Another Sears Holdings Spinoff Dies

Lowe’s finally seems to get the brick-and-mortar meltdown.

Orchard Supply Hardware – whose mission was, according to its site, “to be America’s neighborhood hardware and garden store focused on paint, repair, and the backyard” – is an iconic name in California going back to the Great Depression when it started as a non-profit co-op to supply farmers. But now it’s scheduled to die.

Its 98 stores in California, Oregon, and Florida will be closed, along with its distribution center in Tracy, California. Its 4,000 employees will be let go. Liquidation sales start Thursday.

So said its owner, Lowe’s (LOW), which is under pressure from Home Depot. This “exit” is “a necessary business decision,” said Lowe’s CEO Marvin Ellison in a statement. Let-go employees “will be given priority status if they choose to apply for other Lowe’s positions.”

Lowe’s now gets the brick-and-mortar meltdown – with sales shifting to the internet. It’s refocusing on “retail fundamentals,” Ellison said. It will tighten its store inventory and it’s reducing its footprint to get ready for a demanding brick-and-mortar retail environment.

This puts an end to Orchard’s long history of being sold and resold, with bouts of independence and a bankruptcy in between. In recent history: Sears acquired OSH in 1996. In 2005, Sears Holdings – by then run by hedge-fund guy Eddie Lampert – announced that it would extract a special dividend of $450 million out of OSH, and that OSH would borrow the money to pay this dividend.

In January 2012, in typical private-equity manner, the now heavily indebted OSH was spun off to the public; 18 months later, in June 2013, OSH, buckling under this debt that Sears Holdings had put on it, filed for bankruptcy.

This is when Lowe’s swooped in and bought most of its assets out of bankruptcy. At the time, OSH had 91 stores. Lowe’s paid $205 million in cash. It was an effort to step on Home Depot’s toes in California.

This is how the media gushed about the deal in September 2013, when the acquisition was completed:

The bid looks like a smart move by Lowe’s to counter competition in the lucrative California real estate market from Home Depot, the nation’s biggest home improvement retailer. Home Depot has more than twice the number of stores as Lowe’s in California and they are located strategically, giving the company better access to consumers.

The California market is booming in particular, especially because of its enormous population. Here, Lowe’s has only 110 stores out of its total 1,750 North American stores while rival retailer Home Depot has 233. Home Depot enjoys a further advantage as it is located in areas with high population density. OSH is also present in high-density, prime locations in California and has 89 of its 91 stores located in this state alone. In one fell swoop, Lowe’s can get access to OSH’s prime real estate properties without having to spend the time and a huge amount to build a presence on its own.

The hype about corporate acquisitions and the ingenuity behind them can be quite amusing.

Of the stores that went into the bankruptcy, 71 survived the process. The remaining stores were closed. Lowe’s then proceeded to open new stores, including its first in San Francisco, in the North Beach area, in a location vacated by Petco. The grand opening was in 2015. It’s a big store spread over two buildings, connected via a skyway. I rarely saw more than a couple of customers in it, unlike our other neighborhood hardware store that is small, crammed, and often packed. So it was hard to see how this huge store would ever make money.

I took this photo this morning and chatted with a nice but still stunned employee. They all had been told yesterday. The sign over the entry – “Now Hiring Happy People” – has now been obviated by events:

In 2016, OSH expanded to Florida, opening with great hoopla its first non-West-Coast stores. By that time, I’d been writing about the brick-and-mortar meltdown for a while, but Lowe’s still didn’t get it. Now they get it.

In its quarterly earnings report today, Lowe’s added up the expected costs of this “strategic reassessment,” a tab between $620 million and $705 million, for a store it had bought for $205 million.

  • $230 million in charges resulting from this “exit” which “led to long-lived asset impairments and discontinued projects during the second quarter.”
  • $390 million to $475 million in costs “related to lease obligations, accelerated depreciation and amortization, and severance obligations.”

This brings to a conclusion of sorts another side-chapter of Sears Holdings and another chapter of the brick-and-mortar meltdown.

Even brick-and-mortar sales at our hero-of-the-day Nordstrom actually fell! Read… E-Commerce Does it Again: The Stores that Got Pummeled  
 

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  55 comments for “Another Sears Holdings Spinoff Dies

  1. van_down_by_river
    Aug 22, 2018 at 3:09 pm

    What I want to know: who are the jackass’ who keep buying stock in these companies, after they have been loaded up with debt to pay special dividends to private equity, with other peoples money and why do they never seem to lose their jobs.

    Of course, in my opinion, these private equity firms are committing fraud but it’s so open and blatant, why would a fund manager fall for it – do they really not care because it’s only other peoples money?

