The Brick-and-Mortar-Retail Meltdown in January

‘Tis the season for bankruptcies.

Sears Holdings, which has been on a highly effective hedge-fund-manager-designed program of cost-cutting itself to death, announced today that it obtained another $100-million loan from JPP, LLC and JPP II, LLC, which are solely owned by said hedge-fund manager and CEO of Sears Holdings, Eddy Lampert. After prior loans by the same entities and by Lampert’s hedge fund ESL were secured by the part of real estate that hadn’t been sold off in sweetheart deals to affiliated parties, the new loan is secured “by certain real property interests” and by “substantially all of the unencumbered intellectual property of the Company and its subsidiaries” except the IP related the Kenmore and DieHard brands.

Stripping out while the stripping is still possible.

Yesterday, Sears announced another step in cost-cutting itself to death: axing 220 jobs mostly at its corporate office. This was part of its stated goal to trim $1.25 billion from its annual expenses. After closing hundreds of Sears and Kmart stores last year, the company is on track to close 63 more stores in January. This will leave it with 1,041 Sears stores, down from 3,555 in 2010, and with about 500 Kmart stores.

But sales are dropping even faster. In Q3 2017, the last quarterly report available, revenues fell to $3.7 billion, down 26% year over year and down 68% from Q3 2007.

Sears shares [SHLD] currently trade at $2.41, down 6% for the day, and down from the Lampert-hype induced 52-week peak of $14 on April 19, 2017. Day traders are having fun riding them all the way to zero.

A bankruptcy filing will occur after Lampert runs out of assets to strip. Now he’s going after Sears’ IP, meaning he’s scraping the bottom of the barrel.

Bon-Ton Stores, which had hired bankruptcy advisors in September, announced some details yesterday on a new wave of store closings in early 2018, involving 42 stores. Bon-Ton has taken on a third-party liquidator to get rid of the merchandise in those stores. Liquidation sales begin today.

On December 15, Bon-Ton failed to make a $14-million interest payment and opted to take the 30-day grace period instead. After the grace period expired, Bon-Ton announced on January 16 that it had entered into forbearance agreements with some of its lenders. These lenders agreed not to exercise the remedies available to them to go after the missed payment. That agreement expired on January 26…. A bankruptcy filing is imminent. Bon-Ton shares [BONT] are trading at 16 cents. They’re goners

Stein Mart, with about 290 off-price stores in the US whose same-store sales had fallen about 7% in Q3 year-over-year, after having fallen 4.6% in the prior year, announced on Monday that, “given the continuing challenges of the retail environment,” it has formed a special committee to “review our strategic options,” “explore all opportunities,” and “identify potential strategic alternatives.”

Since the announcement on Monday, shares have plunged 42% to 65 cents. They too are goners.

Nine West Holdings – which focuses on women’s shoes, accessories, jeans, jewelry, and handbags sold at its own stores and at department stores – became subject of intense bankruptcy rumors on January 24, when “people with knowledge of the negotiations” told Bloomberg that the company was negotiating with some of its creditors on a prepackaged Chapter 11 bankruptcy filing before an interest payment comes due on March 15.

It would include restructuring nearly $1.5 billion in debt, sell parts of the retailer, make first-lien lenders whole, hand a majority of the equity of the reorganized company to unsecured term-loan lenders, and hand a small part of the equity to bondholders as a consolation prize. These bonds traded at 11 cents on the dollar.

The retailer was acquired by private-equity firm Sycamore Partners as part of its $2.2 billion leveraged buyout of Jones Group in 2014. Sycamore is becoming an old hand in failed brick-and-mortar retailers, including its portfolio company Aeropostale, which filed Chapter 11 bankruptcy in May 2016.

An astounding list of the meltdown: How PE firms doomed the brick-and-mortar retailers. Read… The Private Equity Firms at the Core of Brick & Mortar Retail Bankruptcies

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  57 comments for “The Brick-and-Mortar-Retail Meltdown in January

  1. raxadian says:

    At this rate you might as well do a monthy resume of Brick and mortal meltdowns because so many companies are going under that’s ridiculous.

    Some of the things I would like to read this year is things like

    “How the tax cut will make this year difficult”

    “Do we have the energy to power all these electric cars?”

    And my favorite so far “Is 2018 and yes you are still being hacked”.

