% return on pension plan assets in 2014.

In addition, Sears was able to get its $250 million Craftsman payment (due in 2020) applied to its 2017 to 2019 pension plan contribution requirements. As a result, Sears's estimated additional 2017 pension plan contributions are reduced to $229 million.

There has been some discussion about how an increase in the assumed pension plan discount rate would help Sears. However, at this point, there hasn't been that much movement in pension discount rates, although this remains something to monitor.

Notes On Shorting

At this point, while Sears remains viable for shorting on a short-term basis (such as momentum trading), it appears impractical to short it with the intent of holding a short position until a bankruptcy filing. I've mentioned in previous articles that it appeared quite likely that Sears could last until the second half of 2018 at least. If Sears is intent on surviving for multiple years by continuing to liquidate assets, bankruptcy could potentially be staved off until the next decade. With the cost of shorting currently at over 100% per year, one either needs to trade in and out of short positions, or hope for a 2017 bankruptcy, which I consider unlikely.

The Ownership Question

Lampert and Berkowitz increased their stake in Sears recently, but I don't think those moves mean a huge amount. Sears needs time to attempt to reduce its cash burn and/or liquidate its assets in an orderly fashion, and their investments have the benefit of reassuring investors and reducing the near-term bankruptcy talk. Without those purchases, there probably would have been questions about why there was no insider buying of Sears in the single digits.

Aside from that, the investments can potentially be viewed as a relatively low-cost roll of the dice that Sears can reduce its cash burn by a significant amount. The incremental cost of the additional shares to Fairholme, for example, is less than the amount Fairholme makes from interest on Sears's bonds. That may seem like a reasonable additional amount to risk on Sears to them.

Conclusion

Sears's 10-K filing increased the chatter about a 2017 bankruptcy, but I don't see that as likely. Sears does appear capable of surviving until the second half of 2018 at least, and possibly multiple years longer. The latter depends on more asset sales combined with Sears's comparable store sales decline being reasonably controlled (as opposed to the acceleration to double-digit declines seen in Q4 2016). Sears's continued survival makes profitable shorting dependent on correctly timing shorter-term trades. Attempting to short Sears for a longer period of time will likely result in profits being eaten up by borrowing costs.

I think that long positions are best used as trading positions as well. Even if Sears does have some asset value remaining, its continued cash burn is using that up. Sears's bondholders will get paid from Sears's continued survival, but that longer-term survival doesn't do much for the intrinsic value of Sears's equity. The only way that can change is if Sears can mostly halt its cash burn, which it has been incapable of doing for multiple years.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

bloruleshort.gif (618 bytes)

Amazon's stock price surges
By Chain Store Age
April 11, 2017

Amazon's upward trajectory is not going to stop anytime soon - and it's not going unnoticed on Wall Street.

In fact, one firm Needham & Co., is so bullish on Amazon's performance that it upgraded the company's stock to buy from hold, and initiated a price target of $1,100 per share - a move that pushed shares of Amazon to close over 1% at $907.04 per share on Monday, April 10, according to CNBC.

In the report, Needham analyst Kerry Rice wrote in a note to investors, "We believe Amazon's established dominance in U.S. is sustainable with Prime, mobile penetration and third-party growth. Further, Amazon Web Services will continue to be a 'key driver' for the e-commerce giant to grow its profits."

And momentum shows no sign of slowing. Rice anticipates Amazon will grow its U.S. market share by 16% within five years, making the company a majority player in retail, according to the report. Needham estimated Amazon's 2016 market share in the American retail sector to be 34 percent, based on gross merchandise volume.

Amazon can't and won't stop growing, according to one firm that upgraded the stock on Monday.

Rice upgraded the stock to buy from hold and initiated a price target of $1,100 per share. Shares of Amazon closed Monday up over 1 percent at $907.04 per share.

EBay, which Rice said is Amazon's closest competitor, has market share of 7.7 percent, followed by Wal-Mart with less than 5 percent. Jeff Bezos' behemoth of a company is seeing growth that far outpaces the overall e-commerce market, Needham said.

Amazon reached an all-time intraday high last Wednesday when the stock peaked at $923.72 per share. As of Monday's close, shares are up more than 50 percent over the past 12 months.

bloruleshort.gif (618 bytes)

Sears Holdings Could End Up In Ch.7 Bankruptcy
By Wyco Researcher
Seeking Alpha
April 6, 2017

Many investors have been expecting that Sears Holdings Corp. will eventually file for bankruptcy. Even if there is a restructuring support agreement negotiated prior to filing for Ch.11 bankruptcy, the case may be converted to Ch.7 bankruptcy with a trustee liquidating the company without Eddie Lampert's running the liquidation.

Going Concern Statement

There was a lot of confusion in the market when management included this statement in their 10-K report on page 48:

"Our historical operating results indicate substantial doubt exists related to the Company's ability to continue as a going concern. We believe that the actions discussed above are probable of occurring and mitigating the substantial doubt raised by our historical operating results and satisfying our estimated liquidity needs 12 months from the issuance of the financial statements. However, we cannot predict, with certainty, the outcome of our actions to generate liquidity, including the availability of additional debt financing, or whether such actions would generate the expected liquidity as currently planned."

The reason management included this statement was because of a new FASB accounting standard that became effective for annual filings after December 15, 2016 and not necessarily because of a drastic change in finances/operations. There is now stricter guidance on when a company must include this statement in their reports. Nevertheless, the statement still indicates that there are serious financial issues, but the sharp drop in the stock price also shows that too many investors do not pay attention to changes in accounting standards. This statement was expected.

The recent purchases of additional stock by insiders Eddie Lampert and Bruce Berkowitz, who collectively control about 80% of SHLD stock, may have been a public relations attempt to reduce the impact of the going concern statement. Their goal was successful because the stock price soared after the news was released.

Chapter 11 v Chapter 7 Bankruptcy

Under a Ch.11 bankruptcy filing, management is usually given an exclusive period to create a reorganization plan and disclosure statement. Often the exclusive period is extended multiple times before the plan is approved by creditors and confirmed by the bankruptcy judge. During this time period, the bankrupt company continues to operate. While assets could be sold under a plan, the company is not liquidated.

The plan could contain components that allow for lower priority classes to get some recovery even though a higher priority class gets less than full recovery. The disclosure statements contain a liquidation analysis that attempts to show that various stakeholders get greater recovery than under the proposed plan than under a liquidation.

Under a Ch.7 bankruptcy, an independent trustee - not management, liquidates the assets. The operations are wound-up over time. There is no reorganization plan or disclosure statement. There is no voting by the various classes of creditors. The absolute priority rule is followed in paying various creditors. Shareholders are last to get any recovery - if any.

Trustee

Under Ch.7, the trustee has many responsibilities including under section 704(a)(1) "collect and reduce to money the property of the estate for which such trustee serves, and close such estate as expeditiously as is compatible with the best interests of parties in interest."

The selection of a trustee is critical to the SHLD case. Creditors vote to select a trustee. Insiders, including Eddie Lampert and Bruce Berkowitz, cannot select the trustee. In fact, they cannot even vote on who is selected as per section 702(a)(3) "A creditor may vote for a candidate for trustee only if such creditor...is not an insider." If the creditors are unable to agree on a trustee, the interim trustee, who is appointed by the U.S. Trustee from a panel of private trustees, continues as trustee. It is still possible for Lampert to be involved in the case, if he becomes a member of the creditors committee, but he will not control the liquidation.

Conversion From Ch.11 to Ch.7

Assuming that SHLD initially files for Ch.11 bankruptcy even with a restructuring support agreement already negotiated, the case could still be converted to Ch.7.

Some party of interest may not be satisfied with what they would recover under a possible Ch.11 reorganization plan and decide to litigate. Usually recoveries under Ch.7 are easy to prove that they would be less than would be under a liquidation. This liquidation analysis is included in the disclosure statement that is associated with a Ch.11 reorganization plan. Therefore, it is rare for an interested party to even attempt to get the case changed. They have the right to request a change as per section 706(b)…

There is, however, a provision under the code…that would not allow the case not to be converted. This has caused some confusion because some assert that if a plan is most likely going to be confirmed under Ch.11 it cannot be converted. Many investors assume that Lampert has enough dollar amount of a claim class to get a plan approved because all you need is one impaired class to approve a plan.

Therefore, they are thinking that there would be no conversion to Ch.7. Others, who want the plan converted, will assert that it has to be proven that it "is not in the best interests of creditors and the estate" and not just that a plan can be confirmed within a reasonable time. They will contend that it is in the best interest of creditors to convert.

What would an "interested party" have to prove in a hearing to persuade the judge to change to Ch.7? There a number of different causes that they could attempt to prove, but most likely it would be, "substantial or continuing loss to or diminution of the estate and the absence of a reasonable likelihood of rehabilitation".

The interested party could point to the fact that they have been and continue to burn cash to support operations. They burned $1.4 billion in 2016, $2.2 billion in 2015, and $1.4 billion in 2014. With adjusted EBITDA of negative $808 million in 2016 and negative $836 million in 2015, operations are not generating enough revenue to cover costs and this will continue. It is not just a short-term business cycle problem. They could also assert that they have been in de facto liquidation for years selling stores, Craftmans, and other assets to generate cash to cover basic operations.

The key point, I assume the lawyers will assert is "the absence of a reasonable likelihood of rehabilitation." Sears and Kmart have been working for years to rehabilitate without success. It will be very difficult for SHLD lawyers, in my opinion, to win the argument that SHLD can actually rehabilitate.

Why would some creditors want to convert? Some creditors may feel that Lampert would create a reorganization plan that maximizes his recovery at the expense of other creditors. Some stakeholders may be worried because the court confirmed Peabody Energy's reorganization plan. Under that plan, those within the exact same bankruptcy class got different total recoveries because a component of their plan that raised capital was only open to a select group of hedge funds.

Many investors could see Lampert doing the exact same capital raising method that would be profitable for him and his cronies, but harmful to other creditors. In general, they would feel more comfortable and that their interest would be better served with an independent trustee liquidating SHLD instead of Lampert still trying to turn the company around burning cash that might otherwise flow to impaired creditors.

Chapter 7 Impact On Shareholders

Some shareholders feel that since Lampert and Berkowitz own about 80% of SHLD stock, that shareholders would not be completely wiped out under a Ch.11 bankruptcy plan. They are hoping for a negotiated plan that may not abide by absolute priority rules. Lampert, however, may try to maximize his total recovery that may actually include no recovery for shareholders. Under Ch.7, absolute priority is followed. There is no negotiated plan. Shareholders would get only what is left after all other creditors are paid in full, which is extremely unlikely.

Conclusion

Sears Holding has been slowly moving towards bankruptcy for years. Many investors assume that Eddie Lampert and his cronies will run the show during bankruptcy. That may be true under Ch.11, but there is a strong case that SHLD will end up in Ch.7 with an independent trustee in charge of liquidating the company.

The "going concern" warning was expected (or should have been expected) because of the effective date, December 15, 2016, for the new FASB standard was prior to the end of their fiscal year. The statement still shocked many investors. (Some may be expecting the same statement next year by the auditors.) It does indicate how dire their financial condition is.

SHLD is rated a strong sell. No recovery is expected if they do file for bankruptcy because I expect that the company will be liquidated under Ch.7 with no money left for shareholders.

DISCLOSURE: wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

bloruleshort.gif (618 bytes)

Strange, sad days at the Mall of America Sears
By Mike Mullen
City Pages in News
April 5, 2017

It's 4:30 p.m. on a Wednesday, and the home and garden section of the Sears store at the Mall of America is abandoned.

For minutes at a time, there is no human presence. No customers admiring an ancient Nordic Track (on sale for $399.99, down from $799.99), no salesmen trying to close a deal on patio furniture. Finally a goateed young man sipping a Mountain Dew enters through a door leading to the parking lot. He doesn't break stride while zipping past a sad little fountain on his way through the store, out into the mall proper.