    I know this was only a minor mention in a story about the slow reckoning coming to much of brick and mortar but still, who are these incompetent buffoons given authority to invest for these funds and no wonder they underperform the market averages.

    Poor Orchard Supply, they were truly abused, I don’t want to go to Lowes (or online) if I have to buy a p-trap for a sink, hardware stores are missed by many of us. Boycott Amazon.

    • Wisdom Seeker
      Aug 22, 2018 at 6:58 pm

      “What I want to know: who are the jackass’ who keep buying stock in these companies, after they have been loaded up with debt to pay special dividends to private equity, with other peoples money and why do they never seem to lose their jobs.”

      Folks should look in the mirror – Index funds and most likely your favorite 401K plan funds own these turds.

      I will miss OSH, it’s been a good store for my family.

      • Wisdom Seeker
        Aug 22, 2018 at 7:09 pm

        Edit: I live within shopping range of one of the original OSH’s, from the days before Lampert scammed it.

        • Buckaroo Banzai
          Aug 23, 2018 at 7:59 am

          The technical term for what happened to OSH is, “bust out”.

        • upwising
          Aug 23, 2018 at 8:17 pm

          West San Carlos Street, San Jose. Right next to the big cement bridge over the RR tracks when West San Carlos was “the way” to the west side of San Jose, then the wilds of Valley Fair and Town&Country.

          Before Home Depot came to town the store in Capitola (Santa Cruz County) was the cash cow for the company. It went bellow up with an orange bullet in its head.

    • Bart
      Aug 23, 2018 at 9:21 am

      Actually Van, according to a BOA chart I saw, the only net equity purchasers are the companies themselves doing buybacks.

    • govinda
      Aug 23, 2018 at 4:14 pm

      Probably govt pension funds are buying as the managers are probably in bed with the private equity vampires that are destroying american companies on a daily basis.

      I never got lowes – I saw them open up across the street from home depot. WTF?

    • DR
      Aug 23, 2018 at 7:58 pm

      It is interesting how the companies can siphon off huge amounts of money from a company that then goes into bankruptcy, and they never are charged with anything.

      You would think that shareholders would have a claim against that kind of behavior, but it never seems to happen.

  2. OutLookingIn
    Aug 22, 2018 at 3:14 pm

    Just another victim of plain old fashioned greed, in conjunction with a financial system that is compliant.
    A private equity powerhouse buys the corporate entity under which the company operates. The corporate entity spins off the company, essentially fire walling itself from financial responsibility.
    Then, the corporate entity forces the company to take on a massive amount of debt so it can pay the corporation a “special dividend”, which is nothing more than a legal ransom payout.
    Rule of ‘Law & Order’? No such rule.
    Rinse and repeat.

    • Daisy H
      Aug 22, 2018 at 3:33 pm

      Yup—-did Mitt Romney’s Bain Capital have anything to do with OSH? These big retail kingdoms were a source for American projects…..

  3. nick kelly
    Aug 22, 2018 at 3:31 pm

    The Lowes in Nanaimo, BC looks like its running last WAY behind HD and maybe behind Rona which has its own probs but is South while the other two are north end.

    Lowes may be getting a very low rent. It’s the anchor at one end of a 70% empty mall in the space briefly occupied by Target. The other end is a now vacant Sears.
    Its hard to imagine a worse anchor than a building supply for foot traffic in the rest of the mall but this mall can’t be choosy.

    • HotFlash
      Aug 24, 2018 at 12:33 am

      Nick, Lowe’s bought Rona in 2016. https://en.wikipedia.org/wiki/Rona,_Inc.

      I am very afraid.

    • Argus
      Aug 28, 2018 at 5:47 pm

      Home Depot in Nanaimo is my go-to store for home hardware and some garden supplies, supplemented by Canadian Tire. Lowe’s has a limited selection of inventory, imo, and is rather pricey. No wonder it seems to be pretty empty of customers.

  4. Aug 22, 2018 at 4:09 pm

    SO HOW ARE THE CORPORATIONS GOING TO BLAME THE WORKERS AND CUSTOMERS …..

    [rest deleted by Wolf because comment is in ALL-CAPS]

    • Aug 22, 2018 at 4:53 pm

      Frank Stein,

      I have deleted ALL your comments so far because they’re ALL IN ALL-CAPS ALL THE TIME.

      This is just to let know that I don’t even read ALL-CAPS comments.

      So locate the CAPSLOCK key on your keyboard (look on the left side) and learn how to toggle it on and off (practice a few times until you get the hang of it), and figure out how to write in lower case. Then, when you’ve got this down pat, write a comment in lower case, with proper capitalization, and I’ll read it :-]

      • UPWISING
        Aug 23, 2018 at 8:19 pm

        WOLF!!

