By Sandra M. Jones, Chicago Tribune –
CHICAGO — Sears Holdings Corp. said it plans to spin off its small-format hometown dealer stores and outlets and sell 11 stores to raise cash and shore up its money-losing retail business.
The long-suffering retailer, controlled by hedge-fund investor Edward Lampert, said it expects the steps to raise up to $770 million. The offering to separate the more than 1,000 hometown and outlet stores should raise $400 million to $500 million, the company said.
Hometown stores are small hardware stores, usually operated by independent dealers. Sears plans to sell the 11 mall stores to Chicago-based General Growth Properties Inc.
The decision comes as Sears swung to a loss of $2.4 billion for the fourth quarter on a 4 percent fall in revenue to $12.48 billion.
“Our fourth-quarter earnings were unacceptable,” said Lou D’Ambrosio, CEO and president, in a conference call Thursday morning. “We know that and are taking immediate actions to address it.”
Sears took the unusual step of hosting an earnings conference call, something the retailer hasn’t done since billionaire Lampert took over the company in 2005, in an effort to squash investor concerns that the company could be running out of money.
Sears shares had plummeted below $30 in January when word spread that CIT Group Inc., a key lender in the retail industry, would no longer provide loans to suppliers shipping goods to Sears and Kmart. CIT’s decision came on the heels of Sears’ disappointing holiday sales drop, a string of quarterly losses, rising debt, dwindling cash, store closings and downgrades from the major credit agencies deeper into junk territory.
When reports circulated that CIT was lending again, Sears shares rebounded, rising 64 percent for the year to date through Tuesday.
D’Ambrosio, a technology executive hired a year ago to turn around the ailing retailer, added that more cost cuts are underway. Last week, Sears said it would lay off 100 workers at its Hoffman Estates, Ill., headquarters. And in late December it announced plans to shutter up to 120 unprofitable stores. Sears has so far named 81 stores specifically for closing.
Investors have long anticipated that Lampert would sell off portions of Sears, in particular its real estate, to raise money. Some experts predict Sears will eventually become an e-commerce retailer with fewer, smaller storefronts.
Lampert, who owns 61 percent of Sears, took control of Sears in 2005, combining it with Kmart. He cut back investments in the physical stores in favor of pouring money into its online business and share repurchases. As the stores deteriorated, so did the company’s sales, as shoppers bypassed Sears and Kmart for such rivals as Target, Wal-Mart and Best Buy.
Sears efforts to sell its brands outside of Sears and Kmart stores will continue, D’Ambrosio said during the call. He noted that the deal to sell Craftsman tools to 1,300 Ace Hardware stores is “going very well” and that number will increase this year.
Sears began selling its proprietary Craftsman tools outside of Sears for the first time in 2010 when it launched the deal with Ace. Last year, Sears agreed to sell Craftsman tools at Costco and DieHard car batteries at Meijer. The retailer has yet to sell Kenmore, the core of its business, outside of Sears and Kmart stores. Decisions to sell any of the brands through other retailers has to have the approval of D’Ambrosio and the board, he said.
“These things are done in a very thoughtful way,” said D’Ambrosio. “We’re not going to do something where we’re basically shifting profit or revenue from one location into another location. We have received many calls about opportunities for our brands and we have chosen very few of them.”
Skeptics worry that selling the brands to rival retailers would poach business from Sears stores at a time when sales have fallen for five consecutive years.
Everyone sells extended warranties, on an active and on-going basis. It is every much a profit center as the product sale itself.
Sears, has always been about brands. Brands they have worked for many years, to build and solidify. When you had a garage full of Craftsmen tools, you really had something. When you had something Kenmore, it may have not been top of the line, but it was backed with Sears’ reputation, and more-so, at a price an everyday Joe or Jane could afford.
In looking at the big picture, the merger of K-Mart and Sears was a huge faux pas. They were two companies, with a customer base and philosophy from opposite ends of the spectrum. Keeping dysfunctional aspects of both companies did not help matters any.
Joe-they make a lot of money off the extended warrany’s and the sales people are on commision so they want the dollar numbers increased. I have not been in Sears for years. There is nothing there to draw customers. K-Mart on the other hand does pretty well but the Sears management will soon draw that down as well.
Larry, I agree that most retail businesses offer extended warranties and they add to their bottom line. But from my experience, NOBODY pushes them like Sears and I think theirs are more expensive.
Unfornunately, Sears is on it’s way out. It is not the great store that I grew up with. Locally, our store is outdated and dirty. They no longer carry the many, many products they once did. No more furniture, carpet, bicycles, fishing and camping supplies, plumbing supplies and hardware, many lawn & garden tools and household/mechanics tools, and on and on. And more recently they have closed their optical dept. and stopped selling paint and clothes, CLOTHES! They also seldom have merchadise in stock, but they can order it, on line. I can do that at home. The other BIG problem that I have with Sears in how they HAMMER you on buying the extended warranties! I have not had this “bullying” elsewhere.