    Hearing that ATMs have software that has not been updated since 2009 at best (if you are lucky) is ridiculous.

    At this rate you people might as well start to bug your congressmen to make double verification obligatory. It doesn’t help that much but it does help.

  2. Kent says:

    “Now he’s going after Sears’ IP, meaning he’s scraping the bottom of the barrel.”

    Those Sears patents and a cup of Starbucks will get you $5.00, Eddie.

    • lenert says:

      Some nostalgic billionaire will pay millions for the Catalog rights just to say he owns the rights to The Sears Catalog.

    • Tom says:

      Eddie says “Why compete when it’s so profitable to strip”.

  3. Petunia says:

    Sears –
    Haven’t been to one in about 2 years, since they sold me a crappy BBQ.

    BonTon –
    Haven’t been to one in decades, since I left PA.

    SteinMart –
    Haven’t been to one in over 10yrs, they sold ok things but not really a discounter, like they claim. May go to one now for the going out of business sale.

    NineWest –
    Other than flipflops haven’t bought a pair of women’s shoes in the last 10 yrs. Had to dig out my old boots this past month for the cold snap.

    My point is that no one is going to miss these guys.

    • Hirsute says:

      I won’t miss them either. About the only retailer I would miss is the grocery store. But…these articles beg the question as to whether this is Schumpeter’s creative destruction (i.e. shifting to online sales from brick and mortar) or signs of overall excess capacity. I tend towards the latter. Online retailers are a fraction of overall retail and even Amazon is putting money into physical retail space.

      • Petunia says:

        The ground has shifted and there is a general misalignment in markets. There is overcapacity and it not just too much stuff, but too much of the wrong stuff. Consumers are rejecting the cheap junk and the expensive junk too. The lack of real quality is evident in every sphere. Amazon gets a bad wrap for killing retail, but they don’t make the stuff, they only do a great job at getting it to the consumer.

        • alex in san jose AKA digital Detroit says:

          Example: I go to my local Safeway. While waiting in line I watch them wrestle to the ground and put cuffs on a suspected shoplifter. This is funny because they don’t normally bother shoplifters, who take off with lots of booze etc all the time.

          Among the things I’ve bought are 3 packs of Farmer John sausages, marked at 3 for $5. It turns out they didn’t charge that, and they didn’t charge the usual price which is about $1.89 each, nope, they charged just a hair under $7.

          I’d like to see some other competitor come in and kill Safeway in my area. If I had a reliable address (one that things won’t get stolen from) I’d seriously consider ordering some of these things, like Farmer John sausages that Safeway has a lock on, from Amazon.

        • William SMith says:

          If stuff wasn’t designed to break all the time (planned obsolescence) and products weren’t impossible to repair (so you need to continually buy new ones), where would all those chinese find jobs? America is the great employment engine for china manufacturing. Who would be so naive to think that the consumer would have the right to a well designed and US made product which would last a lifetime and be easy to repair (parts & docs available). Just what would all those poor little chinese do? Think of the chinese!

        • Argus says:

          I, in Canada, am fed up with cheap quality Asian made goods. I’m prepared to pay a bit more for better products which are made in North America but struggle to find them.
          Built-in obsolescence also irritates the h.. out of me and, where I can, I find alternatives, e.g. I’ve given up on electric filter coffee machines and use a solid stove-top percolator.

      • Tom T says:

        yup, just a bunch J6Ps, so who cares right? Thanks for the econ 101 brush up too

      • Brian M says:

        Some statistics I have seen claim that the United States has multiple factors of retail per capita when compared to other “advanced” countries. (5:1?)

    • James Levy says:

      The many people they employed will miss them greatly. Where they will find work should concern us.

      • alex in san jose AKA digital Detroit says:

        Why do you think Socialism is so popular with young people these days?

      • LessonIsNeverTry says:

        I wish them well in their search but it shouldn’t be too much of a concern for all of us as a whole, considering the low unemployment rate. If the UR puts together a rising trend then I’ll be concerned.

        • Tom T says:

          You actually believe the unemployment rate numbers given out? Sheeech!

        • ZeroBrain says:

          Holy molly – that was sarc, right? If not, you need to check out the employment population ratio – a number they’re not gaming. If you’re going to quote stats, that’s one of the biggies.