        DAMN IT!!!! WHY DON’T YOU LET US YOU BOLDFACE AND COLOR AS WELL!!!

        DAMN YOU WOLF!!! WE CANT VIRTUALLY YELL AND SCREAM AND JUMP UP AND DOWN!!!!

  5. Harrold
    Aug 22, 2018 at 4:16 pm

    Lowe’s CEO Marvin Ellison was CEO of JC Penney only a few short months ago.

    • KFritz
      Aug 22, 2018 at 8:19 pm

      I stopped reading the Charlotte business paper article on the Lowe’s CEO when I saw that. So I had to wait to read Wolf Street to find out about OSH.

  6. curiouscat
    Aug 22, 2018 at 4:35 pm

    I can’t read the name Eddie Lampert without my blood pressure spiking. He is like Andrew Carnegie with a minus sign in front.

    • Wisdom Seeker
      Aug 22, 2018 at 7:01 pm

      Amen. A name that will survive his death only in textbooks of financial infamy. How many other retailers will he destroy before someone decides that since corporations are now considered people, deliberately setting them up to die is a form of homicide?

      • DR
        Aug 23, 2018 at 8:01 pm

        Interesting concept. I hope it gets used in court.

    • notJustme
      Aug 22, 2018 at 7:57 pm

      No , Eddie always makes a plus sign, for himself.

    • robt
      Aug 22, 2018 at 9:22 pm

      Hey, Andrew Carnegie built, rather than destroyed, then gave all of it away to public service. All.

  7. Timothy J McLean
    Aug 22, 2018 at 4:40 pm

    This news didn’t really shock me. Orchard opened a new store very close to my house in Naples about a year ago. I am a CRE lender for a large bank. I was shocked when I saw the price a developer paid for the dirt a few years ago. Then I saw Orchard signed a long term lease for the property at $40/sf NNN. The original developer was smart, as he sold the package at a 6.5% cap rate. While Lowe’s will continue to honor it’s lease, good luck to the owner of this soon to be vacant store. As an added bonus, Orchard made the fatal flaw of building a store which is perpendicular to the primary ingress/egress. They get an F in RE 101.

  8. raxadian
    Aug 22, 2018 at 5:01 pm

    “I know the market went on a spiral down today. That’s is raining cats and dogs and even kitchen sinks. That a hurricane and a tornado played ping pong with my house and car. And that my wife cheated me with an entire football team and the janitor.

    And I know my doctor told me I have three weird diseases barely know to man and that I might drop dead at any moment.

    But I am quite sure everything will get better tomorrow!” – Tipical udiot investor mindset.

    • Javert Chip
      Aug 22, 2018 at 10:56 pm

      Bitcoin et al – even more idiotic.

      Actually, I attribute such “investment” behavior to:

      1) The 95%+ of wanna-be retail investors who can’t read a corporate financial statement
      2) Managers of OPM (other people’s money), like pension managers…

  9. Jim S
    Aug 22, 2018 at 5:45 pm

    Is that the same Eddie Lampert who purchased the 300 foot yacht worth $130 Million????? Those poor employees……

  10. Scott Cooper
    Aug 22, 2018 at 6:20 pm

    The home improvement retail category does not nearly fit into the general retail meltdown.

    First, many building materials are too large/heavy to economically ship to a residence. Second, material purchases for home projects are notoriously difficult to plan. Third, last minute purchases are inevitable. Fourth, easy return of unused material. Finally, ancillary services like keying, tool rental, kitchen/bath design services, product installation, project consulting with local knowledge, etc. would be difficult to replicate online at the required delivery speed.

    HD clearly leads in ancillary services. HD typically carries inventory for bigger projects and offers “pro services” which cater to small contractors. This links a fair amount of their business to the housing market, not consumer retail.

    Regarding Lowe’s, they have always seemed more of a “homeowner’s store”, geared towards home products and materials for easier home improvement projects. I believe this leaves them more exposed. On a purely anecdotal note, I already find the inventory at Lowe’s deficient. Further cuts in this area would effectively stop me from going in.

    • Aug 22, 2018 at 7:52 pm

      HD has a HUGE and VIBRANT online business!!!

      • Tony of CA
        Aug 22, 2018 at 11:45 pm

        For certain firms, I’m sure on-line sales has affected several of these failing retails. I see another common thread from your on-going series is the continual private equity play. It’s predator capitalism at it’s worst.

