Sears Holdings (OTCMKT: SHLDQ), once the leading player in the retail business with stock trading over $195 per share, has subsequently been relegated to the OTCMKT or “pink sheets” market and now trades for less than $0.30 per share. If you want to acquire Sears Holdings shares, there are a lot of options available at a reasonable price.
Is Transformco a public company?
Transform SR Brands LLC (doing business as Transformco and referred to as “New Sears”) is an American privately held company that was founded on February 11, 2019, to purchase certain of Sears Holdings Corporation’s assets. ESL Investments is the new company’s owner. Sears Holdings filed for Chapter 11 bankruptcy on October 15, 2018, and Transformco purchased the company’s surviving assets for $5.2 billion.
Transformco announced the acquisition of Sears Hometown and Outlet Stores on June 3, 2019. To get approval for the acquisition, Sears Hometown may have to liquidate its Sears Outlet segment.
Why can’t I shop at Sears?
On September 28, the amended SEC 15c2-11 rule went into effect, prohibiting market makers from making trades in securities that do not file public financial information. As a result, market makers will no longer be able to trade Sears Holdings stock. Private stock trades in the unregulated Grey Market are still permitted, although volume is expected to be minimal, and many brokerage houses will refuse to accept orders. At some point in the future, SHLDQ share prices on account statements may simply indicate N.A. (not available). The shares have not yet been cancelled, but they will be on the effective date of the reorganization plan (docket 4476). On September 24, the SEC issued a No Action Letter for fixed-income securities. This allows fixed-income trading to continue until January 3, 2022, including for Sears notes.
The Securities and Exchange Commission (SEC) is attempting to reduce irrational/manipulated trading in some non-reporting securities. On September 3, almost 20 million SHLDQ shares exchanged, providing a classic example of impulsive trading. On no news-nothing filed with the bankruptcy court, the stock price jumped in percentage terms from a low of $0.165 on September 2 to a high of $0.6899 on September 3.
From the end of July to the end of August, there was also a lot of odd trading in SHLDQ shares. Between July 27, shortly after the most recent status report (docket 9680) was filed with the court, and August 25, 26.277 million SHLDQ shares were traded, an average of 1.19 million per day. The rest of July saw an average of only 164,283 people per day. Thirty-two 100k+ share blocks were traded in July, largely on down ticks (including one for 670,000 shares), compared to only three 100k+ share blocks in July.
Because I doubt other investors possessed such a huge amount of stock, I believe this massive sale was done by Eddie Lampert/ESL. Lampert was prohibited from selling his stock under the terms of the purchase and sale agreement in order to protect the company’s net operating losses, or NOLs. Sears Holdings is quite unlikely to incur extra legal costs by filing an object and a request for a remedy. Currently, Sears Holdings Corp. has no actual interest in safeguarding NOLs. Lampert/ESL/Transformco are the only ones who care about NOLs.
I’m curious if Lampert attempted and failed to obtain an IRS Private Letter Ruling on the transfer/use of NOLs in connection with some prospective capital restructurings. He may have opted to sell some of his holdings to achieve at least a little profit before the new trading limitations took effect. Sears Holdings Corp. is a “non-reporting” corporation, thus no SEC reports regarding these sales appear to be required, in my opinion. Furthermore, the volume of sales does not appear to represent a true “change in control.” He is still the majority shareholder.
What became of Sears?
Nearly 40% of the company was controlled by Edward S. Lampert. Despite the fact that Sears Holdings remained profitable, Kmart and Sears store sales continued to drop. Lampert then embarked on a series of contentious initiatives, including stock buybacks, which some insiders said damaged Sears Holdings by depleting its cash reserves. Furthermore, the firm began selling various assets, and Lands’ End was spun off in 2014. Lampert bought a majority share in Sears Canada that year, but the deal fell through in 2018. Various Sears locations in the United States were closed during this time, and Sears Holdings filed for Chapter 11 bankruptcy protection in October 2018. A federal judge approved the sale of the holding company to Lampert’s hedge fund in February 2019.
What went wrong for Sears?