      • Frederick says:

        Universal basic income will remedy that problem James Just chuck the sheeple a bone now and then

    • ILL WILL says:

      The point of all the closings is the loss of jobs for thousands of people. Once retail is dead their will be nowhere to work..

      • fanofjesus says:

        yes, and THERE will also be nowhere to shop–what if the internet breaks?

  4. Ethan in NoVA says:

    I think our local Sears and becoming a Dave and Busters. The Dave in Busters down in Springfield VA must print cash. So busy, and the games are expensive to play and don’t last long since they’re mostly redemption and not conventional arcade games.

  5. Michael Fiorillo says:

    The textbook case of corporate vampirism, which B-schools will be certain to ignore while they train the next generation of asset strippers and looters.

    My immediate reaction when Lampert bought the company a decade ago was, “This is a real estate play; he couldn’t care less about retail.”

    Ah, yes, America, where “free enterprise” is the freedom to loot a nation’s patrimony and enrich yourself on the deepening misery of the poor and working class.

    Oh, that, and monetizing people’s personal lives… and turning dark-skinned people in far away lands into pink mist…

    • James Levy says:

      What bugs me is the absolute faith that these jobs will all be replaced. There is no natural law in the cosmos that says that the general tendency of the loss of jobs in one sector must be met with equal or greater jobs in another. Past experiences is no guarantee of future performance. As far as I can see most blue collar jobs that have been lost since 1979 have been replaced, where and when they’ve been replaced, with inferior jobs. We’ve expanded the tech sector since then for the children of the top 10% but even middle management has taken a hit since the late 1970s. American social and political stability was built on the promises made in the New Deal and GI Bill era. Those promises no longer apply. Americans are extremely slowly coming around to understand that. The likely results should make us all pause.

      • mean chicken says:

        It baffles me too, probably they’re talking their book.

      • Dave P says:

        Oh I think the citizens are now well aware of how uneven the playing field is. This is why an unknown junior senator became POTUS in 2008 on the entire premise of Hope&Change (LOLOLOL). He then proceeded to cater to the Wall St crowd while Main St crumbled.

        Now we get the Trump and his brand of populism (ROFLROFL).

        Cant wait to see who we get after Trump!!

      • 728huey says:

        Historically, jobs that are lost in one industry do eventally get replaced, but it takes years to replace them, and even then they tend to be much different jobs than the ones lost, and as we have seen during the past 40 years they are usually lower-paying jobs as well. When the 20th century began,even though there were a huge number of factories as a result of the industrial revolution, agriculture still accounted for about 40% of all employment in the USA. Today it stands at 2%. Around 1980, industrial jobs began being shipped overseas, and lower-paying service jobs began replacing those former industrial jobs. Today, most service jobs are being replaced by automation, and while those with skills for high tech positions can jump to even higher paying jobs, those who don’t are being left behind with nothing. How is a nursing home janitor who finds his job cut supposed to get a job as a search engine optimization consultant or a social media marketing manager?

        • Coaster Noster says:

          Perhaps not obvious is the role of farming and agriculture. In the 19th century, much innovation, many manufacturing jobs, came from mechanization of farming, allowing fewer people to produce multiples of prior crop yields per person, and agricultural employment dropping down from over 50% of the population (even up to the 1940s) to 2-3 per cent today. Jobs that are created to increase food productivity (e.g. factory methods for swine, chicken production) are not yielding results that increase overall GNP. SEO jobs are a zero-sum game, so specialized, that they will eventually result in “Nuclear Submarine Technician Syndrome”: the situation in the 1980s, where the closing of military bases took away $50k/year jobs, and no possible replacement…where were the private-sector nuclear submarines the techs could service? SEO and social media jobs presently occupied by people, will be crushed under an algo onslaught, when waves of innovation synch up.

    • curious cat says:

      “…which B-schools will be certain to ignore while they train the next generation of asset strippers and looters”

      Yep. I have an MBA and it has often occurred to me that “we have met the enemy and he is us (the MBAs).” Seems like American business hired the best MBAs to rape and pillage, while those of us from the lesser schools (University of Delaware) were hired by those trying to defend against the Visigoths. No match.

      • Michael Fiorillo says:

        Nothing personal, but yes: this country will continue to deteriorate as long as B-school attitudes, values and tactics rule the economy and polity.