      • Arizona Slim
        Aug 23, 2018 at 4:57 am

        Indeed it does. One of the best e-commerce websites that I have ever shopped. I also like the idea of having the merchandise delivered to the nearest HD store.

        • rj
          Aug 23, 2018 at 6:32 am

          Lowe’s has superior lumber quality at cheaper pricing than HD. Lowe’s appliance department is also way ahead. For contractors, Lowe’s has given us deals the robo tools in HD could never touch. HD is a cancer on humanity that must be irradiated, along with all the dissatisfied drones toiling there.

  11. Night-Train
    Aug 22, 2018 at 6:26 pm

    According to a talking tv head this morning, this is the longest bull market in history. Quickly followed by “analysts say it still has plenty of time to run”. Of course they say that. They will always say that. They need time to get their money out of the market before regular folks.

    • nick kelly
      Aug 22, 2018 at 8:07 pm

      CNBC has a long piece about how the political probs brewing in the US won’t affect the stock market.

      The fact that they felt it necessary to offer this assurance says more than the assurance itself.

      If the economy was not floating on an unprecedented froth of debt, it might be able to withstand a black swan or two.

      As it is, who knows what will start the landslide.

    • fajensen
      Aug 22, 2018 at 9:39 pm

      Those analysts might be right.

      Interest rates are rising, this causes EM investment relying on cheap USD debt to be closed out, those USD comes back and ends up in the US stock market.

      So, raising rates might drive a blow-off top in the US markets (indirectly making rates go up even further because the FED looks at asset prices when determining rates).

      • Javert Chip
        Aug 22, 2018 at 11:02 pm

        If you find a market analyst who claims to understand the market, RUN AWAY IMMEDIATELY.

        If they really understood the market, they’d be too rich to have time for the general public.

        Predicting the market is like teaching a pig to sing: you’re just gonna get dirty and you’ll irritate the pig.

  12. Sadie
    Aug 22, 2018 at 6:42 pm

    Eddie “the wrecking/salvage man” Lampert never saw any part of Sears Holdings he thought he couldn’t load up with debt and sell-off. Eddie’s view was and still is “the total sum of the parts are greater than the whole”.

  13. vinyl1
    Aug 22, 2018 at 7:23 pm

    Construction materials are still a viable physical business. Nobody is going to order pallets of plywood and sacks of concrete from Amazon. I see hundreds of contractor trucks at my local Home depot loading up every morning. They have the stuff in stock – you get the contract, make a run to HD, and then start hammering and sawing.

    • Aug 22, 2018 at 8:02 pm

      OSH doesn’t sell construction materials. It sells power tools (such as drills and table saws), staple guns, electrical stuff (cords, plugs, outlets), tubing, furniture, lighting, paints, trim, work clothing, cast-iron skillets, grills, fans, screws, bolts, nails, pest control products, hinges of all kinds, gardening equipment, patio furniture, plants, seeds, that kind of stuff. Most of this is available online.

      HD sells appliances and many other things that we have bought online from them. Unless you buy plywood, sheetrock, 2x4s, and the like, you can spend a lot of money on HD’s e-commerce site — and people do.

      • KFritz
        Aug 22, 2018 at 9:30 pm

        Anecdotal info from Hanford in the CA Central Valley. OSH was the hardware store here in town. For certain items, it made sense to shop at OSH instead of Lowes and HD, which are both here. It’s going to be more difficult to find the occasional needed product for practical uses with OSH gone. Buying tangible products for home repair, etc, etc, is analogous (but not even close to identical) to buying food. It helps to see a screw, nail, furniture glide, et al up close and personal. That part of the big box ‘building’ stores’ business won’t migrate to online as much other commodities for different businesses.

    • fajensen
      Aug 22, 2018 at 10:20 pm

      Sure, they are (Maybe not Amazon since we don’t want extra-leaded Chinese sheet-rock and the building suppliers already have a well-established delivery network).

      Most folks cannot transport and unload building materials themselves. They have to buy delivery anyway, they might as well order everything online and have it sent so everything is ready for the weekends D.I.Y.

      Contractors are a different species, they have adequate transport and they usually don’t “shop”. They go in, get what they need and out. The building suppliers here will package online orders and drop them onto their trucks.

      The analogue folks bring a pick-list to the shop, have a coffee while it’s packed and off they go. The disadvantage with that is that some of the stuff one needs, they might have in the storage in the next city and one then has to collect there rather than getting it all “locally” the day after ordering on-line.

      What changed here with the internet in the building trade was that the D.I.Y crowd got similar facilities that the pro-crowd had for years with dial-up modems and fax. For better or worse.