Sears is still among the pillars of the MOA, a three-story department store with a corner location. There since the mall's opening weekend in 1992, Sears joins Macy's and Nordstrom as the shopping landmark's "anchor stores."

If this Sears is anchoring anything, it's a ghost ship. In the apparently self-service shoe section, piles of tried-on and rejected footwear linger next to shelves.

A young couple conspicuously inspecting a mattress goes unnoticed. The mattress is on closeout: Once $4,439.99, it was marked down to $1,264.40. Then that number was crossed out with a marker, and $1,130.40 hand-written underneath.

On the positively spooky third floor, one clearance shelf holds airbrush pens, mismatched plastic cups, and each of the following: a "one-second slicer," a ceramic Santa, kitchen "cleaning tonic," a dinner plate... and a receipt, for $5.99, left there by someone who'd bought two large fry orders from the food court Burger King. Ten days earlier.

There's something almost tragic about seeing a once-gleaming commercial landmark in a state of atrophy.

And here, of all places, at the American mecca of capitalism - not far from where Richard Sears, a railroad man based out of Redwood Falls, bought his first box of watches in 1886 and tried selling them off to his fellow station agents. Good luck to anyone trying to buy a watch at the Mall of America Sears; there's no one at the counter.

How did this happen? By design.

Back in 2005, Sears was merged with Kmart, its larger competitor, to create Sears Holdings Corporation. The new mega-conglomerate was headed by Eddie Lampert, a former Goldman Sachs whiz kid who, at 26, started his own firm. At ESL (Lampert's initials), the investor's cold, cynical approach made him few friends - and a few billion dollars. Lampert had famously been labeled "the next Warren Buffet," and was once declared the richest man in all of blue-blooded Connecticut.

Lampert's move to middle-brow retail was a curious one: a Wall Street recluse, trying to teach Sears how to beat Home Depot.

A dozen years later, it's clear Lampert saw just another investment he could wring dry.

Sears' decay was foreshadowed in a 2007 letter, when Lampert told investors the company wouldn't "upgrade our existing [stores] just because our competitors do." (Lampert once dismissed better lighting, which explains why every Kmart feels like a frog tank.)

From 2005 through 2009, Sears spent far less than competitors on its stores, about 1 percent of company earnings, less than a third of Target's 3.5 percent, and easily the lowest among 13 major American retailers.

Sears focused on what Lampert knows: stocks, spending an obscene $6 billion on buy-backs to goose the ticker price. Needless to say, this did little to make the Mall of America Sears any more inviting.

Or profitable. In an annual SEC filing made public last month, Sears Holdings disclosed there is "substantial doubt" about Sears "as a going concern." That's investor-speak for, "Looks like this ghost ship's finally going down."

In late March, days after that filing went public, Lampert bought even more Sears stock, and the company's second-biggest shareholder also boosted his investment. Combined, the two now have about three-quarters of Sears Holdings.

Do they have a secret plan to sell more Joe Boxer shirts?

Don't bet on it. Lampert is strip-mining Sears for available assets. The decent bits can be sold: In January, the Craftsman Tools brand went for $900 million.

The good stuff, Lampert can keep for himself. That means real estate. A spin-off trust called Seritage Growth Properties (controlling investor: one Eddie Lampert) bought 235 of Sears' best properties in 2015. That is, Lampert's company sold stores to Lampert's trust, which is leasing them back to the company.

He's also on both sides of recent debt deals. ESL has floated Sears more than $1 billion in secured loans. Lampert's investment fund is collecting interest (!) on that debt, and if (more like when) Sears goes bankrupt, he'll get his money back first - before, for example, Sears pays out the $2 billion worth of pensions it owes.

In other words, Lampert's doing what guys like him do. He bet big, and tried making money multiply without spending any. Before his bet lost, he hedged. Lampert will come out just fine.

We can't say the same for the 175,000 or so Sears Holdings employees, who should follow their bosses' lead: Stop stocking shelves, and start getting your finances in order.

Interested buyers can make an offer to buy or lease any of Sears' or Kmart’s 1,700-some stores through the Sears Holdings real estate website, which promises "a portfolio of retail locations second to none." Those include 30 store sites in Minnesota, including the three-story museum gathering dust at the Mall of America.

Someone should make an offer. They could at least do the decent thing and turn off the lights.

bloruleshort.gif (618 bytes)

How Much Damage Would a Sears Bankruptcy Cause?
By Diana Bell
National Retail Investor
April 4, 2017

With one line in its recent SEC report, Sears Holdings validated what everyone in the retail industry had been thinking for years. Sears' accountants acknowledged in the company's 10-K report for the fiscal year ending January 28, 2017 that “historical operating results indicate substantial doubt exists related to the company's ability to continue as a going concern."

"Everyone in the industry knows Sears is going bankrupt, everyone expects it. It’s getting to the point that they are eating their own flesh," says Howard Davidowitz, chairman of New York City-based retail consulting and investment banking firm Davidowitz & Associates Inc. He cites the fact that “Sears and Kmart are burning through at least $1.5 billion in cash per year. You can't burn through $1.5 billion per year and sell assets to cover it."

Sears Holdings reported in its 10-K that it used $1.4 billion in cash in its operations during 2016, $2.2 billion during 2015 and $1.4 billion during 2014. From 2015 through 2017, the company has extended its domestic credit facility multiple times and took on significant secured loans to replenish its operating capital. Most recently, it made an amendment to its domestic credit facility to increase it by $250 million.

Looking at the overall picture, the "going concern" comment means it is unlikely Sears will last through next year, according to Davidowitz.

"It’s a giant red flag that confirms what people have been thinking when they saw poor comparable store sales and the money Sears has been losing annually," says Neil Stern, senior partner at Chicago-based consulting firm McMillan Doolittle.

While forecasting when a bankruptcy could occur is tricky, this year’s holiday season will be "make or break" for Sears, Stern notes.

Recent cash infusions by CEO Eddie Lampert and Bruce Berkowitz, Sears' second largest stockholder, via stock buys are "window dressing," according to Davidowitz. Stern calls the moves a way to "prolong the inevitable."

"Historically, retail companies have been able to go into bankruptcy and come out of it leaner, more profitable and ready to do business. That's not the playbook for the past few years. Sports Authority ended up liquidating after bankruptcy, for example. If Sears enters into bankruptcy, I don't think it will come back out of it," Stern says.

Kmart's same-store sales dropped 5.3 percent year-over-year and the chain accrued a $530 million operating loss. Sears' same-store sales declined 9.3 percent and it recorded a $1.45 billion operating loss. Compounding the situation, Sears Holdings has $596.0 million in debt scheduled to come due in 2017. That figure will more than double, to $1.29 billion, in in 2018.

Meanwhile, about $2.8 billion of CMBS loans with exposure to Sears and Kmart mature through the end of 2017, increasing the risk of default, according to a recent report from Morningstar Credit Ratings.

There are 448 stores that Sears and Kmart either own or lease that are included in CMBS pools, translating to 600 loans with a total balance of $31.99 billion, according to Edward Dittmer and Steve Jellinik, vice presidents at Morningstar Credit Ratings. Both men contend that "the going concern language is a red flag for the industry that bankruptcy is possible."

It's unlikely further stores will go to Seritage Growth Properties, Dittmer and Jellinik say, as that would not do service to the Seritage shareholders to take stores that don't have value. "Seritage was created with the whole intent knowing at one point Sears would be going dark," Dittmer says.

As the trend of repurposing retail space continues, the sheer number of Sears and Kmart closures if a bankruptcy were to happen would give landlords plenty to do. In their work researching the effects of shuttered anchor stores on malls, Dittmer and Jellinik have seen firsthand what is going on with Sears space that shutters.

"We are seeing some spaces getting leased, but it is often not very lucrative for the mall. For instance, taking one floor of a big box and putting in a discount furniture store, we have seen that happen, but it is just a way to get some cash into the mall property. It is not necessarily a lucrative solution. We have also seen the space reconfigured for office space—call centers, medical space (direct primary care, outpatient clinic)," Dittmer and Jellinik say.

Office space is a workable solution thanks to usually ample parking space. In addition, in certain cases municipalities have bought the stores from Sears and turned them into charter schools or municipal offices. Community colleges have also picked up some of the properties. That solution works in cases where Sears owns the land the stores are built on. In the end, however, there is only so much new office space or medical facilities any given community needs, Dittmer and Jellinik note.

Another consideration is that there is a price tag on reconfiguring a large store and the cost of doing that has to pencil out for the owners. Jellinik anticipates that it will be the landlords of lower quality class-B and class-C malls that will have the most trouble coming up with the additional cash that may be needed to fill vacant Sears spaces.

"What happens with Sears will be a catastrophe for shopping centers," says Davidowitz. "What about specialty retailers that have been supporting these centers with their rent payments and have co-tenancy clauses giving them rights (e.g. reduced rentals in the absence of anchors)? The result is shopping centers are going to get killed."

He adds that even though mall owners will in many cases find another entity to fill the empty spaces, the in-line tenants at these properties signed deals to be located in fashion meccas, "not to be next to a Kroger, medical office, etc."

Since year-end 2015, Sears Holdings' portfolio of Sears stores has decreased by 10 percent, while its number of Kmart stores has decreased by 26 percent, according to Morningstar Credit Ratings. But how long can Sears Holdings keep afloat?

In February, Sears announced a $1 billion cost savings program to be completed through store closures, the simplifying of its organizational structure and streamlined operations. In the meantime, the company has continued in its efforts to make a profit from its real estate assets. In January, for example, CBL & Associates had closed on a sale-leaseback arrangement involving five Sears stores and two Sears auto centers located at its malls for $72.5 million.

In 2015, the company sold 31 properties through three joint ventures, one each with General Growth Properties, Simon Property Group and Macerich, in exchange for 50 percent interest in each joint venture, and rights for sale-leaseback through Seritage. The deals garnered aggregate gross proceeds of $2.7 billion.

As of January 28, Sears Holdings owned 67 Kmart stores and leased 668 Kmart stores. Sears Domestic owned 293 full-line stores and 20 specialty stores. Sears Domestic leased 377 full-line and five specialty stores.

bloruleshort.gif (618 bytes)

Kmart exec to head up Pier I
By Marianne Wilson
Chain Store Age
April 4, 2017

A former executive at Sears Holdings Corp. has been named president and CEO of Pier I Imports.

Alasdair James, 46, will take the reins of the home décor chain on May 1, 2017. He replaces Alex Smith, who was ousted from the company at the end of last year amid slumping sales.

James has served since 2014 as president of Kmart. Prior to that, he was at Tesco PLC, where he held several senior executive roles, including commercial director of the global business unit as well as executive VP and commercial director of Tesco China.

James spent his early career in international marketing and account management, first at PepsiCo and then at GlaxoSmithKline PLC.

"With more than 15 years of retail and consumer goods experience in the U.S., U.K. and China, Alasdair has the expertise and global operating skills necessary to drive long-term success for our brand." said Terry E. London, chairman, Pier 1 Imports. "He is a proven leader in the consumer space, broadly-skilled in sales, marketing, brand management and data analytics, with a track record of implementing consumer-facing initiatives to transform businesses in tough environments while driving operational improvement."

bloruleshort.gif (618 bytes)

Report upbeat about retail industry
By Marianne Wilson
Chain Store Age
April 3, 2017

A just-released analysis of the U.S. retail sector offers positive news for an industry that has been subject to some gloomy assessments in recent times.

Despite the rash of recent Chapter 11 filings and store closings, the U.S. retail sector as a whole remains incredibly strong and shows no signs of slowing down, according to a report by business intelligence firm Creditsafe USA.

