Insolvent Sears Canada Inc. said it plans to liquidate its remaining 131 stores and put 12,000 employees out of work, after an attempt by its executive chairman to save the once-dominant department-store retailer failed.
Sears will ask Ontario Superior Court on Friday for approval to start liquidating all its stores by Oct. 19, a move that marks the beginning of the end of the storied retailer's operations in Canada.
Sears executive chairman Brandon Stranzl had led a management-group bid to buy the retailer out of bankruptcy-court protection and keep about 60 of its stores running. But the company decided the offer fell far short of what creditors of Sears Canada could receive by selling the company's assets and inventory off piece by piece.
The closings would come 65 years after Sears was set up in Canada in a teaming up of U.S. Sears Roebuck and Robert Simpsons to create Simpsons-Sears, which ran a catalogue that was a shopping lifeline for communities across the country. "It's a most unfortunate but inevitable end to an iconic Canadian company," said Mark Cohen, a former Sears chief executive officer who is now director of retail studies at Columbia University's graduate business school.
The survival of Sears was always in doubt during the insolvency process, which provided little time or flexibility for a going-concern offer that carried any conditions or was seen to be less attractive financially than a process that would raise funds by selling Sears Canada's real estate and other assets to a variety of bidders.
"The timelines were very aggressive," said Lou Brzezinski, lawyer at Blaney McMurtry LLP, which represents some of Sears's suppliers. "The liquidation had to happen almost immediately. There really wasn't enough time to properly market Sears as a going concern."
Sears opened its first store in 1953 in Stratford, Ont., and, in its heyday of the late 1970s, was the country's dominant department-store retailer, becoming the must-have anchor in malls across Canada. Its sales peaked in 2001 at more than $6.7-billion after it bought struggling rival T. Eaton Co. but within a few years, it closed that chain.
Still, Sears has been in decline over the past decade, a victim of shifting leadership and strategies, encroaching new retailers and Amazon.com Inc. pinching its business, and a chronic underfunding from its key shareholder run by Edward Lampert, chief executive officer of U.S. Sears Holdings Inc. Its sales last year stood at just more than $2.6-billion.
"Nobody is going to be shocked" by Sears's closing, said Alex Arifuzzaman, partner at retail real estate adviser InterStratics Consultants. "The writing has been on the wall."
Susan Ursel, lawyer at Ursel Phillips Fellows Hopkinson LLP, which represents current and former Sears employees, said her firm is considering whether to back the company's move to liquidate. "We're considering all viable alternatives" to preserve jobs.
A slimmed-down version of the Stranzl bid technically could be put forward by Friday, industry sources said, although the likelihood of a revised going-concern bid is low.
The gap between the Stranzl group's bid and a liquidation was roughly $50-million, sources said. The Stranzl bid provided unsecured creditors with almost no guaranteed recoveries, while a liquidation could offer them roughly 18 cents on the dollar, sources said.
Landlords also have mixed views on saving Sears, Mr. Arifuzzaman said. The stronger landlords want their leases back to find better tenants, although other mall owners are ready to continue with Sears until they can find better replacements. But many landlords are still grappling with empty stores after Target Corp. failed in Canada in 2015 and left, leaving unfilled spaces in many shopping centres.
The liquidation sales are expected to start Oct. 19 and continue for 10 to 14 weeks to try to cash in on the critical holiday shopping season. Sears has already closed roughly 60 stores and let go about 2,900 of its 16,000 employees.
Bargain hunters who had heard the news of the store's imminent closing came to the Fairview Mall location in search of discounted goods. While some marched away with purchases in hand, others left empty-handed.
Toronto residents Angela Jeong and Daniel Pun came in search of deep discounts and found the sales somewhat disappointing.
"It feels great to look for sales but it doesn't feel as great when you find out the sales aren't actually that good," Mr. Pun said. But the pair did leave with two finds – a Swiss army knife and a sports bra – that were roughly 50 per cent off.
"I don't really like department stores to be honest," Scarborough, Ont., resident Lenore Clarke said. "There's just too much there and you have to sift through everything so I kind of shy away from them," she said, adding that she only uses the store to enter and exit the mall.
In the past couple of weeks, Sears closed deals to sell off 11 of its best store leases – ones that the Stranzl group had coveted for its offer – as well as other assets, including a distribution centre in Calgary and its transport and home services businesses.
By last week, FTI Consulting Canada, the court-appointed monitor overseeing the Sears insolvency, had hinted that the retailer was heading toward a total liquidation. For one, it was running out of money, losing more than $1-million a day.
Sears said Tuesday it is asking the court to approve a complete wind-down of its business and laying off its remaining employees. "The company deeply regrets this pending outcome and the resulting loss of jobs and store closures," it said in a brief statement. Sears had secured about $450-million of debtor-in-possession (DIP) financing from its two existing lenders and they had "a superpriority charge" on all of the retailer's assets and properties. The lenders were pushing for a liquidation of Sears to recover all of their money.
As of April 29, Sears Canada had total liabilities of $1.108-billion and total assets of $1.187-billion, according to court filings.
Despite its poor results over the past years, Sears had managed to increase its same-store sales in each of its past two quarters under its new reinvention strategy developed by Mr. Stranzl. But it was too little, too late, industry observers have said.
Sears was also grappling with a wind-up deficit of Sears's defined-benefit pension plan of $266,805,000, court filings in June indicated. To make it up, the retailer would have needed to make special payments of $3.7-million a month, the filing said.
Sears had experienced many years of declining sales and red ink, with net losses beginning in 2014. It suffered from a decline in traditional retailing and a shift to digital shopping; unsustainable fixed costs from an overly broad footprint; the decline of its catalogue business; lower-than-expected conversion of catalogue customers to online customers; the 2015 termination of its agreement with JPMorgan Chase & Co. to manage its credit and financial services operations; and the weakening of the Canadian dollar.
In its generally disappointing first-quarter results – the last ones to be issued this year – Sears's loss more than doubled to $144.4-million from $63.6-million a year earlier while sales skidded 15.2 per cent to $505.5-million.
Edward Lampert, CEO of Sears Holdings Corp., has been a key beneficiary of Sears Canada's asset sales over the years through his hedge fund, ESL Investments Inc., and other related firms, which together owned about 45 per cent of Sears Canada at the end of April. Sears Holdings owns about 12 per cent of Sears Canada.
At the Fairview Mall location, Cindy Cox, a regular Sears shopper, left with a frying pan and some clothes, even though the pan was not discounted. Ms. Cox said she is sad to see the store go. "People are loyal to Sears," said Ms. Cox, who used to work for the company about 20 years ago. "Some people are."
Alexandra Posadzki