Sears Chain Borrows Again, Will Sell More Assets and Cut Costs

CHICAGO, IL–Fighting to stay relevant amid falling revenue and company losses, Sears has turned to a compnay that manages the fortune of billionaire Bill Gates for its latest round of financing.

The retail chain said, April 8, it entered into a 15 month $500 million “secured loan facility” secured by mortgages on 13 Sears and Kmart stores owned by the company’s subsidiaries.

The new short-term financing gave the company $250 million in immediate funding, with “up to an additional $250 million [available to be] drawn by the borrowers in the future,” said Sears, and if any additional amounts are borrowed, it will put up eight more of its properties as collateral. The loan is Sears' second of this year.

The investment firm that handles most of Gates’s money, Cascade Investment LLC, provided half the $250 million, while ESL Investments Inc., the hedge fund controlled by Sears CEO, and billionaire backer, Eddie Lampert, provided the other $150 million.

"As we have consistently demonstrated, we will continue to take actions to adjust our capital structure and manage our business to enable us to execute on our transformation while meeting all of our financial obligations," Sears CFO Robert Schriesheim said in a statement.

Both Lampert and Cascade declined to comment.

Furthermore, Lampert, the Sears CEO, bought some of the company's debt recently, according to a Reuters report about a previously announced $750 million (first-lien) loan priced by Sears last month, its first loan this year. That loan was finalized on April 8, and is due in 2020.

But Lampert acquired part of the loan “in his latest bet on the parent of Sears department stores and Kmart discount shops," wrote Reuters, citing people familiar with the matter.

Moreover, Sears has lost about $8 billion in the last half-decade. In February, the retailer announced that it would close some 50 stores; shortly after, Sears Holdings Corp. reported a decrease in fourth quarter revenue of $796 million.

“Sales at stores open at least a year, considered a key gauge of retail performance, have declined and pushed the company to report a $580 million [net loss for October-December 2015],” reads a Bloomberg report.

“As its cash dwindles … [Sears] has said it plans to sell at least $300 million in assets in the first half of its fiscal year and eliminate as much as $650 million in expenses in 2016.”

Now that Sears wound up borrowing again, it may pay down older debt with a portion of the cash. But it's also taking steps to streamline its "Shop Your Way" rewards program which gives consumers options like in-store and curbside pickup after shopping and making purchases on the web. 

Sears is the fifth-largest North American retailer as measured by online or web sales. 

"The compound annual growth rate of its web sales from 2009 to 2014 was 16.82%, according to estimates from Internet Retailer’s Top500Guide.com," writes Internet Retailer Magazine. 

However, the 130-year-old chain faces an uncertain future for many of its stores, including the one on Route 1 in New Brunswick.

"The retail chain has been plagued by steadily declining sales. Between 2010 and 2014, revenue fell 26.9% from $42.66 billion to $31.198 billion, and it closed half of its Sears and Kmart stores," according to Internet Retailer.

Commenting on the first loan, David Tawil, president at hedge fund Maglan Capital, told Reuters it “buys Lampert time to either turn around the business or continue to sell off its most valuable assets,” wrote Reuters.

"Lampert has successfully spun out other pieces of the overall conglomerate over time, and that has gone to shareholders, either through a dividend or spinning out the stock," David Tawil, president at hedge fund Maglan Capital, told Reuters, last month.

"That's still a possibility for some of the assets of the company."

In addition to closing stores, the retail chain has said it is exploring options for shedding another one of its assets: Sears Auto Centers. But in the fall of 2014 spokesman Chris Brathwaite said the timing of asset sale transactions was uncertain. 

Still, a financial analyst covering the company’s stock said recently that Sears is no longer viable as a retailer in its current form. Shares of the company's stock are down more than 60% in the last 12 months.

Earlier this year the Sears Auto Center in the Staten Island Mall in New Springville, NY, opened in the mall since 1973, closed its doors for good while the main Sears store there remained open.

"The Sears store, including Sears Auto Center, at the Staten Island Mall was recently sold to the Seritage Growth Partners/General Growth Properties Joint Venture as part of the agreement in which Sears Holdings leases the store from the Joint Venture," Howard Riefs, director of corporate communications for Sears, told silive.com.

"The Joint Venture contractually has the right to recapture the space occupied by the Sears Auto Center location. The Joint Venture informed us that they will be exercising that right, and hence, we will be closing the Sears Auto Center."

The Auto Center had 20 employees, Reifs told silive.com.

"Those associates who are eligible will receive severance and have the opportunity to apply for open positions at area Sears or Kmart stores."

“I don’t think anyone says to themselves, ‘Is Target going to go out of business?’” Lauren Freedman, president of online retail research firm, The E-Tailing Group Inc., told Internet Retailer Magazine.

“People wonder if Sears is going to be around.”

John Nordmark,  co-founder of eBags Inc., an online retailer, weighed in: The problem all retailers face is this: When compared to Amazon, Google, Apple and Alibaba, all retailers will be constrained by a lack of financial and human resources," he told Internet Retailer. 

“They can’t compete with Amazon, which invested $15.4 billion in research and development in 2014.”

With respect to digital commerce, Sears is reportedly challenged by its brand, which is not always viewed favorably by consumers. 

“[Sears' website] is very cut and dry,” Freedman told Internet Retailer.

“It lacks a bit of sizzle and soul, a bit like the brand. It’s not a feature innovator. It’s not to say there are things that Sears doesn’t do well, but I don’t see Sears as an innovator.”