“Our study reveals that while a number of the big retail players have experienced financial hardships, there is a huge portion of the retail sector that are performing very well," explained Matthew Debbage, CEO of Creditsafe USA and Asia.

The study, “The Creditsafe Guide: Demystering the US Retail Industry,” acknowledges that e-commerce giants such as Amazon and Walmart are giving the traditional department stores a run for their money.

“Interestingly, however, it is the small companies with either less than 100 employees or sales less than $10M that are experiencing rapid growth,” said Debbage. “They are truly thriving."

Other findings in The Creditsafe Guide: Demystifying the US Retail Industry" report include:

• Retail is the second largest industry in the United States in terms of the number of businesses it encompasses.

• Retail ranks third as far as the number of individuals employed, with nearly 10% of the country's workforce.

• There are 12% lower instances of bankruptcy in the retail sector compared to business in other industries.

"There is an apparent change happening within this sector, and companies that are embracing the change will become stronger,” added Debbage. “And, it's inherently clear things are still booming in the retail sector."

bloruleshort.gif (618 bytes)

How Sears Ruined Its CEO Eddie Lampert's Hedge Fund
By Lucinda Shen
Fortune
March 31, 2017

As if in sympathy with his dying retail giant, Sears CEO Eddie Lampert's hedge fund has sunk perfectly in line with Sears' own decline.

While shares of Sears fell nearly 55% in 2016 amid bankruptcy rumors, the assets in Lampert's 29-year-old fund ESL Investments have dwindled a matching 55% in the same period.

Sears, making up about a third of Lampert's portfolio, was a major contributor to the hedge fund's shrink, but investors have also abandoned the fund recently, taking their money with them. By the end of 2016, Lampert's fund held a mere $653 million--a sizable decline of 94% from the $16.5 billion it once managed at Sears' peak in 2007, according to securities filings.

Lampert's turnaround plan for Sears has so far not only failed to bring the struggling retailer back to health, but it has also been a personal disaster for the investor's net worth. Lampert's fund held $3.8 billion when he became CEO at the beginning of 2013, but those assets have dropped 84% since then, a Fortune analysis found--even greater than Sears' 74% drop in the same period.

Wilson's stake in Sears, along with Sears Canada, once worth billions of dollars, is now valued at just $285 million.

At least part of the reason Lampert's losses outpaced those of Sears' was due to the hedge funder significantly paring down stakes in his two other major holdings, and Gap . Neither or those stocks have done well since 2013, with Gap down 39% by the end of 2016, and AutoNation down 3.3%. The flagging performance has also prompted Lampert's shareholders to pull their money out of the fund, according to the New York Times.

This was not how Lampert, who has sworn his resolve to save Sears, envisioned how his investment would play out. Lampert had become a majority Sears stakeholder in 2004, and later helped engineer the company's merger with Kmart in early 2005. By the time the merger had been completed, Lampert's stake in Sears was worth $8.6 billion, amounting to a massive 72% of his portfolio. And that wasn’t the end of its glory days. By early 2007, those same shares had grown 29% in value to $11.1 billion--or 67% of his portfolio at the time.

But when the financial recession hit Sears, as it did with other retailers, Lampert's own fund suffered heavily. And now, the investor and CEO appears to be losing faith in the idea of ever making his money back: Sears acknowledged last week that "substantial doubt exists” in its “ability to continue as a going concern."

bloruleshort.gif (618 bytes)

For Now, Amazon Store Does Not Pass 'Go'
By Laura Stevens
The Wall Street Journal
March 28, 2017

Amazon.com Inc. is facing a setback in its efforts to modernize brick-and-mortar retail as technical glitches delay the opening of its first cashier less convenience store.

Amazon Go was due to open to the public by the end of this month, after launching in beta mode to employees in December, according to people familiar with the matter. It is unclear when it will now open, as the company works out kinks in the technology to automatically charge customers when they leave, instead of using cash registers, checkouts and lines.

Brick-and-mortar stores are important to Amazon's plan to capture more food sales, opening the door to a crucial driver of consumer spending and broadening the online retailer's influence. However, the delay with Amazon Go highlights new challenges the retail giant faces due to its limited experience in anticipating and managing the flow of customers and products in a physical space.

The Amazon Go store in the company's hometown of Seattle uses cameras, sensors and algorithms to watch customers and track what they pick up, according to the people familiar with the matter. But Amazon has run into problems tracking more than about 20 people in the store at one time, as well as the difficulty of keeping tabs on an item if it has been moved from its specific spot on the shelf, according to the people.

For now, the technology generally functions flawlessly only if there are fewer than about 20 customers present, or when their movements are slow, the people familiar with the matter said. After it opens, the store will still need employees for the near future to help ensure the technology is accurately tracking purchases.

An Amazon spokeswoman declined to comment. The company previously said the store would open to the public in "early 2017." Bloomberg earlier reported that the technology has been crashing in tests when the store gets too crowded.

Amazon has been exploring chains of book, convenience and grocery stores to challenge its rivals on all fronts. Amazon already opened five bookstores, with another five announced, according to its website. It also has about 30 mall pop-up stores, and two drive-up, grocery- pick-up store locations in Seattle are expected to open soon.

The food-sales plan would help Amazon better compete against rivals such as Wal-Mart Stores Inc., which is building out its own grocery pick- up strategy.

While the Amazon Go store is still working out kinks, the company is already envisioning future hires to work on expansion across multiple sites, according to several job postings for the concept on its website last week.

Amazon Go testing started at a mock-up store in a warehouse in the SoDo neighborhood in Seattle before the first store's beta opening on the ground floor of an Amazon building. Employees served as the guinea pigs for the technology, which relies on video streaming and computer vision algorithms to process images in real time, along with sensors, identifying customers and tracking them-and the items they grab-throughout the store.

The retailer has said that it uses technology similar to an autonomous car to make the process work.

Three months ago, Amazon announced its Go concept with a video showing customers scanning their phones on a kiosk as they walk in. After they leave the store, Amazon charges their account for the items and sends a receipt.

But if there are more than about 20 people in the store, the system can start to malfunction, making it increasingly difficult to track where people are and what they are picking up, the people familiar with the matter said. That is a hindrance to the public opening of Amazon Go, which the company expects will generate big crowds, one of these people said.

The project, part of a deeper effort to re-evaluate the future of brick-and-mortar retail, is being led by Steve Kessel, a senior vice president at Amazon.

Mr. Kessel, who reports directly to Chief Executive Jeff Bezos, previously helped create the Kindle e-readers.

On a recent weekday, about 10 Amazon employees at a time were seen by a reporter for The Wall Street Journal browsing in the store, scanning their phones at turnstiles as they entered, then picking out items before walking out.

Some people who have shopped there said that it feels odd to leave the store without stopping to pay.

bloruleshort.gif (618 bytes)

The Sears Holdings Corp CEO Edward S. Lampert Purchases 525,936 Shares
By Marc Bacque
March 28, 2017

In a move that bumped Sears Holdings stock by more than 10 percent Monday (March 27), Chairman and CEO Edward Lampert bought almost 526,000 shares the same week he revealed "substantial doubt" the company could keep its doors open. Earlier that week, Fairholme Capital Management bought up almost 614,000 shares.

According to a regulatory filing, Sears Holdings Corp. lost more than $2 billion previous year. In the last 90 days, insiders have purchased 1,800,536 shares of company stock valued at $14,992,800.

Separately, Susquehanna Bancshares Inc reissued a "sell" rating on shares of Sears Holdings Corp in a report on Saturday, March 11th. The firm earned $6.05 billion during the quarter, compared to analysts' expectations of $5.89 billion. The company's stock had a trading volume of 790,411 shares. The firm's revenue was down 17.1% compared to the same quarter past year.

A recent change in SEC filing rules requires companies to openly "assess and disclose potential risks the company could face within one year from the reported financial statements", Jason Hollar, Sears Holdings' chief financial officer wrote in a company blog post on March 21.

bloruleshort.gif (618 bytes)

Survey reveals retailers with best customer experience
By Marianne Wilson
Chain Store Age
March 27, 2017

Ace Hardware, BJ's Wholesale Club, and QVC deliver the best customer experience in the retail industry, according to the 2017 Temkin Experience Ratings, an annual customer experience ranking of companies based on a survey of 10,000 U.S. consumers.

Ace, BJ's, and QVC all tied for the top spot out of the 48 retailers included in this year's ratings, each earning a score of 81% and coming in 8th place overall out of 331 companies across 20 industries. Five other retailers received scores that put them in the top 10% of companies for the entire Ratings: Sam's Club, O'Reilly Auto Parts, True Value, Amazon.com, and Dollar Tree.

Overall, the retail industry averaged a 74% rating in the report, and came in 3rd place out of 20 industries. The average rating of the industry improved by five percentage-points between 2016 and 2017, going from 68.6% to 73.9%.

The ratings for all retailers increased between 2016 and 2017, expect for J.C. Penney, whose score decreased by one point and Dollar General, whose score stayed the same. Macy's and Old Navy improved the most, each gaining 12 points.

To generate these ratings, consumers were asked to evaluate their recent experiences with a company across three dimensions: success (can you do what you want to do?), effort (how easy is it to work with the company?), and emotion (how do you feel about the interactions?). Temkin Group then averaged these three scores to produce each company's rating.

In the ratings, a score of 70% or above is considered "good," and a score of 80% or above is considered "excellent," while a score below 60% is considered "poor."

The ratings of all retailers in the 2017 Temkin Experience Ratings are as follows:

• Ace Hardware: 81%
• BJ's Wholesale Club: 81%
• QVC: 81%
• Sam's Club: 80%
• O'Reilly Auto Parts: 79%
• True Value: 79%
• Amazon.com: 78%
• Dollar Tree: 78%
• Barnes & Noble: 77%
• Advance Auto Parts: 76%
• AutoZone: 76%
• Home Depot: 76%
• Lowe's: 76%
• Michael's: 76%
• Ross: 76%
• Bed Bath & Beyond: 75%
• PetSmart: 75%
• Walgreens: 75%
• Dollar General: 74%
• Etsy: 74%
• Family Dollar: 74%
• GameStop: 74%
• Macy's: 74%
• 7-Eleven: 73%
• Apple Retail Store: 73%
• Costco: 73%
• Kohl's: 73%
• Marshalls: 73%
• Nordstrom: 73%
• Rite Aid: 73%
• Staples: 73%
• CVS: 72%
• eBay: 72%
• Old Navy: 72%
• T.J. Maxx: 72%
• Target: 72%
• Dick's Sporting Goods: 71%
• Toys 'R' Us: 71%
• Wal-Mart: 71%
• Best Buy: 70%
• JCPenney: 70%
• Office Depot: 69%
• Office Max: 69%
• Sears: 67%
• Gap: 66%
• Kmart: 66%
• Foot Locker: 64%
• RadioShack: 64%

bloruleshort.gif (618 bytes)

Here's Why the Best Is Yet to Come for J.C. Penney
By Rich Duprey
The Motley Fool
March 26, 2017

There's something to be said for being the last man (or store) standing.

The financial resurrection of J.C. Penney has been nothing short of remarkable. As sales went into free fall in 2012, the retailer's demise seemed imminent, but with the departure of CEO Ron Johnson, the company managed to survive.

And though it may not be thriving, the department store chain is certainly much better off today than just a few years ago. However, 2017 is looking to be another difficult year for retail. But as they say, what doesn't kill you makes you stronger, and that could be especially applicable to J.C. Penney.

Malls are becoming ghost towns

Like ailing rivals Macy's and Sears Holdings, which has accelerated its collapse with numerous self-inflicted wounds, J.C. Penney faces major retail headwinds. On one hand, off-price retailers are siphoning customers away, and on the other, e-commerce continues to grab market share.

