Chapter 11 Awaits Sears Hometown

The names of what were once two of U.S. retail’s biggest names look to be on the edge of disappearing.

Sears Hometown Stores Inc. has filed for Chapter 11 bankruptcy protection amid disputes with its parent company – Transform Holdco, oftentimes dubbed the ‘new Sears’ – with listed assets of no more than $50 million and liabilities of at least $50 million according to its bankruptcy court petition, filed in Delaware.

The filing also lists Eddie Lampert, CEO of TransformCo, as a 37.75% owner of Sears Hometown.

That’s the same Lampert who oversaw the disastrous merger of Kmart and Sears in 2005 and bought the remains of that business out of bankruptcy in early 2019, promising a slimmed down, leaner and more focused operation.

Now there are just a handful of Sears and Kmart stores left, with Sears Hometown having also closed around 100 stores this year alone.

And prospects for the remainder look increasingly bleak.

Sears, Kmart: How Did It Get To This?

For Sears it has been an agonisingly slow, almost imperceptible death for a former powerhouse of U.S. retail, publisher of a seminal catalogue and the anchor for many shopping centers nationwide (with JC PenneyJCP
likely at the other end of the mall).

During its heyday, Sears was the world’s largest retailer and when construction of the Sears Tower finished in 1973, the 110-story building was the tallest in the world.

Even by the time Sears and another venerable U.S. retailer, Kmart, merged as subsidiaries of the Sears Holdings Corp. in 2005, they still had an impressive combined 3,500 U.S. store footprint and employed more than 300,000 staff.

But in truth both brands were already spiralling downwards amid changing shopper habits and more nimble, cheaper and cooler competitors.

Following the merger the company focused its efforts on consolidation, selling off prime real estate and investing in stock buy-backs as it attempted to restore investor faith in its share price.

Instead, the company should have been attending to all the reasons why two household names no longer attracted their traditional consumers and attempted to re-establish their names as contemporary offers.

Inevitably, in 2018 Sears Holdings filed for Chapter 11 and ESL Investments — the hedge fund owned by Sears Holdings’ former CEO, Edward Lampert, who had orchestrated the disastrous Kmart merger — bought the remains of the business out of bankruptcy in early 2019 under the name Transformco.

Lampert Pledged To Turnaround

Lampert promised to turn things around at a company that by then owned just 223 Sears and 202 Kmart stores nationwide, around 12% of the estate when the two business merged 14 years earlier.

Fast forward to today and the footprint hardly registers. Exact numbers are hard to pin down but the 15 remaining Sears outlets listed on its website is down from 23 a year ago and just yesterday Sears at Frederick’s Francis Scott Key Mall, Md. announced it was closing January 15.

The best chance of the Sears name surviving had sat with Sears Hometown.

After emerging from bankruptcy in 2019, TransformCo had bought the holding company it had previously spun off, which included a chain of franchisee-owned stores operating as Sears Hometown, an 8,000-10,000 sq ft store offer focused on selling appliances, tools and lawn and garden equipment.

At that time there were about 500 of those stores across 26 states plus Puerto Rico but those numbers have also been steadily declining, with around 100 shuttering earlier this year to leave about 120.

At the time of the acquisition, Lampert said: “We are excited to bring Sears Hometown, its associates and network of independent dealers and franchisees back into the Sears and Kmart family. Our investment demonstrates our commitment to growing Transform.”

And as recently as Fall 2021, TransformCo said that its “go-forward store strategy” for Sears and Kmart was to operate a diversified portfolio consisting of a small number of larger, premier stores with a larger number of small-format stores.

Sears Hometown Losses Mount

However, Sears Hometown’s financial performance for the year ended January 29, 2022 showed the chain incurred net losses from continuing operations of and $18.3 million and in the bankruptcy filing CEO Elissa Robertson noted the retailer’s reliance “substantially on TransformCo to provide key products and services.”

During the past year, Sears Hometown and TransformCo engaged in a number of disputes regarding finances and inventory, with a “lack of inventory” causing a “rapid downward spiral that contributed to the filing of Chapter 11,” the company stated and it plans to use the process to liquidate the merchandise at its stores.

As for Kmart, it has shrivelled to an even smaller size. A year ago there were only six Kmart stores on the U.S. mainland, plus six more across Puerto Rico, Guam and the U.S. Virgin Islands. Since then the store in Puerto Rico has closed and just three stores in the mainland remain; in Florida, New Jersey and Long Island, New York, according to the Kmart website.

So this could well be the last Christmas for Kmart and Sears. And what makes it even sadder is that hardly anyone will notice.