Sears Canada Melts Down

Goes Bankrupt. Lays Off 2,900 People. Shareholders rue the day.

Sears Canada and its subsidiaries, which operate 95 department stores, 29 Sears Home stores, 71 Hometown stores, 16 Outlet stores, 69 Sears Travel offices, and 32 Corbeil appliance stores, and thus lease a lot of mall space, filed for bankruptcy protection today. It will also close a slew of stores and fire 2,900 people.

The company was partially spun off from similarly struggling Sears Holdings in the US in 2012, which still holds a 12% stake, and whose CEO Eddie Lampert owns a 45% stake in part via his hedge fund, ESL Investments.

In the announcement, Sears Canada said that it has applied to the Ontario Superior Court of Justice for protection under the Companies’ Creditors Arrangement Act (“CCAA”), in order to restructure its debts. It doesn’t plan to liquidate.

In a later release today, the company said that it was granted an “Initial Order” from the Court. Among other things, the order authorizes Sears Canada to obtain prearranged debtor-in-possession (DIP) financing of C$450 million. This is expected to provide the company with enough liquidity to keep some of its doors open through the bankruptcy proceedings.

Only some of the doors because Sears Canada will shutter 20 full-line locations, 15 Sears Home stores, 10 Sears Outlet stores, 14 Hometown stores, and lay off “approximately 2,900 people across its retail network and at its corporate head office in Toronto.” Timing of the store closings “has not yet been finalized,” it said.

The initial release claimed, “Sears Canada Reinvention Continues.” Despite sales having plunged for years, it points at its “brand reinvention,” how it “rebooted its customer experience and service standards,” and how its “newly designed site built in-house by a new technology team” and some other factors are going to make this work.

But retail businesses are notoriously difficult to restructure because they have so few assets and so much debt once they get to this stage, and because the collateral isn’t worth much. Most end up being liquidated. To stay alive over the years, Sears Canada has sold off most its real estate holdings, so the most valuable assets are already gone.

On June 13, I reported that Sears Canada had hired the same leading bankruptcy and insolvency advisory firm (Osler, Hoskin & Harcourt LLP) that represents Target Canada, which ended up in insolvency proceedings in 2015 when it shuttered its 133 stores and 7 more locations it hadn’t even occupied. Hiring that firm was a dead giveaway.

June 13 was also the day Sears Canada disclosed another fiasco for quarterly results, that there were “material uncertainties” about its “ability to continue to satisfy its obligations,” given the rate at which it was bleeding cash, that it had doubts about its ability “to continue as a going concern,” and that lenders weren’t willing to keep it afloat for the next 12 months.

It added that, “in light of these developments,” it had canceled its annual shareholder meeting scheduled for the next day, and “as a result,” Jeff Stollenwerck, a SVP at Sears Holdings, had “resigned as a director effective today.”




It took only nine days for its warning to turn into the reality of the ongoing brick and mortar retail meltdown.

In today’s announcement, Sears Canada projects some optimism that it would actually, against all odds, be able to restructure its business and go on, rather than liquidate and disappear:

The brand reinvention work Sears Canada has begun requires a long-term effort, but the continued liquidity pressures facing the Company as well as legacy components of its business are preventing it from making further progress and from restructuring its legacy assets and businesses outside of a CCAA proceeding. If granted, the Sears Canada Group will work to complete its restructuring in a timely fashion and hopes to exit CCAA protection as soon as possible in 2017, better positioned to capitalize on the opportunities that exist in the Canadian retail marketplace.

Even if it succeeds in restructuring, current shareholders – including Sears Holdings, its CEO Eddie Lampert, and his hedge fund, ESL Investments – will likely end up with shares that are worth nearly nothing or nothing. A restructuring essentially hands ownership of the company to its creditors that will also take a massive haircut, depending on their seniority.

Trading in its shares is currently halted. They’ve been reduced to penny-stock status long ago, and their value has become inconsequential.

Shares of Sears Holding in the US hit a new all-time low yesterday of $6.21. Today, once again, the dip buyers that have been playing this game for years, are trying to pick up pennies in front of a slow-moving steam roller, which works for a while if you’re fast enough to get out of the way.