Many retailers have realized that traditional malls will not be seeing a rebound, thus beginning the process of closing down stores. Macy's, for example, closed 66 locations last year and plans to close 34 more in the future. It currently has 700 stores in operation, down from 840 just five years ago.

Sears is an even worse position and reduced its store count by 242 last year, bringing the total to 1,430 locations -- five years ago, it had over 4,000 stores. Other retailers such as Wal-Mart and Target have either announced store closings or are reducing their square footage by investing in smaller formats.

Although J.C. Penney resisted calls to follow suit with its own closures, even management realized there were no other options. Last month, the company announced it would close almost 140 stores, or about 14% of its base, by June, giving it about 900 remaining locations.

A retail apocalypse

Consumers just aren't shopping at malls the way they used to. According to data compiled by the industry watchers at ShopperTrak, retail store foot traffic has plunged 57% between 2010 and 2015, and real estate research firm CoStar says annual department store retail sales have tumbled 28% since their peak in 1999. It estimates nearly one billion square feet of retail space will need to be "rationalized" over the next few years.

The decline in shopper traffic can be seen in just how many mall-based retailers are downsizing or have declared bankruptcy in the past year alone. The Limited went under this past January, while Aeropostale, American Apparel, Pacific Sunwear, and others failed last year.

According to the The Deal, "The number of large-liability retail Chapter 11 filings (at least $250 million in liabilities) nearly doubled in 2016 and that trend shows no signs of slowing down." Indeed, Moody's has warned that some 19 retailers are at risk of defaulting on their loans, including Sears, True Religion, Nine West, Gymobree, and more. Fashion retailer Bebe just announced it was closing all 170 of its stores, transitioning to an online-only model as a means of staving off bankruptcy.

Giving customers what they want

This is why J.C. Penney's pain might not stop with the store closures it recently announced. The retailer is scrambling to adapt to how consumers now shop and look for products. For example, it found that one of the top things people searched for on its website was appliances, so it is adding them to more of its stores.

The company also announced that it is expanding home services offerings for homeowners looking to remodel and upgrade their homes. It will partner with companies like Trane and Samsung as a middleman for homeowners seeking out heating and cooling systems, bathroom remodeling, whole home water solutions, smart home devices, and more. It used to provide such services to customers, and reentering the market lets it further diversify away from apparel.

And as a smaller retailer focused on the home, it has the potential to come out on top if companies like Sears do go under. The old-line retailer is still a force in the appliance business, for instance, even though it has lost significant ground to competitors. But J.C. Penney could pick up those customers if Sears goes bankrupt as many suspect will happen soon.

J.C. Penney has also shored up its balance sheet, but after a less-than-stellar Christmas shopping season, the business is not where management wants it to be. Still, with the future looking bleak for many of its financially weaker rivals, J.C. Penney may turn out to be one of the last major department stores standing. If that proves to be the case, investors can expect better times ahead.

Rich Duprey has no position in any stocks mentioned.

bloruleshort.gif (618 bytes)

Sears And Macy's Need New Thinking - And One Of Them Is Getting It
By Bryce Hoffman
Forbes
March 26, 2017

It was a busy week for those who follow the retail sector: Sears warned it may not be long for this world, while the CEO of Macy's - which also is struggling - offered a new vision for his company's future.

Both of these developments speak to the increasingly insecure position traditional department store chains, or at least the few that remain, now find themselves in. More consumers are making more of their purchases online. Those that aren't are increasingly making theirs at discount stores or higher-end chains and boutiques, a symptom of the great divide that is splitting America in two.

Sears, once the most middle of middle-class retailers, finds itself lost in this new world order and seems to have no strategy to cope with it beyond selling off its brands.

Macy's strategy has been one of constant sales, but those full-page ads and red tags have become ubiquitous and stopped raising eyebrows a long time ago.

The last time I went into Macy's, the item I wanted to purchase was not on sale, but the sale tag was stuffed haphazardly behind the regular one in the tag holder. I pulled it out, saw that the duvet in question would be $150 cheaper in two days, and headed for the nearest Pottery Barn.

Neither of these strategies (and I'm being generous in calling them that) has worked. So it's clearly time to try something different. Common sense dictates that.

So does red teaming.

Red teaming is a system developed by the military and intelligence agencies to help organizations stress-test their strategies by breaking them down into the assumptions they are based on, then challenging those assumptions.

bloruleshort.gif (618 bytes)

Wal-Mart Buying Spree Irks Some Hipsters
By Sarah Nassauer
The Wall Street Journal
March 25, 2017

Wal-Mart has been buying niche online retailers, such as ModCloth, above, in an effort to better compete with Amazon.



Wal-Mart Stores Inc. is rapidly buying up small, hip online retailers that appeal to wealthier shoppers in hopes of finally taking on Amazon.com Inc., but is alienating some customers who favor the brands' independence.

Last week, Wal-Mart acquired hipster clothing website ModCloth. In February, it bought outdoor specialty retailer Moosejaw, and the month before, online shoe seller ShoeBuy.

The small deals give Wal-Mart access to new groups of shoppers and brands that have shied away from the retail giant, which has struggled with mostly sluggish online sales growth the past two years.

Wal-Mart plans to let the retailers run as separate entities, the first time it has attempted to build new e-commerce brands in the U.S. However, some of the deals shed light on the extent of Wal-Mart's wider image challenges and the balancing act faced by small e-commerce startups looking for a payday.

After news of the ModCloth deal surfaced this month, shoppers took to Facebook and Twitter to critique Wal-Mart's image as out of line with Mod-Cloth's feminist, socially liberal and plus-size inclusive branding.

"Wal-Mart has such a terrible track record. They are so adamantly antiunion," said Aimee Ledwell, a 41-year-old teacher who lives in Maynard, Mass., and owns about 15 dresses purchased on the site. After news of the deal, she said she erased the ModCloth app from her phone.

"Wal-Mart today is very different than some of the perceptions people still hold," said a company spokesman. "All the things that made customers love these brands in the first place are not going away. They'll only get stronger," he said.

The buying spree started after Wal-Mart bought Jet.com Inc. six months ago for $3.3 billion, installing the site's founder, Marc Lore, at the head of its U.S. online operations.

"Assortment is driving a lot of these acquisitions," Wal-Mart Chief Executive Doug McMillon told investors this month. "There are some suppliers that don't want to sell on Wal-Mart." The company also wants the talent and product expertise the new employees provide, executives say.

Moosejaw, known for its irreverent marketing and loyal Michigan following, gives Wal-Mart access to outdoor brands like Patagonia, Arc'teryx and North Face, even if they aren't sold through Wal-Mart directly. Its chief executive, Eoin Comerford, will take charge of the outdoor category on all Wal-Mart websites.

ModCloth, Moosejaw and ShoeBuy are part of a growing group of online retailers confronting the challenge of competing with the fast shipping and large assortment of Amazon or increasingly savvy suppliers selling directly to shoppers.

ModCloth's traffic and revenue has been weak in recent years, said people familiar with the financial statements. It had a large debt payment coming due, said one of these people. Wal-Mart bought the company for less than the roughly $75 million ModCloth raised in venture capital, plus its debt, said this person.

Earlier this month the San Francisco-based firm's cofounders, Eric Koger and Susan Gregg Koger, sent a small group of people who hold employee stock an email titled "The death of ModCloth's common stock." Employees and the co-founders won't make any money from the sale, Mr. Kroger wrote in the email, which was reviewed by The Wall Street Journal. "It just is what it f-ing is."

The couple didn't respond to requests for comment.

The purchase price is "along the same lines" as other recent Wal-Mart acquisitions, a company spokesman said. Wal-Mart said it paid $51 million for Moosejaw and around $70 million for Shoe-Buy.

The acquisition strategy is being driven largely by Mr. Lore, who wants to take on Amazon directly and grab market share faster. Asked atan industry event Monday if Wal-Mart would be happy as the second-largest U.S. online retailer after Amazon, Mr. Lore responded, "winning is winning." More acquisitions are coming, he said. In the quarter ended Jan. 31, Wal-Mart's U.S. e-commerce sales grew at a healthy clip, up 29% from a year earlier.

Jet.com had explored a deal for Moosejaw, which operates 10 retail stores, before selling to Wal-Mart. The outdoor retailer's founder and family sold the company to privateequity investors in the mid-2000s, and the company continued to raise money and shift investors. Moosejaw's CEO didn't respond to a request for comment.

Laura Stevens and Khadeeja Safdar contributed to this article.

bloruleshort.gif (618 bytes)

Sears once boasted on having everything you need. Those days are long gone.
By Robert Reed
Chicago Tribune
March 25, 2017

Sears Holdings' chance of survival is being called into question by none other than the company itself, which now concedes it has "substantial doubt" about sticking around.

That recent revelation, made in its annual report, is not unexpected. Sears is a longtime corporate life-support case. But the owner of Sears and Kmart is far from being the only sickly retailer dealing with such deep despair this year.

In fact, 2017 is shaping up to be a watershed year for many brand-name retailers. Reeling from weak 2016 holiday sales, established chains such as Macy's and J.C. Penney are slashing costs and closing stores. RadioShack is among those going the bankruptcy reorganization route.

Such industry upheaval and disruption won't end very soon as store operators scramble to compete against online retail giants, led by Amazon. Chains also are testing new merchandising approaches aimed at attracting a changing customer base led by millennial shoppers.

"This is a real shake-up for bricks-and-mortar stores," says Bridget Weishaar, a senior equity analyst at Morningstar.

Those reverberations are definitely rattling Sears, which in its annual report conceded for the first time that there is "substantial doubt" about its ability to keep going.

The admission is seen by many retail experts as a signal that Sears CEO and hedge fund aficionado Eddie Lampert is conceding his plans are running out of gas. They contend the combination of massive losses, shrinking market share and a tired brand concept may finally be a death knell for the Big Store, despite Lampert's penchant for using a lot of financial razzle-dazzle to keep the company around.

Sears, despite its annual report admission, has a different viewpoint.

After the regulatory filing, a Sears spokesman sent me an email expressing continuing confidence in Lampert's restructuring and the company's foray into online shopping and other sales endeavors.

Nevertheless, Sears is shrinking before our eyes. This year, it has scheduled the closing of 150 more stores, including 109 Kmarts — a cutback that comes on top of more than 200 store closings since 2015.

Sears' internal problems aside, the reality is the U.S. has way too many stores, far more than other countries, and that capacity and its related costs will continue to be reduced in the coming years.

Among the chains falling on hard times and shuttering stores this year: American Apparel, Hhgregg, Abercrombie & Fitch and the Limited.

The primary culprit continues to be the loss of customers to e-commerce.

During the last holiday shopping season, for example, e-commerce sales went up around 14 percent from the year before while traditional store sales gains hovered around the low single digits, according to U.S. Census and Commerce Department data.

A retail course correction calls for a massive closing of stores, with some experts estimating that in the years ahead up to 50 percent of current stores will go away.

The ramifications of such deep cutbacks will be sweeping.

Expect hundreds of malls, especially those that are struggling or marginally profitable, to close or be reconstituted into other uses — health care centers, government offices, residential developments — or simply torn down to make way for fresh developments.

The stores and malls that remain will look and feel much different than now, predicts Morningstar's Weishaar.

She notes that millennials are buying less apparel, the sales bedrock of many chains, and prefer more "experiential" purchases, which could mean going to a mall to check out fewer stores and instead connect with new types of multiplatform entertainment, exotic restaurants and other attractions.

Whatever the next chapter, stores will become smaller in size and scope, offering fewer selections and thinner inventory. Many times, they will double as pickup or distribution outlets for online orders.

"There will always be stores, because we still want to touch the fabrics and see styles," she says. "But we don't need the stores to be 10 miles away from each other."

Obviously, not all of the current retailers are going to survive this tumult, which brings us back to Sears.

After hearing the company had voiced hesitation about its future, I stopped by one of the chain's more successful namesake outlets on the city's Northwest Side.

