The parent of Sears and Kmart is set to lay off 250 employees and close even more stores than expected, putting a plus on the promises of revival laid out by its longtime chairman, Eddie Lampert.
Through an affiliate of his hedge fund ESL Investments, Lampert bought Sears and Kmart after their former parents, Sears Holdings, filed for bankruptcy in October. Sears had been unable to cope with the debt load and faced strong competition from Walmart, Target and Amazon. Without the about $ 5 billion agreement Lampert led, the company would have wound up.
Lampert promised employees and the bankruptcy court that a new Sears could take advantage of its iconic legacy and avert these challenges and preserve about 45,000 jobs. He and his partners said they would improve the retailer's performance by operating only 425 of its profitable stores, rather than the roughly 700 stores it had when it filed for bankruptcy.
They also said that the company would expand smaller stores focusing on selling its most popular products such as appliances and mattresses. This shift is being accelerated by an agreement it made in June to buy an interest it does not already own in Sears hometown and the Outlet business. The transaction is expected to close in the third quarter of this year. In August, the company said the deal would add "hundreds" of stores when it closed.
However, in its core business, store closures and challenges continue. Sears previously disclosed that it would shut down 26 Sears and Kmart stores this fall. Recently, it said it would add dozens to the list, people familiar with the situation told CNBC. The closures to the assembly shops exceed by a large margin the frequency of an average of three stores in the month it had previously estimated it would close.
Lost plans are not new to Sears, who has made no profits since 201
Although the company missed these goals, Lampert continued to donate millions of dollars in it itself as analysts and investors wrote it off. There are those who have said that Lampert did it with a keen faith in the future – despite all odds. But others, including the parties who are suing Lampert and several former board members for agreements made during his tenure, claim he did so to unnecessarily benefit.
In approving the Limousine agreement to buy Sears and Kmart, the judge oversees the case, Judge Robert Drain told the elusive billionaire that it gave him "the opportunity to not be a cartoon character" who swung between these two extremes.
He also urged that Lampert be transparent in his actions, with a clear communication process with the company and its employees.
The management has stayed true to some of the promises of the Limpertsberg. It opened the first of its smaller stores earlier this year in Overland Park, Kansas; Anchorage; and Lafayette, Louisiana. With these stores, it hopes to benefit from the company's strong brand, despite its travels.
But for retailers in Sears' situation, chasing profitability can be a race to the bottom. When sales no longer cover the cost of running a business, expenses must be cut. One way is to close more stores, but it is rarely possible to close stores at a rate that is consistent with the rate of declining sales.
And when the problems with a retailer are first evident, suppliers often withhold goods and leave the product range defective. Stretched staffing can lead to poor service. Both contribute to further sales decline. In the meantime, well-funded competitors like Amazon and Target continue to share, as they offer customers robust services such as fast delivery of online orders and unmatched brand names.
Since Lampert submitted its offer to buy Sears, there have been questions about whether the deal leaves enough money to pay Sears & # 39; s suppliers and advisors, or whether the deal makes the company "administratively insolvent." In documents recently submitted to the bankruptcy court, some vendors claim that they are not paid in full even as bankruptcy counselors are.
In the midst of these challenges, and the particularly strong personality of Limpertsberg, Transform Holdco, as it is now formally known, has had a difficult time finding a CEO, said a person familiar with the situation. Lampert resigned as CEO when Sears Holdings went bankrupt in October.
Meanwhile, closures of shops and layoffs during the reign of Limpertsberg have also become a topic of political discourse, attracting the honor of presidential candidate Sen. Elizabeth Warren, D- Mass., And rep. Alexandria Ocasio-Cortez, DN.Y.
"As we continue our transformation work, we work closely with our stakeholders and evaluate our network of stores, operations and business strategy to stabilize business and support a long-term path to profitable success," said a spokesman for Transform Holdco, parent of Sears and Kmart.