Sears Holdings is skidding the same direction as its sister company. The ingenious strategy of cost-cutting and store-closing its way out of trouble is leaving marks: Pretty soon, it leads to zero. Read… Sears Revenues Plunge, to Hit Zero in 3 Years, Shares Jump




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  42 comments for “Sears Canada Melts Down

  1. mvojy
    Jun 22, 2017 at 10:23 am

    Eddie Lampert and his hedge fund, ESL Investments are killing off an American icon. Just like how A&P went under from having such bad management, Sears is on track to do the same.

  2. IdahoPotato
    Jun 22, 2017 at 10:33 am

    I walked into my local Sears yesterday looking for a bargain. They sell loads of poor quality junk. Nothing worth paying for. There were one lady who was waiting for 20 minutes to be served at the vacant checkout counter. What a huge difference from the Sears I knew from 20 years ago.

    I think they should do everyone a favour and shut the U.S. stores down too. This applies to most retailers, though. Abysmal quality, dismal customer service.

  3. Simplyput7
    Jun 22, 2017 at 10:39 am

    We’ve had some companies try to restructure in the retail sector in Canada that ended up becoming full blown liquidations. I don’t know if Sears can recover from this bankruptcy.

    It might be time for it to finally go.

  4. HiWreck
    Jun 22, 2017 at 10:54 am

    This strategy worked so well that Land & Buildings Investment Management wants HBC to do exactly the same thing: https://www.theglobeandmail.com/report-on-business/us-activist-investor-seeks-shakeup-at-hbc-report/article35355848/

  5. RD Blakeslee
    Jun 22, 2017 at 11:00 am

    a farm equipment dealer friend of mine said a few years ago: “There are too many of us trying to sell what other people make”.

    • Duane Snyder
      Jun 22, 2017 at 12:41 pm

      Your friend came up with a fantastic way to put it, a small nugget of truth that sums up the current state of the economy very nicely!

  6. TJ Martin
    Jun 22, 2017 at 11:05 am

    … to add to Canada’s woes … GM’s summer ‘ shut downs ‘ have been extended at two of their factories in Canada .. and effecting auto factories here and on both sides of the borders … NAFTA renegotiations have been placed on permanent hold [ TTAC ]

    As for the topic at hand .. Sears ? From my perspective they’ve been dead man walking for over a decade due to mismanagement etc .. so perhaps its time they’re finally put out of our/their collective misery … unfortunately

  7. greg
    Jun 22, 2017 at 11:29 am

    It was too funny, when the day before Sears Banko announcement, which will put 1000s out of work, the Premier of Ontario was at Amazon Toronto’s Hdqrs where Amazon announced the hiring of 200 new staff.
    No surprise she was a no-show at Sears Hdqrs for the crash-and-burn announcement!
    Also, a no-show when the Royal Bank of Canada cut 450 head office personal in Toronto. Royal bank only made 11 billion profit last year, so obviously it was a solvency issue! The 5 politically protected Canadian banks (the only financial institutions that can create $$$ with fractional reserve banking and the primary dealers for all gvt debt) have consistently grown their profits 10% annually.

  8. Jim Graham
    Jun 22, 2017 at 11:41 am

    Curious…

    I have to wonder how much money ESL Investments has received over the last few years from the sales of Sears assets.

    More than ESL had invested in Sears???

  9. IdahoPotato
    Jun 22, 2017 at 11:43 am
  10. Mike Earussi
    Jun 22, 2017 at 11:56 am

    Wolf, I know you’ve been blaming Amazon and other web sellers but really the only stores that I’ve seen having sever problems have been those selling low quality crap at high prices (Sears, K Mart, Radio Shack, Penny’s, etc).

    • Petunia
      Jun 22, 2017 at 12:17 pm

      I was in a BCBG store last week, perusing their 50% off sale, and it was still overpriced.

    • Suzie Alcatrez
      Jun 22, 2017 at 12:18 pm

      Neiman Marcus is also having difficulties.