        • Coaster Noster says:

          It’s similar to a traffic jam. You cannot point to one car, and say, “You’re causing a mess!” It is the collective, but individually-originated, idea, that methods of doing business that are obviously destructive on a case-by-case basis, should be “the best business methodology” for everyone, everywhere.

  6. Rates says:

    These are shit stores. About time.

  7. RepubAnon says:

    We need to change the bankruptcy laws to add a 20 year clawback provision for companies that load up an acquisition with debt to extract funds for themselves. We’d see much less of this abuse.

    • Coaster Noster says:

      This idea of tinkering with bankruptcy laws is simply hammering plugs into a leaking dike. If fast intelligent machines can play “Go”, with more methods at their disposal for strategy than there are stars in the universe, certainly AI can do everyone’s taxes individually, everyone’s business individually, and simply apply heavy taxation to schemes that negatively affect the public good…..
      In such a world, people like Trump would still be wrestling with a single building in New Jersey (and only one wife).

  8. mean chicken says:

    Some claim it’s not due to Amazon and watch for UPS/FEDEX to go bankrupt. I’m pretty of hearing made-up lies that have no basis in reality.

    Here’s another lie, proof of Sadam’s WMD:

  9. Paul Fillion says:

    I attribute all this primarily to the bulk of American consumers having declining discretionary spending power. Wages are stagnant, full-time jobs are disappearing and being replaced by part-time jobs, healthcare costs are unbelievable and headed to the moon, AND most people are servicing WAY TOO MUCH debt they assumed to buy things they really didn’t need, or could not really afford.
    The spending increase fourth quart was also accompanied by a huge spike in credit card balances and a drop in the savings rate to levels that have not been seen in decades.

    The American consumer is tapped out.

    The result, the median financial net worth, excluding home equity, of households headed by a person of retirement age is less than the median household income for 1 year.

    And their total net worth is less than the median price of a home in this country.

    Further, as defined benefit pensions fade further and further into history, and part-time jobs replace full-time jobs, it will only get worse and worse.

    • Gibbon1 says:

      Policy makers have bamboozled themselves by using an inflation metric designed for valuing bonds as the gold standard for judging economic performance. Which is sad and deranged because outside that context inflation core or headline inflation are meaningless.

      Discretionary income, ratio of rent vs net tax income, housing affordability, labor share of income. Those are solid metrics that unlike core and headline inflation capture history.

      I think economists cling to core and headline inflation because all the other metrics show they’re doing terrible things to ordinary people.

      • elysianfield says:

        “Discretionary income, ratio of rent vs net tax income, housing affordability, labor share of income. Those are solid metrics that unlike core and headline inflation capture history.”

        Figures do not lie, but liars figure thus as you describe.

    • JohnF says:

      “AND most people are servicing WAY TOO MUCH debt they assumed to buy things they really didn’t need, or could not really afford.”

      Because right after 911, The Bush/Cheney Crime Team told everyone their Patriotic Duty was to Buy Houses & Go Shopping to Defeat the Terrorists.

      And Boy, Everyone Went Shopping.!!!!!!!

      • Coaster Noster says:

        The Crime Team names include Alan Greenspan, with his interest-rate policy. I fell for the “buy more stuff”, when, out from nowhere, and beyond business prudence, I received multiple offers of $20,000 direct to my checking account, no collateral, and payments of $120 per month! Heck, I took them up on -three- of these offers. One pitiful business failure and three zero income years later, five years later, I filed for bankruptcy.

        • Brian M says:

          Everyone blames debtors (I am horrible at managing my finances) but they forget that for every addict there is a predatory pusher.

  10. Lee Blockchain says:

    Laundering dirty money, could be a way out of trouble for some, seeing that the justice system has a hard time catching many of them.

  11. interesting says:

    I’ve heard of sears and none of the others.

  12. Prairies says:

    I had this on the mind lately after our wise PM mentioned in Davos that Sears employees that won’t get a pension shouldn’t worry, they can apply for Canadian Pension and welfare. Yay! Nice to see some top tier employees finally get the axe, likely with a severance package though.

    Also Loblaws and who knows which other grocery stores that will lose some foot traffic from the price fixing reported in Canada. 2018 might just be the year the fuse gets lit on the whole circus cannon madness.