3. A lack of concentration
Much has been written about Sears’ lowly beginnings as a watch and jewelry retailer. After that, it sold everything under the sun for years. At one point, you could go to Sears and buy books, bicycles, pianos, sewing machines, pre-assembled homes, and even cars. However, if you look at Amazon, you’ll find it under a variety of categories. Walmart is as well. Sears didn’t go bankrupt because of a lack of focus, but it certainly helped. Sears had become so large that it was difficult to operate the company properly at one point. Consider going to a store to buy an outfit for an event and then turning around to find a row of gleaming refrigerators against the wall. It’s easy to have that kind of selection online, but it’s more difficult to make that kind of shop experience work.
In order to reach out to more women, In 1993, Sears began advertising “The Softer Side of Sears.” The advertisement was interpreted by many at the time as an indicator that Sears had begun to go in the wrong path, with the shop focusing more on selling clothing and other “soft” things in order to increase frequency of visits and take a larger portion of wallet. This enraged Sears’ current consumers, who considered the store as a one-stop shop for appliances, mattresses, and gadgets at the time.
In actuality, Sears most likely lost sight of its north star. What was the point of it all? “If we work together, we’ll cut the cost of living for everyone…we’ll offer the world an opportunity to learn what it’s like to save and have a better life,” declared Sam Walton, the founder of Walmart. That’s a compelling vision, and it’s one that Walmart still uses as a rallying cry decades later. Sears, on the other hand, lost its sense of self as it expanded into category after category.
Sears merged with Kmart in 2005, as it struggled to reclaim its former prominence. Mergers are difficult. Even the most powerful corporations find it difficult to combine two separate cultures, systems, and processes in a smooth manner. The combination, however, imposed a tremendous toll on Sears, which had already expanded in too many ways.
“The answer to Sears’ troubles was to buy a struggling retailer, which turned out to be Kmart. Then they had a bigger poor business,” said GlobalData Retail’s Managing Director, Neil Saunders. “Sears was not investing or adapting, and as a result, they began to suffer.” Warren Buffett weighed in on the deal, saying, “Eddie is a very smart guy, but combining Kmart and Sears is a challenging hand.” “It would be extremely tough to turn back a retailer that has been declining for a long period.” “How many retailers have truly gone under and subsequently resurfaced?” “There aren’t many. I’m at a loss for words.” Buffett is the only one who can say those famous concluding words.
4. A lack of consistent and long-term investment
Continuous and consistent investment back into the firm is the foundation of retail success. Managing and expanding an eCommerce business, like opening a store, takes a lot of money. Sears storefronts began to seem worn out over time. That wasn’t by chance. Over time, Sears ceased to invest in its stores. Sears upgraded its stores and eCommerce site for about 91 cents per square foot in 2017. JCPenney spent $4.13 per square foot, Kohl’s $8.12, and Best Buy $15.36 on renovations at the same time. As stores deteriorated, they were unable to produce enough revenue to fund their own store upgrades, resulting in a negative investment cycle that resulted in lower and fewer sales and less money to invest over time.
Much of this lack of investment can be attributed to Edward Lampert, Sears’ previous Chairman and CEO.
“Unless we believe we will achieve a satisfactory return on investment, we will not spend money on capital expenditures to establish new stores or update our existing base simply because our competitors do,” Lampert stated in a 2007 letter to investors. If share repurchases or acquisitions look to be more profitable, we will appropriately deploy funds to those choices.” He seemed to have kept his word. “He did nothing to keep the stores in good repair, nothing to spruce them up and make them a pleasant place to shop,” says Robin Lewis, CEO of the Robin Report and a retail industry analyst.
Lampert reportedly had a history of cashing in on Sears’ real estate holdings. For example, in 2015, he formed Seritage, a REIT comprised of 250 of Sears’ greatest assets, with the purpose of converting former Sears and Kmart shops into more profitable uses such as offices and restaurants. “Mr. Lampert has been accused in lawsuits brought by retirees and Sears stockholders of ripping apart the more than century-old retailer to profit himself,” according to the New York Times.
“Over the last ten years, Sears has sold much of its top real estate, and its surviving assets may not be worth much,” said Edward Jones Analyst Matt Kopsky. “I don’t see how this can get much better.” When your foot is cut off, it’s difficult to put your best foot forward. Selling off your finest assets and trying to salvage a firm with a diminishing asset base is a formula for disaster.