    • Niko
      Jun 22, 2017 at 12:20 pm

      Don’t forget Macy’s

    • Jun 22, 2017 at 12:24 pm

      But wait… some discounters are doing very well. Thrift stores too.

      But yes, Sears and Kmart are – and soon “were” – terribly run businesses over the past 20 years or so. Even without the shift to online sales, their days would have been numbered. In a shakeout like we have now, they’re the first big ones to go. E-commerce is just speeding up the process.

      • economicminor
        Jun 22, 2017 at 3:12 pm

        I think e-commerce is over rated as a killer.. I seldom buy anything big on line because of the hassle of returning it if it doesn’t work. Amazon is yet to have local service centers for its appliances or electronics. I do buy on line but mostly things that are not big ticket items.. or repair parts. I purchased on line batteries for an electronic caliper and some velcro wire ties. But most purchases are still from brick and mortar so I can see, feel and return if necessary.. I think the last numbers I saw were in the below 15% of retail spending was on line.

        From what I read and see, I still think that the demise of retail is 1/ to much capacity (everyone trying to steal each others customer which was allowed by cheap credit/easy access to debt with little real thought to how it was ever going to be repaid). 2/ the shifting of spending due to mandatory and virtually unregulated costs like insurance, health care and hidden taxes and fees. 3/ the real and actual demise of the consumer’s income (off shoring of jobs and robotics).

        The financialization of the world economy is only partly responsibility for Sear’s problems.. Yes it did exacerbate them. But IMO, who was an advent Sears Fan ( I have hundreds of Craftsman tools and before their decline I purchased most of my appliances and lots of furniture and outdoor stuff from them) but something happened to them maybe 30 years ago when they shut down most of their catalogue stores. They had a great thing going, especially in fly over rural America. They really blew it.

        Now I never go there.

        • Lee
          Jun 22, 2017 at 5:31 pm

          Well consumers here in Oz have been dealt a lucky hand – at least for another year.

          The GST of 10% that was supposed to be applied to imported items of less than $A1000 from 1 July 2017 has been put off until 1 July 2018 as the scheme was in fact no plan at all and poorly thought out.

          I wonder what the ‘new’ plan is going to be?

          But, back to online shopping.

          I needed a special tool for work on my car. Down to the local auto parts stores. (Here in in Oz we call part “spares” – more Oz lingo for you Wolf).

          They wanted between A$24.95 and A$29.95. Too cheap to pay that for a one time use. Off to eBay and they were around A$4.95 post free from Hong Kong.

          Huge prices on things like that here. Multiples of USA prices.

        • Jim Graham
          Jun 22, 2017 at 9:06 pm

          Here in the US many of the “spares” houses have ‘loaner” tools. You pay the going price + tax with cash, credit or debit card – – bring it back in good condition within the allotted time (usually 3 days to a week) and get ALL of your money and tax back.

          I had to borrow one a few weeks ago to put a tie rod on a “new” crashed Chrysler van. Did not have the special tool to do the job. AutoZone had one. It didn’t fit – just a smidge too small. Ran back to the store, went thru their inventory – no go. Counter man asked if I coud make it fit. YEP, I can do that with a small amount of grinding. He said do it, I can return it as defective.

          So we did – finished the van and got our “deposit” back..

        • RD Blakeslee
          Jun 22, 2017 at 7:22 pm

          Amazon takes anything back for any reason, for up to thirty days, although they have controls in place to prevent abuse.

          I have had to return large items and I just put them
          back in their original packaging. Upon return approval (a simple several-click process – the Amazon website is very well designed) , Amazon sends out UPS the next day to pick it up.

        • economicminor
          Jun 22, 2017 at 10:44 pm

          Yeah but,,,,, I like to look at and see what I am buying when it is a big ticket… There is a lot of difference in most bigger ticket consumer items. I want to actually, physically look them over. You know, slam the doors… push the buttons.. Maybe I am old and old fashioned and the younger people just push the button and then if they don’t like it push some more.. and send it back and order something else..