  13. walter map says:

    97 percent of bankruptcy filings are made by individuals, not by businesses. A recent Harvard University study showed that medical expenses account for approximately 62 percent of personal bankruptcies in the US.

    The Financial Industrial Complex ran retail into the ground. Running the rest of the country into the ground will take them a little longer.

  14. Vinman says:

    Zombie companies have been kept alive by ten years of nearly zero percent interest rates . Expect more Bankruptcies as interest rates go up !

  15. Matt P says:

    Nine West’s stuff has been junk for a while. They won’t be missed.

  16. timbers says:

    Here’s the qaundary for me regarding the demise of B&B:

    Some things I must see in person to decide if I want over a different brand or product. For these I go to stores to see the items “in person.”

    But if the same item i decide on is cheaper online, I order online. An increasing number of items I now order online after viewing it in a B&B, or maybe buying 1 from the B&B and follow up purchases online.

    So – what happens when all the B&B are gone? How do I get to choose what I want “in person”? (and Amazon accepting returns – for now – at no cost isn’t the same thing as being able to compare similar items in store in person).

    • Prairies says:

      I think you mean B&M…. what happens when they are gone? You surrender to the online marketplace where prices will skyrocket, you can’t expect a free ride from the people who put in the expense to sell the product without a cost down the line.

      If you can’t trust the online store in the first place why give them your hard earned cash? Finding that the description and the product aren’t always the same, then why give them your hard earned cash?

      Pay people you trust, Amazon isn’t one of those trustworthy choices IMO

      • alex in san jose AKA digital Detroit says:

        On Amazon I have gotten:

        Things that never came.

        Things that were broken.

        Things that were sold as new but were used (worked OK but geez, at least blow the sawdust off and put it back into the package correctly).

        Things that just did not work well.

        So far (I have Prime) I’ve been able to resolve things OK, their return policy is very forgiving.

        I prefer to buy things locally but often the things I buy on Amazon, I do because the things can’t be found locally. I don’t live in some podunk town but in a large metropolitan area. Yet some of the simplest things can’t be found here so I buy them online.

        So I’m buying on Amazon for two reasons: Either the item is much cheaper than locally, or most of the time, it’s not available locally at all.

        • Prairies says:

          I am in a rural area, local stores don’t keep anything cutting edge and I am nowhere near a starbucks or Tim Hortons( Timmy’s is huge in Canada, to not have one pretty much means your town doesn’t exist)
          I try and go as close to the source of a product to purchase it as possible if I can’t get it locally, some items are easier than others. Work is slow these days so I have time to burn anyway.

  17. Vinman says:

    Timbers you are correct without the Brick and Mortars your decisions will be made on the description of the product and other peoples reviews of the product . But when it comes to clothes because of all the different manufacturers and there different standards nothing beats trying them on .

    • Thomas R Kauser says:

      Never could do anything without brick and mortar except convince you it needed leveraged up to survive? Amazon got a 740 million dollar tax loss carry forward and Walmart wiped out their co-managers ? You get what you attract? Can’t help but chuckle (are Walmart finances that bad? They have to wipe out co managers right before tax season?)

  18. Thomas R Kauser says:

    Another MBS owned by the tax payer! (Fed balance sheet ring a bell) this crap is replacing the old crap which has no ownership trail back to 2007? The Fed has a billionaire to please!

  19. Jon says:

    Once all the retail stores are gone, and everything is done online, expect prices to go up and their return policy to be less forgiving. Right now you can send anything back to Amazon for 30 days, free of charge, even if you used it. Eventually that will end and you will have to pay to ship it back. Enjoy the goods times while they last

    • Coaster Noster says:

      Probably not to happen as you see it. There is already an amount of $$$ priced into every sale, knowing (or, calculating) that “x%” are returned. If the returns prove not to happen, that “priced in” amount is added profit. That is why reviews (which don’t happen in b&m stores) are so crucial. Reviews prevent many, if not most, sales that would result in a return.

      I bought some cheap pens at American Science & Surplus, and they were crapppp. I simply wrote them and said, “I’m not mailing anything, credit my account. I’ve thrown these pens away.” They did.

  20. hidflect says:

    ♫ Deck the malls with finance folly
    O lalala lala la laaah! ♪

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