The store was clean but lean, offering what seemed to me to be a limited number of product choices on its shelves and floor displays. During my late afternoon visit, there were customers milling throughout the multilevel Sears. Some had to line up four to five people deep at a checkout point with only a lone cashier.

As a shopping experience, it was definitely a throwback to the old department store era with a mishmash of appliance, jewelry, clothes, tools and other stations lined up throughout the big beige place.

It also had two kayaks on display.

There was a time when Sears boasted it had everything you needed, and it probably did.

But there's no "substantial doubt" about it now. Those days are long gone.

bloruleshort.gif (618 bytes)

Dear Sears, it's time to hang up your Toughskins
By Judann Pollack
Crain's Chicago Business
March 23, 2017

True confession: I am a shopaholic.

By the time I was old enough to be strapped into a stroller, I spent every Saturday bathed in fluorescent lights and muzak at the mall. In my family, one did not just shop simply for practicality or pleasure: it was a competitive sport. To this day, if you compliment my shoes, I am likely to blurt out: "DSW, $49.99."

So naturally, we spent a lot of time at Sears. It was truly where America shopped. In the "Brady Bunch" era where I grew up, there was no other place to buy your bell bottoms or maxi dresses. Even Gap had not become a thing yet -- the concept of finding all kinds of jeans in all sizes was still a mind-boggling concept as futuristic as a self-driving car.

We spent our youth clad in Toughskins and wore "husky" sizes with impunity before body shaming became a thing. I distinctly remember the thrill of buying my first dress from Sears' Lemon Frog Shop, a tween in-store boutique, which was as much a rite of passage for me as my first pair of pantyhose or heels.

Everything in the garage came from Sears, except the car, which of course had a Diehard battery. Pretty much every home had at least one Kenmore or a Craftsman, bought on your Sears charge card. Dad's leisure suit? Sears.

You didn't even need to write a letter to Santa -- you just checked off cool things in the Sears Wishbook. Paging through the "War and Peace"-size Sears catalog was an exercise in and of itself, a consumerist wet dream of anything and everything you could ever want.

I can't pinpoint just how or when Sears became about as relevant as my 8-track player. Did I just outgrow it like I did the Spencer's Gifts where I bought that cool blacklight and the so-so-current pet rock? I think it started when there came other options -- Gap being one and later Target became the new Bradlees (look it up) -- and then, of course, the mall itself fell out of favor. Amazon became the ultimate "Sears" catalog.

It seems Sears really started falling off the map during the disco era, because by 1983 the chain was admitting in its "softer side" campaign that the only things people were really buying there were tools and appliances.

I still go to the mall today, because old habits die hard. And when I do, I usually park at Sears, because there are so many open spots. I often pass through it on my way to other stores, but I rarely stop and look, because it's just too sad.

The merchandise is thrown around like the worst bargain bin, misshelved and often of poor quality. The store layouts and lighting remind you of the 70s, but not in a good way. And the one time I saw a scarf I might like? I searched forever for a mirror to see how it looked and couldn't find one. A mirror! How basic is that?

So it's time to put Sears out of its misery and finally declare bankruptcy. It has become abundantly clear than in the last decades the company lost sight of its roots and all sense of good merchandising -- when your idea of a cutting-edge brand is Land's End, you are in trouble. And at a time when chains like Macy's and Penney's are struggling, Sears seems to have no chance at all of recovering.

So Sears, you know what is on my wishlist? Close down while you still have some pride left. It's a move you should have made a long time ago. Take it from an old friend.

This story first appeared on the website of Crain's sister publication Ad Age.

bloruleshort.gif (618 bytes)

What's Killing Sears and Kmart?
By Charisse Jones
USA TODAY & Chicago Sun-Times
March 23, 2017

Sears, the iconic department store chain that reigned over the retail landscape for generations, may be on the verge of going out of business.

And it if fades away, it will take Kmart, the big box rival it merged with in the 2000s, with it.

Some of the company's woes mirror those of other old-school retailers who are struggling to keep pace in the digital age. But some of Sears' woes are self-inflicted.

Here are four things that are killing Sears and Kmart.

1. Dwindling sales — Traditional retailers are losing shoppers who can buy goods ranging from shoes to soap by tapping their smart phones. But Sears is doing worse than many others. The sales dip at Sears stores was the worst among the top 250 retailers tracked by eMarketer as of November.

2. Undone by the Internet — The ability to go to Sears and buy everything from a blouse to a blow torch under one roof once had great appeal. But no brick-and-mortar shop can offer more variety than the internet, making traditional department stores increasingly obsolete. And if you want to browse for an endless array of particular products, like electronics or garden tools, specialized retailers like Best Buy and Home Depot have multiplied in recent decades.

3. Out of Step, Out of Style — The 131-year-old company is seen as outdated, failing to keep up with the changing tastes and habits of shoppers.

4. Two Wrongs Don't Make A Right — In November 2004, Sears merged with Kmart, bringing together two struggling chains. And that move followed Sears' decision the previous year to sell its lucrative credit portfolio which was worth more than $30 billion.

bloruleshort.gif (618 bytes)

Sears, once a stalwart, has 'substantial doubt' about future
By Anne D'Innocenzio and Hannah Weikel
AP & Chicago Tribune
March 23, 2017

Sears, a back-to-school shopping destination for generations of kids, has said that after years of losing money that there is "substantial doubt" it will be able to keep its doors open. But it also insisted that its actions to turn around its business should help reduce that risk.

It was still a dramatic acknowledgment from the chain that owns Sears and Kmart stores, which has long held fast to its stance that a turnaround is possible, even as many of its shoppers have moved on to Wal-Mart, Target or Amazon.

A back-to-school shopping destination for generations of kids, has said that after years of losing money that there is "substantial doubt" it will be able to keep its doors open. But it also insisted that its actions to turn around its business should help reduce that risk.

It was still a dramatic acknowledgment from the chain that owns Sears and Kmart stores, which has long held fast to its stance that a turnaround is possible, even as many of its shoppers have moved on to Wal-Mart, Target or Amazon.

At a largely empty Sears store in St. Paul, Minnesota, where the available parking far outstripped the number of cars in the lot, 85-year-old Jack Walsh and his 82-year-old wife, Mary Ann, said they have shopped at Sears their entire lives, buying items from curtains and window treatments to tires and tools.

"I bought my tools from Sears and I've still got them," Jack Walsh said.

The company known for DieHard batteries and Kenmore appliances has been selling assets, most recently its Craftsman tool brand. But it says pension agreements may prevent the sale of more businesses, potentially leading to a shortfall in funding.

"It's a sad story. This is the place that created the first direct to consumer retail, the first modern department store. It stood like the Colossus over the American retail landscape," said Craig Johnson, president of Customer Growth Partners, a retail consulting firm. "But it's been underinvested and bled dry."

Company shares, which hit an all-time low last month, tumbled more than 13 percent Wednesday. Sears tried to soothe investors' fears, saying in a post on its site that it remains focused on "executing our transformation plan" and that news reports miss the full disclosure that it's highlighting actions to reduce risks. It also said that the comments made in the filing were in line with "regulatory standards."

Lampert combined Sears and Kmart in 2005, about two years after he helped bring Kmart out of bankruptcy. He pledged to return Sears to greatness, leveraging its best-known brands and its vast holdings of land, and more recently planned to entice customers with its loyalty program. The company, which employs 140,000 people, announced in January said it would close 108 additional Kmart and 42 more Sears locations, and unveiled yet another restructuring plan in February aimed at cutting costs and reconfiguring debts to give itself more breathing room.

But it has to get more people through the doors or shopping online for what it's selling. Sears, like many department stores, has been thwarted by a new consumer that has ripped up the decades-old playbook that the industry has relied upon. A plethora of new online players have also revolutionized the market.

Sears has upped its presence online, but is having a hard time disguising its age. Its stores are in need of a major refresh as rivals like Wal-Mart and Target invest heavily to revitalize stores. Sales at established Sears and Kmart locations dropped 10.3 percent in the final quarter of 2016.

Industry analysts have placed the staggering sums of money that Sears is losing beside the limited number of assets it has left to sell, and believe the storied retailer may have reached the point of no return.

The company has lost $10.4 billion since 2011, the last year that it made a profit. Excluding charges that can be listed as one-time events, the loss is $4.57 billion, says Ken Perkins, who heads the research firm Retail Metrics LLC, but how the losses are stacked no longer seem to matter.

"They're past the tipping point," Perkins said. "This is a symbolic acknowledgement of the end of Sears of what we know it to be."

For Sears to survive, Perkins believes it would need to do so as a company running maybe 200 stores. It now operates 1,430, a figure that has been vastly reduced in recent years. As for Kmart, Perkins does not see much of a future.

For decades, Sears was king of the American shopping landscape. Sears, Roebuck and Co.'s storied catalog featured items from bicycles to sewing machines to houses, and could generate excitement throughout a household when it arrived. The company began opening retail locations in 1925 and expanded swiftly in suburban malls from the 1950s to 1970s.

"When I first got married at 19 or 20, we bought our first set of kettles from Sears," said Darla Klemmensen, who was shopping at the St. Paul store on Wednesday. "We still have some of those."

Klemmensen says Sears has been part of her life since she was a child watching her grandmother order stockings and garters, and she remembers flipping through Sears catalogs as thick as her forearm, full of appliances, clothing and kitchen wares.

But the onset of discounters like Wal-Mart created challenges for Sears that have only grown. Sears faced even more competition from online sellers and appliance retailers like Lowe's and Home Depot. Its stores became its albatross, many of them looking shabby and outdated. The company, based northwest of Chicago in Hoffman Estates, Illinois, lost $607 million in the most recent quarter and revenue fell.

"They've been delusional about their ability to turn around the business," said Perkins.

Johnson, though, believes one avenue for Sears could be returning to its roots as a direct-to-consumer company, only using the internet versus the old catalog. He believes the Sears name still stands for something for the 40-plus customer.

"It has a lot of good memories," he said. "It stands for being dependable and reliable."

bloruleshort.gif (618 bytes)

Sears Creates Stir As It Casts Doubt About Its Future
By Anne Steele
The Wall Street Journal
March 23, 2017

Sears Holdings Corp.'s raised doubts in a securities filing about its ability to keep operating after seven years of losses, sending the retailer's share price tumbling and spooking some of its landlords.

In its annual report released late Tuesday, the Kmart and Sears owner said past operating results indicate "substantial doubt exists related to the company's ability to continue as a going concern." The language is typically used when there are doubts about the business' ability to meet obligations for the next 12 months. Sears quickly added that it is "probable" that cost cuts, asset sales and other actions would mitigate its problems.

The warning -- the first such for the company -- is the latest stumbling block for Sears, whose stock had dropped 39% in the 12 months through Tuesday. The shares fell 12% to $7.98 on Wednesday.

In a blog post Wednesday, Sears finance chief Jason Hollar sought to assuage investors, saying the disclosure was in line with regulatory standards and didn't reflect management expectations for the business's near-term health.

"We are a viable business that can meet its financial and other obligations for the foreseeable future," he said, adding that the company's auditors, Deloitte & Touche LLP, had given Sears an unqualified audit opinion, meaning it wasn't expressing doubt about the company's ability to meet obligations. A Deloitte spokesman declined to comment.

Mr. Hollar said the going-concern note reflects the company's 2016 performance, when Sears lost $2.22 billion and ended the year with $4.2 billion in debt. "While historical performance drives the disclosure, our financial plans and forecast do not reflect the continuation of that performance," he said.

Sears's statements may have been triggered by an accounting rule that recently took effect requiring all companies to evaluate and disclose whether there is any significant doubt about the ability to stay in business. Outside auditors were already required to do such an assessment of their clients, but there was no requirement that a company's management do its own evaluation.