      • RD Blakeslee
        Jun 22, 2017 at 7:26 pm

        Well-run smaller stores far away from population centers are doing well. Here, IGA, Dollar General and True Value hardware do OK.

      • Ambrose Bierce
        Jun 29, 2017 at 11:41 am

        A great deal is made of low US GDP (2% maybe) while consumers buy from China, where GDP is 7%. Now when the Chinese supply ends, what sort of US policy is going to guarantee US consumers a market? There is none. Right now you can buy on Amazon drop shipped from China. Amazon is cutting out UPS with their own version of Uber delivery service. Okay bash US retail as poorly run, but global economic policy is the cause.

    • chip javert
      Jun 22, 2017 at 9:50 pm

      Walmart had eaten Sears’ lunch about 20 years ago. That’d be about 1996, (AMZN came on the scene about 1994).

      AMZN has definitely been twisting the knife in retailers, but Sears has been too far gone for too long. AMZN probably rolls Sears into the “ALL Others” category and doesn’t even track them as a competitor.

  11. unit472
    Jun 22, 2017 at 12:31 pm

    OK Sears is badly managed but Target? I just wonder if the run up in Canadian housing costs isn’t, in part, behind the stress in retail.

    https://3r8md7174doo44lgpk3kou79-wpengine.netdna-ssl.com/wp-content/uploads/2017/06/USCanadaHomePrices1975-2016.jpg

    Money has to come from some place and if Canadians are having to put more into their mortgages that leaves less for other goods.

    • greg
      Jun 22, 2017 at 12:43 pm

      Good point, unit472.
      Also, new carbon taxes, hydro rates jumping by double digits annually, gvt fees jumping by up to 50% annually, Toronto property taxes(when garbage and water is included) up by 5%.
      TTC rates jumping 5% annually!
      gvt taxes and service fees are going higher by more than twice the rate of inflation.

  12. raxadian
    Jun 22, 2017 at 12:48 pm

    I at least saw this coming when I heard how low the profit rates of chain retail stores were in the US and that in Canada it wasn’t any better. Oh and people being so polite about Sears in general…

    I would say to invest in Amazon but I think Alphabet is a safer bet even and maybe because they aren’t trying to become a food and retail monolopoly.

    I will say that the police change in the Fed might screw Amazon over but I don’t think so since the Fed has been warning about what was gonna do for a while. So we have at least a few months were Amazon spanding might cause a rise in their stocks but will that last past December? The Holiday season will of course cause the usual rise on sales but after that, will Amazon Whole Foods deal start to backfire because Whole Foods will start to lose customers due to the changes and surge pricing?

    I don’t know, I don’t have Amazon black book. Don’t take investment advice from comments on the Internet, that’s silly. Be sure to verify the information and look at several sources.

    Oh and there might be a new Google Glass comming for the end of the year or aa soon as they get an augmented reality game to go for it. Why else they would go and start updating the old Google Glass firmware?

    I mean Google Cardboard ended working way better, because is just a piece of Cardboard that you add your Cellphone to.

    But back to topic, were you guys buy your food? Around here is too small buy it online, heck I can’t even order a pizza using an app.

    • RD Blakeslee
      Jun 22, 2017 at 7:12 pm

      Krogers does a good job here. Use Dollar General for loss-leader items and also use IGA. Between krogers and IGA, it depends how much I need to buy at any given time. IGA’s prices are higher than Krogers’ new prices (they significantly cut them recently) but they are 1 1/2 hour away, vs. 20 minutes for IGA.

  13. greg
    Jun 22, 2017 at 1:06 pm

    Wolf, you should do a piece on the tax inflation in Ontario!
    It is going through the roof–from license plates to traffic tickets to water rates and TTC rates, they’re soaring.
    Best Regards Greg

    • Jun 22, 2017 at 1:25 pm

      It wrote about part of it, real estate taxes in Toronto…
      http://wolfstreet.com/2017/02/20/why-toronto-and-other-cities-inflate-housing-bubbles-to-the-bitter-end/

      I know that’s only a slice of the whole pie, but a pretty good slice. I probably should write about Ontario’s debt too, while I’m at it ;-]

      Ontario’s debt makes us Californians feel practically prudent in comparison – and that’s a hard thing to do.

