Sears may have a future, after all. Validation comes from no less an authority than its nemesis: Amazon. The online retailer and the department store chain have set up a venture where any tyres bought on the internet’s company website can be installed at a Sears Auto Center. Sears shares jumped 16 per cent. This would have been impressive if the equity value was not a feeble $300m.
The venerable retailer has been in steady decay for years. It is best known for the efforts of its patron and chief executive, hedgie Eddie Lampert, to keep it afloat and extract value for the benefit of his investment firm. But Sears also demonstrates how bricks-and mortar retailers can endure, even when survival is expensive for investors.
The residual value of Sears is a grab bag of intellectual property, real estate and retailing activity. The latter is, of course, the least promising. In 2017, like-for-like sales dropped more than a 10th. Overall revenue was $17bn. Fitch, the rating agency, projects that Sears’ annual cash burn still exceeds $1bn. Asset sales worth some $12bn, many involving Mr Lampert, have kept Sears afloat.
The cynical view is that Mr Lampert has hived off value for himself. But there is merit in his vision of Sears as a membership club like Costco, whose flagship brands are available at other retailers. Amazon already sells tools and auto parts from Kenmore and DieHard, two flagship Sears brands.
Recently, Mr Lampert’s fund offered to buy Sears-owned property along with its Kenmore brand and some other Sears units. The context is the shrunken equity value and a haircut endured by bondholders. Sears’ enterprise value has slumped under Mr Lampert’s tenure, coinciding with dire conditions in US retail.
Sears’ core activity of selling stuff has little value. The game is on to divide up what is left — which Amazon has confirmed is not worthless — between Mr Lampert and other creditors.
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