The Financial Accounting Standards Board, which sets accounting rules for U.S. companies, enacted the requirement in 2014, and it went into effect for most companies at the end of 2016. At the time, the FASB said the rule was needed because there were significant differences among companies in how quickly and thoroughly they disclosed any risks to their ability to remain a going concern.

Sears said in its annual report that the new rule was effective for the company as of the end of its latest fiscal year, which ended in January.

Retailers at large have fallen out of favor with investors, and in the case of Sears they worry that its strategy of selling assets to fund losses has its limits. The company, which last month posted its seventh consecutive annual loss, has sold off large swaths of its vast real estate holdings and its Craftsman brand to stay alive while Edward Lampert, its controlling shareholder and chief executive, works on a turnaround plan.

Earlier this month The Wall Street Journal reported Sears lenders have hired lawyers in anticipation that the company will struggle to comply with its borrowing terms.

On Wednesday, some shopping center landlords said they were alarmed by the disclosure. "It has obviously spooked everybody," said Bill O'Connor, chief executive of O'Connor Capital Partners, a real-estate investment and development firm that has a few Sears stores in its portfolio.

Shares of retail real-estate investment trusts slumped in Wednesday trading after the Sears disclosure. Among the decliners, losing more than 2%, were Pennsylvania Real Estate Investment Trust, or PREIT, CBL & Associates Properties Inc., Macerich Co. and GGP Inc. Mall operators stress that department-store closures have a varying impact in different locations. Real-estate executives said lower-tier malls are likely to take a bigger hit if Sears closes stores.

Philadelphia-based PREIT said it is in discussions with potential tenants to replace some department stores, including Sears. The REIT, which has a portfolio of 24 properties, said it has pared Sears and Kmart stores in its stable to 10 from 27 in 2012. It is currently renovating four former Sears stores and one former Kmart.

In the blog post Wednesday, Mr. Hollar pointed to moves that Sears has made to improve its financial position -- including amending its credit lines, beginning a cost-saving program and selling assets -- as evidence the retailer is making progress with the planned turnaround.

--Michael Rapoport and Esther Fung contributed to this article.

bloruleshort.gif (618 bytes)

Sears Holdings Remains Focused on Long-Term Profitability
By Jason Hollar
Sears Holdings Press Release
March 22, 2017

Following the release of our annual 10-K filing on Tuesday, there have been various media reports quoting a portion of the report that outlines potential risks associated with the company's financial position, but those reports do not include the full disclosure which highlights the actions we are taking to mitigate those risks.

It is very important to reiterate that Sears Holdings remains focused on executing our transformation plan and will continue to take actions to help ensure our competitiveness and ability to continue to meet our financial obligations. However, we recognize there has been some negative commentary related to our recent disclosures.

To clarify, the comments from our Annual Report quoted by the media are in line with regulatory standards that require management to assess and disclose potential risks the company could face within one year from the reported financial statements. As 2016 proved to be another challenging year for most "bricks and mortar" retailers, our disclosures reflected these developments. While historical performance drives the disclosure, our financial plans and forecast do not reflect the continuation of that performance.

It is also critical to understand that our independent auditors have provided Sears Holdings with an "unqualified audit opinion." This indicates the Company remains a "going concern," which means we are a viable business that can meet its financial and other obligations for the foreseeable future. Nonetheless, we have always followed SEC guidelines by providing a complete and comprehensive set of disclosures, just as many other publicly traded companies do.

Again, as we have previously communicated, we are firmly focused on improving the operational performance and financial flexibility of Sears Holdings. This is evident in the decisive actions we have taken in recent months, which include:

• earlier this year, we increased our liquidity by up to $1.0 billion through our Secured Loan Facility and a standby letter of credit facility;

• we also announced an amendment to our existing asset-based credit facility in February 2017, which provided an additional $250 million of financial flexibility;

• additionally, last month, the Company initiated a restructuring program targeted to deliver at least $1.0 billion in annualized cost savings;

• earlier this month, we closed the previously announced Craftsman transaction for a net present value of over $900 million in cash; and

• in late January, we monetized five Sears full-line stores and two Sears Auto Centers for $72.5 million, and we recently received an additional $105 million in gross proceeds from the sale of three Sears full-line stores, one owned and two leased.

In line with these initiatives, despite the risks outlined we remain confident in our financial position and remain focused on executing our transformation plan.

Jason Hollar is Sears Holdings’ chief financial officer.

bloruleshort.gif (618 bytes)

Sears warns there's 'substantial doubt' about company's future
By David Desjardins
Seeking Alpha
March 22, 2017

Summary

Sears burned almost two times its market capitalization during its fiscal year of 2016. The unprofitable operations are financed by issuing debt and selling assets.

The reorganization plan implanted several years ago should be called a gradual liquidation plan. The proceeds are rapidly burned leaving the firm in a death spiral.

Assuming zero capital expenditures, Sears will have to find approximately $6 billion before the end of 2019 to survive. Surviving is quite different than prospering.

Sears will be bankrupt before the end of 2019 in my opinion. The probability of default is in direct correlation with time…

Sears reigned during many decades. The corporation is now without a kingdom and on the verge of bankruptcy. In its 2017 annual report, the corporation acknowledged for the first time the fear of investors. Back in 2015, I estimated that Sears will be bankrupt before 2020. I believe that my assumptions were too optimistic.

Our historical operating results indicate substantial doubt exists related to the Company's ability to continue as a going concern.

I started to be intrigued by Sears when I realize the potential value of its properties. My hope was to find a diamond in the dust despite the disgusting state of its operations. I particularly enjoy the idea of buying repugnant firms to obtain valuable assets at a significant discount or for free. However, I quickly realized that Sears is a disaster waiting to happen. Even after a drop of 96% from its peak, the shares are overvalued.

By comparing the proceeds generated by the sales of assets versus the cash burned by the operations, I realized that Sears entered in a dead spiral many years ago. Without an extraordinary event, the only possible outcome is a bankruptcy in my opinion. However, I was not able to imagine a scenario in which the corporation would return to constant profitability and solvency.

By definition, Sears is a retailer with a network of stores across the United States. It would be reassuring to see the firm generating positive cash flow from its operating activities on a constant basis. Contrariwise, Sears is burning hundreds of millions every quarter...

Due to the seasonal nature of the retail industry, the firm generates an important proportion of its total sales during the fourth quarter of the calendar year. It is evidently explainable by the holiday season. During the fourth quarter of 2013, the operating cash flow figure was equal to $563 million...However, it is interesting to note the rapid and pronounced deterioration of the profitability in the fourth quarter of 2015 and 2016. Sears burned $113 million in the fourth quarter of 2015 and generated a mere $27 million in Q4 2016. The fact of not being profitable in the fourth quarter of the year is a bad presage for the rest of 2017. The fourth quarter assumes the role of a canary in a coal mine in my opinion.

Because of the increasing interest expense, the declining comparable store sales, the deteriorating reputation of the firm and the challenging environment for the classic retailers, Sears will remain under pressure in 2017. To be optimistic, I will assume that the firm will burn $1 billion in 2017.

The interest expense will increase meaningfully in the next few quarters in my opinion. It will be due to the recent jump of bond yields, the increasing credit risk assumed by the creditors and the debt load bigger than ever.

It is important to mention that 61% of the debt load is composed of variable rate debt. The third quarter report indicates that a 100 basis point change in interest rate would affect the annual funding costs by $26 million. The interest expense in the fourth quarter was equal to $115 million versus $105 million in the third quarter...

The increasing cost of debt reduces meaningfully the advantages of refinancing the existing debt. In a worst case scenario, the impossibility to refinance the current debt has the potential to trigger a default. Moreover, it will be more costly to issue new debt to finance the unprofitable operations. The following comment of the management is particularly interesting.

"The domestic credit facility also effectively limits full access to the facility if our fixed charge ratio at the last day of any quarter is less than 1. As of January 28, 2017, our fixed charge ratio was less than 1."

"If availability under the domestic revolving credit facility were to fall below 10%, the company would be required to test the fixed charge coverage ratio, and would not comply with the facility, and the lender under the facility could demand immediate payment in full of all amounts outstanding and terminate their obligations under the facility."

...Bullish investors may argue that the debt maturities are far away and that it will leave enough time for a turnaround. According to the different contractual obligations, this argument is not valid. It is worth noting that the pension plan contributions are already incorporated in the operating cash flow calculation.

The firm will have to disburse around $876 million in repayment of debt in 2017. Overall, Sears will have to repay grossly $3.2 billion in principal before the end of 2019... Based on these assumptions, Sears will have to find at least $6 billion before the end of 2019 to survive.

Trying to survive involves a minimal level of expenditures. Naturally, it comes with a potential degradation of the existing properties...Moreover, there is a substantial difference between surviving and prospering. I have trouble understanding how a minimal level of capital expenditures can create a significant turnaround.

The reorganization plan should be called a gradual liquidation plan. Sadly, the proceeds are burned rapidly by the unprofitable operations. Currently, the inventory represents more than 40% of the total assets. Inventory is certainly more difficult to monetize than real estate properties.

In my opinion, Sears will fill for bankruptcy protection before the end of 2019. However, I believe that the principal of $1.3 billion due in 2018 has the potential to trigger a default. The proceeds generated by the sale of Craftsman should be enough to pay the principal due in 2017. In other words, the probability that Sears will go bankrupt before the end 2019 is approaching 100% in my opinion. 2018 also represents a huge challenge.

Even if the operating income figure becomes positive, the corporation will have to pay annually approximately $330 million in contribution to the pension plan and at least $400 million in interest expense. Indeed, the contributions to the pension plan are not included in the calculation of the operating income. However, it represents a recurrent charge putting constant pressure on the financial flexibility of the firm. The operating losses totaled $2 billion in 2016. Without a doubt, it indicates that the underlying business is in despair.

Over the past years, Sears sold numerous properties and owned stores to respond to its liquidity needs. The proceeds were sufficient to maintain the corporation alive over the past few years. However, the most valuable stores are already sold and the numbers of owned store is dangerously decreasing…This number is not infinite. Indeed, I would characterize the current strategy as liquidating slowly the corporation and burning the proceeds in unprofitable operations. In my opinion, liquidating entirely the firm few years ago would have generated proceeds largely higher than the current market capitalization.

In 2015, Sears completed a transaction with Seritage Growth Properties by selling 235 of its most valuable stores. The proceeds were equal to approximately $2.7 billion. According to the 2016 annual reports, only 380 owned stores remain.

To determine the value of the remaining stores, I assumed that they are as valuable as than the ones sold in the Seritage deal. In this case, they should be worth around $4 billion. This is very unlikely to be materialized due to the fact that the majority of the most valuable properties are already sold. The proceeds from the sale of assets will eventually slow. However, the probability that the losses will remain colossal is very high. By projecting proceeds of $4 billion, Sears would still have to find another $2 billion. The remaining brands are certainly not worth that much considering the proceeds of the most valuable brand Craftsman.

The management started the reorganization plan few years ago. Sadly, it is difficult to see any positive impact on the operational front. The operating income continues to reach new lows and the comparable store sales continue to decline severely. The closure of hundreds of store did not affect positively the comparable store sales. In my opinion, a significant improvement in comparable store sales might indicate the end of the hemoragy. Based on the historical figures and the current actions of the management, it is not for now.

Sears will probably continue to sell its owned stores and its brand names. The Kenmore brands is certainly worth few hundreds of millions based on the Craftsman transaction. However, it would only buy time and not solving the real problem. Even with overly optimistic assumptions, the proceeds would not be sufficient to allow Sears to continue as going concern until the end of 2019.