5. There are far too many opportunities that have been missed.
By the late 1980s, the very asset that had propelled Sears to success had become a liability. The catalog division of Sears was losing up to $1 million a day. The biggest issue is excessive delivery costs, which every retailer can relate to. It was expensive to distribute a 1,500-page catalog, especially when Sears carried low-margin items. Sears shut down its catalogue company in 1993, only to rebuild an internet business from the ground up in 1997, which has numerous synergies with a catalogue business. Amazon, for example, was founded in 1994.
“What they missed was the second transition—the year before Amazon launched, they ceased producing their catalog.” “What they didn’t see was the next step,” according to Gartner’s Retail Industry Services team’s Robert Hetu, Research Director. “They failed to recognize that, while a traditional catalog might not be the way forward, a digital catalog would.” They might theoretically have found out how to transfer the catalog into ecommerce if they had the vision, but they didn’t.”
Over the years, Sears has sold a large number of stores. Stores are critical to the success of every merchant with an eCommerce business, which was formerly a little-known secret. Ask Target or Walmart, which used click and collect to effectively manage a surge in eCommerce orders during the pandemic.
Sears’ online sales fell by half to $1.3 billion between 2013 and 2017, while the company cut its store count from 828 to 570. Lampert’s strategy of concentrating on Sears’ internet business while disregarding retail shops paid him dearly. While Sears made some enhancements to its website’s search function and convenience of use, those improvements were insufficient. Walmart, on the other hand, staked a significant amount of money on the integration of its online and offline operations. Walmart, for example, began offering grocery pickup in 2014 and now has over 2,100 locations, with that number expected to rise to 3,100 by the end of 2020. In the United States, Walmart now owns the second-largest share of eCommerce sales.
One of the biggest concerns that Amazon poses to the retail industry is that it diverts merchants’ attention away from their core business. It’s not that eCommerce isn’t important; it is; however, when it accounts for less than 15% of retail sales, as it will in the United States this year, you better have a firm grip on the part of your business that generates the majority of your revenue and, more importantly, profits, which is your bricks and mortar stores. When a new competitor arrives in town and causes a stir, as Sears did, it’s easy to lose sight of the overall picture.
With less than 200 stores and a pandemic wreaking havoc on the retail industry, it appears like Sears’ demise is nearing, despite the fact that many claim that Sears died a long time ago.
Who purchased Sears?
Transformco, the holding company controlled by Edward Lampert that bought the assets of Sears Holdings (also once controlled by Edward Lampert) out of bankruptcy court two years ago, is now claiming that these nearly 300 local stores, not the once ubiquitous large-format locations, are the company’s future.
Transformco, which rarely makes public pronouncements these days, said it still operates more than 300 shops under the Sears and Kmart labels in a statement to USA Today. “The majority of those outlets are Hometown Stores, ‘mainly managed by independent dealers or franchisees of an affiliate of Transformco,'” the newspaper notes in a Sept. 21 story.
Has Transformco acquired Sears?
Transformco was founded on February 11, 2019 to purchase Sears Holdings Corporation’s assets, and it continues to promote products under both firms’ brands. The corporate headquarters of Transformco are located in Hoffman Estates, Illinois.
What is the current name of Sears?
A plan for Penney to emerge from chapter 11 proceedings under the ownership of two of the country’s major shopping center operators (and their landlords for a large number of its stores) and a consortium of private equity players was approved by a Texas bankruptcy judge earlier this month. The agreement is complicated, rivaling the details of some of the retailer’s one-day discounts, but the basic line is that Penney and its remaining 600 or so stores will live to see another day, with new financing and a stronger balance sheet. The ability of management to make the store relevant to shoppers again, as well as the broader status of the American economy, will determine how many additional days it will have.
There is no such plan for Sears (the Roebuck name was dropped some time ago, though it still remains on some old signs). Edward Lampert continues to own and operate the company, which now goes by the name Transformco and includes what is left of Kmart. The investor purchased both brands in the early 2000s and has overseen a long but gradual fall that has reduced the company from more than 3,000 outlets and positions as two of the country’s leading retailers to roughly 85 stores.