      – sometimes one does needs to “fondle the wood”, like when selecting the lightest pine planks to rip for a canoe. Then one goes to the physical store – which is also the local storage and delivery facility – and pick it oneself.

      IMO – the professional building suppliers are very well positioned to survive the internet. They were in a way already tooled up for it.

      • Steve
        Aug 26, 2018 at 9:05 pm

        No one rips pine for a canoe, they rip basswood, spruce or cedar. Such foolishness discounts everything posted here.

    • LittleNano
      Aug 23, 2018 at 10:29 am

      It seems to me to be a matter of habit and also schedule.

      Materials I would have bought in a physical store 10 years ago I now buy online. I’ve bought toilets & sinks from amazon. Pumps, manifolds, valves, copper & brass fittings, PEX tubing from Supplyhouse. Shower enclosures, wall panels, doors & fixtures. Heat pump, air handler, HVAC ductwork & exhaust fans. Maple lumber, oak, laminate & tile flooring. Custom wood cabinet doors and hinges, Wire, cable, light fixtures. Italian wrought iron & bulk steel. Skylights, countertop laminate, Corian countertop sheets and adhesive. Nails, screws, nuts, bolts & framing fittings. Tools, tools & tools…

      The list is long and I’d point out that none of this material was bought from HD, Lowes online. Most of the vendors are existing small distributors that have established an online presence. Some are 100% online.

      Yes it takes some planning. But shouldn’t that be done anyway? If I’m short something I’ll make a run to HD. I would buy lumber online if I had any faith that it would be straight. Instead, I go to the store and sort through the pile of spaghetti.

      My UPS man is named Adam and his back is strong.

  14. alex in san jose AKA digital Detroit
    Aug 22, 2018 at 7:45 pm

    I’m gonna miss OSH. I have the original OSH in my “shopping radius” and I go there fairly often.

    Great place for Craftsman tools, and all kinds of odds and ends. Helpful people.

    Apparently the one in Gilroy has 6-foot weeds in the parking lot now, and my OSH, the original OSH, has only been hanging on because it’s the original “ground zero” OSH.

    And not long ago, they’d announced the OSHbots! Remember those! Mainly they were going to guide people to where the paint brushes were etc. Because why have a map or an app when you can have a bot! Unfortunately, I never saw an actual OSHbot because they were always broken down.

  15. MC01
    Aug 23, 2018 at 2:07 am

    Unrelated to more serious discussions, but is that a Tesla parked right in front of the OSH store?
    What’s it doing there? I would pay good money to see it leaving the store, trunk half-open and held in place with an old bungee cord and loaded with plywood sheets.

    • Aug 23, 2018 at 8:33 am

      Yes, a Model S. Good eyes (this is a low-res cropped version of my high-res original where you can even read the small print on the license place). There are quite a few of them in San Francisco.

      OSH doesn’t sell construction supplies. As I posted above, it sells power tools (such as drills and table saws), staple guns, electrical stuff (cords, plugs, outlets), tubing, some furniture, lighting, paints, trim, work clothing, cast-iron skillets, back-yard grills, fans, screws, bolts, nails, pest control products, hinges of all kinds including cabinet hinges, gardening equipment and supplies, patio furniture, plants, seeds, that kind of stuff. So maybe the Tesla owner is getting a new grill for their upcoming Labor Dar barbecue.

      • polecat
        Aug 23, 2018 at 10:11 am

        I see what you did there Wolf … with regard to the Tesla owner and their hypothetical “barbecue” .. ‘;]

      • MC01
        Aug 24, 2018 at 12:42 am

        Thanks for the reply.

        Then perhaps a wheelbarrow sticking out of the back of the Tesla? Still nice, but not as funny as a big pile of plywood sheets.

  16. sierra7
    Aug 23, 2018 at 4:03 am

    “Why do you want to wreck it?” “Because it’s wreckable…Alright?”
    (From original Wall Street movie)
    OSH: R.I.P.

  17. Ace Bragg
    Aug 23, 2018 at 8:33 am

    Just visited one of their stores this past weekend in Naples, FL. Nice store, but parking lot was pretty empty for a Saturday afternoon.

  18. ft
    Aug 23, 2018 at 10:09 am

    Orchard Supply has been my “go to” hardware store for over fifty years. Chances of finding what I need there has always been better than other stores. This is like the death of an old friend.

  19. Ambrose Bierce
    Aug 23, 2018 at 11:51 am

    LOW is up about 10% on earnings.

  20. Sandman619
    Aug 25, 2018 at 12:03 pm

    Orchard wasn’t such a great retailer in CA. Lived in SoCal all my life & while I’m familiar with the name have never seen one.

Comments are closed.