In conclusion, Sears burned almost two times its market capitalization during its fiscal year of 2016. Everything indicates that the death spiral will continue in 2017. It will only end when the firm will fill for bankruptcy protection in my opinion. I would not be surprised to see Sears filing for bankruptcy protection in 2018 but 2019 looks more certain. The probability of bankruptcy is in direct relation with time. Due to the high short interest and the low publicly traded float, put options look like the best vehicle to profit from a failure of Sears.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

bloruleshort.gif (618 bytes)

Sears issues dire warning about its ability to survive
By Marianne Wilson
Chain Store Age
March 22, 2017

The fat lady is singing at Sears Holdings Corp.

The long-struggling retailer said on Tuesday that there was "substantial doubt" that it could stay in business.

"Our historical operating results indicate substantial doubt exists related to the company's ability to continue as a going concern," Sears said in a filing with the Securities and Exchange Commission. In the filing, its annual report for the period ended January 28, 2017, Sears reported a $2.2 billion loss for the year. Its long-term debt as of January totaled nearly $4.2 billion,

In the report, the retailer cited its efforts to cut costs, sell property, tap new funding sources and make other moves to lessen the continuing flow of red ink. But with revenue in a steep decline, it said it had to use money from its investments and other activities to fund operations.

Sears, once the nation's largest retailer, said an inability to generate additional liquidity might limit its access to new merchandise or its ability to procure services.

Sears' fortunes have been in decline for years amid its seeming inability to respond effectively to the rise of more nimble competition, both online and in the physical space. The company has lost a total of almost $10 billion over the last six years. It has not reported an annual profit since 2011.

The chain has been selling off real estate and some of its other assets, including most recently its Craftsman tool brand, to raise cash. Sears has also borrowed money from the hedge fund of its chief executive, Eddie Lampert, and refinanced much of its debt.

Sears has been steadily reducing its store fleet over the last several years. In December, it announced plans to close 42 namesake s stores and 108 Kmart outlets. It currently has less than 1,500 stores, down from some 3,500 in 2010.

bloruleshort.gif (618 bytes)

Sears has 'substantial doubt' about its future
AP & Chicago Sun-Times
March 22, 2017

Sears, once the monolith of American retail, says that there is "substantial doubt" that it will be able to keep its doors open.

Company shares, which hit an all-time low last month, tumbled more than 5 percent before the opening bell Wednesday.

Millions of dollars have been funneled through the hedge fund of Chairman and CEO Edward Lampert to keep Sears afloat but with sales fading, it is burning through cash. Lampert combined Sears and Kmart in 2005, about two years after he helped bring Kmart out of bankruptcy

According to a regulatory filing late Tuesday, Sears Holdings Corp. lost more than $2 billion last year. Adjusted for one-time charges, its loss was $887 million.

Sears has been selling assets, most recently its Craftsman tool brand. But it says its pension agreements may prevent the spin-off of more businesses, potentially leading to a shortfall in funding.

"Our historical operating results indicate substantial doubt exists related to the company's ability to continue as a going concern," Sears said in a filing with the Securities and Exchange Commission.

Sears, which employs 140,000 people, announced a major restructuring plan in February with hopes of cutting costs by $1 billion through the sale of more stores, jobs cuts and brand asset sales. And it's reconfiguring its debts to give itself more breathing room.

But it has to get more people through the doors or shopping for Sears brands online.

Sales at Sears and Kmart locations that have been open at least a year, a key indicator of a retailer’s health, dropped 10.3 percent in the final quarter of 2016.

The company plans to use a big portion of the $900 million it got for Craftsman to shore up its pension plan. It will put $250 million in cash and some income from annual payments toward the plan as part of a deal with the Pension Benefit Guarantee Corp., a federal agency that protects private pension plans.

The company said in its regulatory filing, however, that its agreement with the agency might stand in the way of more asset sales that would buy it more time.

Lampert has long pledged to return Sears to greatness, leveraging best-known brands like Kenmore and DieHard, as well as its vast holdings of land.

Those aspirations have been scrambled by a new consumer that has ripped up the decades-old playbook that the industry has relied upon for years.

There are also new and dynamic players that have also revolutionized the market, namely Amazon.com.

Sears has upped its presence online, but is having a hard time disguising its age. Stores are in need of a major redo.

Longtime rivals like Wal-Mart and Target are spending heavily to revitalize stores and they're intensely focused on a new consumer that goes online before stepping into a store.

Sears in January announced that it would close 10 percent of the 1,500 stores that are still operating.

In its most recent quarter, Sears, based in Hoffman Estates, Illinois, just northwest of Chicago, lost $607 million. Revenue declined to $6.05 billion from $7.3 billion during the same period the year before.

It was the sixth consecutive quarter of losses. The company has not turned annual profit since 2011.

bloruleshort.gif (618 bytes)

Sears warns there's 'substantial doubt' about company's future
Crain's Chicago Business
March 21, 2017

Sears Holdings Corp. acknowledged "substantial doubt" about its ability to keep operating, raising fresh concerns about a company that has lost more than $10 billion in recent years.

The retailer added so-called going-concern language to its latest annual report filing, suggesting that weak earnings have cast a pall on its future as a business.

"Our historical operating results indicate substantial doubt exists related to the company's ability to continue as a going concern," the Hoffman Estates, Illinois-based company said in the filing. But the company added that its comeback plan may help mitigate the concerns, "satisfying our estimated liquidity needs 12 months from the issuance of the financial statements."

The disclosure comes after more optimistic signs from the company, which has been working on a turnaround under Chief Executive Officer Eddie Lampert. Sears posted a narrower loss than predicted in the fourth quarter, and it has pledged to lower its debt burden and cut annual expenses by at least $1 billion.

Lampert, a hedge fund manager who is also Sears's biggest investor, aims to reduce debt and pension obligations by $1.5 billion. The CEO has helped keep the ailing retailer afloat by offering more than $1 billion of assistance, including a $500 million loan facility announced in January.

As part of its comeback plan, Sears had closed stores, sold real estate and offloaded businesses. Earlier this month, the department-store chain completed the sale of its Craftsman tool brand to Stanley Black & Decker for about $900 million.

"While our historical operating results indicate substantial doubt exists, we want to be very clear that we're taking decisive actions to mitigate that doubt," Howard Riefs, a Sears spokesman, said in an emailed statement.

bloruleshort.gif (618 bytes)

Sears annual report notes 'substantial' going-concern doubt
By Jason Aycock
Seeking Alpha
March 21, 2017

Sears Holdings is newly warning about its ability to remain a going concern, pointing to historical results that called for such a warning around this time based on new accounting standards.

In its annual report filed this afternoon, Sears says "substantial doubt exists" with regard to its ability to continue, though it thinks liquidity-related actions (including selling the Craftsman brand) will mitigate that doubt.

In its 2015 report, the company noted a FASB update to accounting standards from August 2014 that called for additional going-concern disclosures, and that that update would kick in for Sears in the first quarter of 2017.

Sears also pointed to the pension plan protection and forbearance agreement ("PPPFA") that it reached with the Pension Benefit Guaranty Corp. The PBGC consented to Sears' sale of its Craftsman-related assets, which had been "ring-fenced" under the agreement.

"In addition, the PPPFA contains certain limitations on our ability to sell assets, which could impact our ability to complete asset sale transactions or our ability to use proceeds from those transactions to fund our operations," the company notes in its 10-K.

bloruleshort.gif (618 bytes)

Fashion retailer credits record online holiday sales to AI
By Deena M. Amato-McCoy
Chain Store Age
March 21, 2017

The use of artificial intelligence has given Charlotte Russe an important competitive edge.

With its online and mobile shopping communities growing larger and their expectations for flawless services increasing, the apparel retailer turned to IBM to prepare for the busy and critical 2016, five-day holiday shopping season kick-off. To get a jump start, Charlotte Russe launched IBM's Watson Customer Engagement solutions in seven months. And the technology immediately gave the retailer a wake-up call.

Following deployment, the Charlotte Russe team analyzed its initial sales and transactions projections for the holidays with output from Watson. The new system immediately revealed the results were significantly lower than its projections. Specifically, Watson estimated that online sales would increase over 2015, and volume could cause potential disruptions in service and dissatisfaction among customer during the most critical period of the year.

To help ensure its success, Charlotte Russe turned to IBM's Holiday Readiness team, which quickly assessed if the retailer could handle this drastic spike in product demand. Based on results of the assessment, IBM recommended adding capacity to help meet the anticipated growth, fine-tuned the system and ran in depth performance tests ahead of peak holiday shopping time. And efforts paid off.

Despite record volumes of orders, there were no performance issues and the volume was handled easily by the system. Meanwhile, using IBM's Order Management, the chain is better handling orders, has integrated with financial processing systems, can process shipping notifications, interfaces to customer email and settlement systems, and updates inventory systems in real-time. This helps the chain make more informed decisions about how to fulfill customer orders, potentially resulting in improved profitability and customer satisfaction.

"Like all retailers, our business is judged by its ability to serve the needs of our customers. If we can't meet their expectations we can't compete," said Debra Jensen, CIO for Charlotte Russe. "IBM is a proven leader when it comes to retail transformation. Now we know that our backend systems - the engine that keeps sales flowing, orders shipping and customers happy - is solid, taking whatever our customers throw at it and automatically understanding the best way to meet their needs," she added. "We also know that as new trends emerge we are in step with each customer."

Charlotte Russe continues to fulfill record numbers of customer orders, improve profitability and maintain high-levels of customer satisfaction, the retailer said.

bloruleshort.gif (618 bytes)

Target to open in Macy's backyard in NYC
By Marianne Wilson
Chain Store Age
March 20, 2017

Target Corp. is bringing its small-format store to the heart of Manhattan.

The discounter plans to open its first location in midtown Manhattan, a 43,000-sq.-ft. store in Herald Square, just west of the 34th Street and Broadway intersection, and one block from Penn Station - and across the street from the Macy's flagship.

The two-level store will have two entrances, one off of 34th Street, and the other off of 33rd Street, and will feature modern décor elements, including concrete floors, wood plank walls and ceilings, pendant and LED lighting and elevated merchandise assortment displays.

Projected to open in October 2017, the Herald Square store will be one of 30 stores Target plans to open this year, and will be the company's third location in Manhattan, joining the Harlem and Tribeca stores.

Additionally, Target has previously announced future plans to open small-format stores in Manhattan, including sites in East Village (projected to open summer 2018) and Hell's Kitchen (projected to open in 2019).

"The addition of the Herald Square store location is exciting for Target as we expand our footprint with small-format stores in Manhattan," said Mark Schindele, senior VP, properties, Target. "Not only will we be able to serve the thousands of working professionals that travel through Herald Square each day, but we'll have the opportunity to showcase Target's exclusive brands and compelling offers for the many tourists from around the world who shop in this vibrant neighborhood in Manhattan."

Target has signed a lease for the Herald Square location with Empire State Realty Trust.

"Target’s new 34th Street location concludes ESRT's plans for the successful redevelopment of storage space, office, and retail into 90,000 sq. ft. of retail," said Thomas P. Durels, executive VP and director of leasing and operations for ESRT. "Target joins Sephora and Foot Locker at the best location on the 34th Street retail corridor, which spans from the Empire State Building to 7th Avenue."

bloruleshort.gif (618 bytes)

Confusion At Sears Continues: Should Investors Be Worried?
By Dylan Street Capital
Seeking Alpha
March 19, 2017

...Pension Fund Secures More Assets

We wrote an article discussing how the Pension fund had to approve the Craftsman deal. We urged the PBGC to not approve the deal. They chose to do otherwise. Instead they decided to try and extract more value for the pensioners by placing additional liens on assets owned by Sears. The relevant language appears on page 3 of the press release dated March 09, 2017.

The PBGC gets the following:

• The value of the $250 million cash payment in year 3 of the Craftsman deal

• A lien on the 15-year royalty stream created because of the Craftsman deal

• A lien on $100 million of additional real-estate.