      • greg
        Jun 22, 2017 at 1:41 pm

        You are very informed about Ontario’s dire debt straightjacket! Yup, Ontario the world’s biggest non-soverign debtor! Looks, like the Liberals will be soundly defeated in the next election, however, the damage has been done. 2008 2.0 will devastate Ontario.

      • kam
        Jun 22, 2017 at 2:15 pm

        Ontario and Quebec debt combined is on a par with Canadian Federal debt. And all the off-balance sheet debt would keep Sherlock Holmes busy finding it.

        The BIG Canadian LIE. Canadians are “prudent”. Like hell they are. You can’t finance gibmedat socialism without borrowing at full throttle.

    • jb
      Jun 22, 2017 at 8:00 pm

      we have a similar scenario here in the states : it is called Illinois.

  14. cdr
    Jun 22, 2017 at 1:08 pm

    When the US Sears branch goes off to its reward, I will miss repeatedly almost buying something there. Good sales … just didn’t need anything.

    That being said, if JCPenney ever leaves us, I will seriously miss their underwear and t-shirts. Plus their 70%+ off discount racks at season end. Stafford rules.

  15. walter map
    Jun 22, 2017 at 1:12 pm

    In the end, there can be only one.

  16. doug
    Jun 22, 2017 at 1:41 pm

    Walter we used to think differently about monopolies, and it may change again…

  17. walter map
    Jun 22, 2017 at 1:50 pm

    Thinking hasn’t been prohibited yet, doug, although it has been rendered obsolete. Maybe next year.

    https://mindreels.files.wordpress.com/2014/02/they-live-billboard.jpg

  18. Jun 22, 2017 at 3:36 pm

    I have now updated the article with these developments:

    In a later release today, the company announced that it was granted an “Initial Order” from the Court. Among other things, the order authorizes Sears Canada to obtain prearranged debtor-in-possession (DIP) financing of C$450 million. This is expected to provide the company with enough liquidity to keep some of its doors open through the bankruptcy proceedings.

    Only some of the doors because Sears Canada will shutter 20 full-line locations, 15 Sears Home stores, 10 Sears Outlet stores, 14 Hometown stores, and lay off “approximately 2,900 people across its retail network and at its corporate head office in Toronto.” Timing of the store closings “has not yet been finalized,” it said.

    • jb
      Jun 22, 2017 at 7:22 pm

      this DIP financing is new to me , only became evident till you mentioned it again. SO sears a company that is probable insolvent receives almost half billion in new funding to wind down? who holds the dip paper ? i find it incredulous that the CEO didnot see the writing on the wall and start winding down
      maybe a year earlier . does this funding preclude other subordinate parties from receiving a settlement ?

      • Jun 22, 2017 at 9:47 pm

        DIP financing has special protections in bankruptcy court. So it’s not very risky. Many bankruptcy restructurings that are expected to last a while involve DIP financing or else the bankrupt company wouldn’t have the liquidity to go on and make it even through the proceedings.

  19. matt
    Jun 22, 2017 at 4:24 pm

    what is not being mentioned here? bay boomers retiring in large numbers. Hundreds of thousands a month right now for the next 12 years . this is draining billions of disposable income from the economy. . Birth rate lowest in recorded history. A death mix for retail. On line? a small mix to the big picture. all time highs in housing prices, health care, autos. personal debt. credit card debt

  20. Petunia
    Jun 22, 2017 at 5:16 pm

    They are just commenting on the collapsing price of Bed Bath & Beyond, down 30% today. You would think that the demise of Sears would be a big boost to them, but it isn’t in this economy. I have a stack of coupons for them and I never buy anything without one, which isn’t often.

    Those “rising wages” are disappearing into a black hole somewhere. In the small city where I live, I can see the rising crime wave in the past year. Lots of shootings and robberies in the last few months and it seems to be increasing.

    • RD Blakeslee
      Jun 22, 2017 at 6:32 pm

      “In the small city where I live …”

      Too big?

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