These steps highlight a point we have made many times before. The money being generated by the sale of these assets is not being used for new capital allocation decisions. Here the money is going to plug operating losses and pension deficits. This does help the equity holders in some way because it lowers the liabilities owed.

One of the most frustrating things about Sears is their continued insistence on showing how the impact of a 1% increase in interest rates lowers the pension obligations by $500 million. You can find the relevant language most recently articulated in the transcript to the most recent earnings found here.

The most egregious issue is that Sears fails to caveat these statements with how a 1% change in interest rates will impact their floating rate debt. If you want the benefit of something than show how that same change will impact the business in the negative. If Sears was a financially healthy company than maybe this would not be a big deal. But their approach assumes that Sears has enough cash to survive until interest rates move. Also, interest rates are not something the company can control.

Another example of Sears doing this, is every time Sears announces the savings from closing stores, but does not include the cost of closing those stores. The costs have both cash and non-cash charges. To say that you will save X amount of money overtime, without discussing the cost of that savings is questionable behavior. Again, if Sears was in a financially strong position, then this might not be an issue. But how is Sears going to pay for these closures? Our guess is by selling more and more stores.

Cesar Alvarez has resigned from the board of Directors.

On March 16, 2017, we learned that Cesar Alvarez has resigned from the Board of Directors. Cesar works for Fairholme, and represents Bruce Berkowitz. Cesar was elected to the board of Sears on Dec. 18, 2013. The press release said that Cesar was retiring from the Sears board. We haven't been able to find any information that Cesar is retiring from his other positions. So, is Cesar really retiring, or is he just stepping down.

Conclusion

We believe that investors should be cautious with making any investment into Sears. Sears Holdings, is a massive company and trying to right the ship is near impossible. But management should be presenting the issues in a clear and concise way to allow ALL investors to make their own informed decisions.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

bloruleshort.gif (618 bytes)

JC Penney to Close 138 Stores
By NewsmaxFiance
March 18, 2017

J.C. Penney has released a list of store closures over the next few months in hope of saving roughly $200 million annually. The retailer originally announced the closing last month.

J.C. Penney also will close two distribution centers in an effort to "raise the overall brand standard of the company," CEO Marvin Ellison said at the time, according to CNBC.

Ellison said savings from the closures will be redirected to invest in profitable locations and initiatives.

"While many pure play e-commerce companies are experiencing dramatically increasing fulfillment costs, we are pleased with the double digit growth of jcpenney.com and how leveraging our brick and mortar locations is enabling us to offset the last-mile delivery cost," Ellison said in the statement.

J.C. Penney is the latest brick-and-mortar retailer to announce closings, with Sears Holdings saying last month it will close 150 Sears and Kmart stores and Macy's announcing 68 store closings, according to CNN Money.

On the flipside, online retailer Amazon is expected to hire 100,000 workers in the United States this year, CNN Money reported.

bloruleshort.gif (618 bytes)

Confirmed: Walmart acquires another online retailer
By Marianne Wilson
Chain Store Age
March 17, 2017

Walmart continues to grow both its e-commerce and fashion presence.

On Friday, the discounter announced it had acquired the assets and operations of online retailer ModCloth, which specializes in eclectic and quirky apparel and accessories for 18- to 35-year-old women. The company did not reveal the purchase price.

ModCloth is Walmart's fourth online acquisition since September, when it completed its purchase of Jet.com. In December, the chain bought Shoebuy, and in February it acquired outdoor apparel retailer Moosejaw. Shoebuy, Moosejaw and ModCloth all target younger and more affluent customers than those that make up Walmart's core audience.

Founded in 2002, ModCloth sells its own vintage-inspired branded merchandise in a full range of sizes, along with a curated selection of styles from hundreds of indie designers. The brand enjoys a strong social media following. The company has made several forays into brick-and-mortar, including pop-up sites along with a permanent store in Austin, Texas.

Similar to the model Walmart has used with its other online acquisitions, the ModCloth team will continue to operate its site and store as a standalone and complementary brand to Walmart's e-commerce sites. ModCloth CEO Matthew Kaness, his executive team, and the company’s 300-plus employees will continue to be based in San Francisco, Los Angeles and Pittsburgh, and will join Walmart’s U.S. e-commerce retail organization.

"Designers that sell on ModCloth who are interested in expanding their consumer reach will now have the opportunity to serve more customers through Jet.com and our other e-commerce sites," Walmart stated.

In a statement on her blog, ModCloth co-founder Susan Gregg Koger said that the acquisition will give ModCloth the resources and support it needs as a business to grow, including in the brick-and-mortar space.

"Growth allows us to reach more women, grow our community, and amplify our message," Gregg stated. "Our mission to help our customers feel like the best version of themselves continues. And our commitment to inclusivity continues. Our amazing team continues. And we can open more stores - in your hometown!

bloruleshort.gif (618 bytes)

3 Companies That Need to Kick Their CEO to the Curb
By Todd Campbell, Keith Speights, and Rich Duprey
The Motley Fool
March 17, 2017

Troubles at Immunomedics, Sears Holdings, and Community Health make them ripe for a change in management.



Immunomedics, Sears Holdings, and Community Health Systems could benefit from a change at the top, according to Motley Fool contributors.

All three companies are struggling to overcome obstacles that may be holding down their stock price, and it may take new management to get shares back on track.

Battling over a promising breast cancer drug

Todd Campbell (Immunomedics): A highly contentious showdown for the control of Immunomedics suggests that it may be time for founder and board member David Goldenberg and his wife, CEO Cynthia Sullivan, to head for the exit.

Immunomedics inked a deal to license commercial rights to its lead product candidate, IMMU-132, last month, but the deal drew the ire of venBio, an activist hedge fund that's been advocating for significant change in the C-suite, and that owns about 10% of the company.

Earlier this month, venBio won the appointment of four of its nominees to Immunomedics' board, paving the way for a management shake-up, and perhaps a dismantling of the IMMU-132 agreement.

As a refresher, Immunomedics has been around since 1982, but it doesn't have any commercial-stage drugs on the market yet. The company's most promising candidate is IMMU-132, a medicine in phase 2 testing that's being studied for use in triple-negative breast cancer patients. The drug delivers a toxic chemotherapy payload to cancer cells by binding to receptors expressed primarily by them, and because these patients have few treatment options, it's thought that IMMU-132 can secure an FDA approval prior to undergoing phase 3 studies.

According to venBio, IMMU-132 is the company's "crown jewel," and based on that assessment, it's little wonder they want to fetch top dollar for it, or launch it on their own. A study that was commissioned by Immunomedics estimates the drug's peak sales potential to be as high as $3 billion, and with a market outlook like that, it's easy to understand why current management and venBio locked horns. Now that venBio has won its proxy fight, management's best move might be to leave. If they do, shares could climb on optimism that IMMU-132 will have a bigger impact on the company's financials.

Too little, too late

Rich Duprey (Sears Holdings): He may own the company, and he's finally put forward some ideas that might help the ailing retailer at last, but it's long past time for Eddie Lampert at Sears Holdings to go.

Although he once described himself as a protege of Warren Buffett, the chairman and CEO of Sears has failed to prove his mettle with the retailer, in large part because he tried to meld two damaged businesses -- Sears and Kmart -- into one, and simply got one big, broken company. He compounded the error by neglecting the stores he owned, saying customers didn't care about fixtures and decor, and then relied upon one-time infusions of cash to keep the operation afloat. He's still doing that today by continuously loaning Sears money with short-term borrowings from his ESL Investments hedge fund.

He's also proceeded to strip anything of value from the company, spinning off retail concepts like Orchard Supply, Sears Hometown & Outlet Stores, and Lands' End. Most recently he sold the Craftsman tool brand to Stanley Black & Decker.

Yet that's where the notion that it's too little, too late comes in. Lampert's deal with Stanley for Craftsman was actually rather innovative, and though it does set up the possibility that Sears will end up competing against itself for sales (why go to a Sears store for Craftsman tools when you can buy them elsewhere?), it showed a bit of creative thinking because the deal gave Sears a percentage of sales that Stanley makes, as well as the right to manufacture and sell Craftsman tools itself.

Lampert has since followed that up with another breakthrough idea to have gas grill maker Permasteel manufacture Kenmore grills for sale in other retail outlets. Again, Sears may end up competing against itself, but the arrangement does show management is finally thinking about how best to leverage the brands it owns. Similarly, the company has launched a DieHard-brand auto center.

Unfortunately, Sears may have fallen so far that none of these moves will help resurrect the retailer. They could have been used years ago when it would've mattered, but at this late stage, they likely won't help. And for having brought Sears Holdings to this low station, Eddie Lampert needs to go.

Retire this hospital system's debt -- and its CEO

Keith Speights (Community Health Systems): I must admit that the companies that I most thought should kick their CEOs to the curb over the last year have already done so. (Thanks, Valeant and Teva!) However, I think there is one other company that should seriously consider a change at the top: Community Health Systems.

Shares of the hospital operator are down nearly 30% over the last 12 months. For a while, the stock was in much worse shape than that. Not all hospital stocks experienced such turmoil, by the way. Shares of HCA Holdings are up around 20% during the same period.

In my view, the blame falls squarely on the shoulders of Community Health Systems CEO Wayne Smith. Smith has enjoyed a great career and helped build the company from a small rural organization to a large national hospital operator. However, he also helped amass Community Health's $15.3 billion of debt.

That debt load is causing serious issues for the company. Community Health has been in divestiture mode, selling off properties to generate cash to pay down the debt. Smith oversaw a period of too-greedy and too-fast growth for which the company -- and its shareholders -- now have to pay the price. Because of past mistakes by its management, Community Health is now experiencing declining revenue and greater net losses.

The company's general counsel retires at the end of March. Community Health's CFO announced in February his plans to retire on May 16. I think it's time for Smith to join their ranks and turn the helm over to someone who can lead the company for years to come.

Keith Speights has no position in any stocks mentioned. Rich Duprey has no position in any stocks mentioned. Todd Campbell has no position in any stocks mentioned.

bloruleshort.gif (618 bytes)

RetailNext: Stores not dead but do need to be reinvented
By Marianne Wilson
Chain Store Age
March 17, 2017

Despite the growth of online shopping, brick and mortar stores are still critical to retail success.

"Retail stores are not dead," said Shelley E. Kohan, VP of retail consulting at RetailNext Inc. "The retailers who continue to embrace change in their business models will be well positioned for today and in the future."

With digital shopping behaviors firmly established and store sales continuing to decline according to the company's latest Retail Performance Pulse report, many brands in the United States are crippled with too many stores and too much space, according to Kohan. Consequently, "it's critical for stores to be reinvented in order to blend seamlessly with a brand's established digital touchpoints," she explained.

Kohan cited the case of formerly online-only brands such as Amazon, Warby Parker, Bonobos and Rent the Runway that have opened brick-and-mortar stores in the last two years, resulting in profitability and low-cost customer acquisition.

"This is not a case of 'build it and they will come.' Instead of opening stores in areas where traffic needs to be driven, brands should invest in building out attractive stores in areas that already have high traffic," Kohan advised. "Use the traffic-driving budget instead to deliver an exceptional in-store shopping experience and market toward shopper retention and loyalty."

Also, the same actions toward addressing shopping trip abandonment online need to be applied in-store through customer service to eliminate friction points for the customer and achieve higher conversion rates.

"While each shopping touchpoint, digital or physical, has its inherent advantages, none will ever be able to do it all alone," Kohan said. "The reinvention of stores to integrate with online platforms is essential to a brand's future success."

bloruleshort.gif (618 bytes)

Study: Retailers need to empower their workforces, realign skills to succeed
By Deena M. Amato-McCoy
Chain Store Age
March 17, 2017

The increasingly digital customer is impacting the evolution of new, distinct store formats.

As stores transition to new concepts by 2020 and beyond, so will the roles of store associates, according to new research