Dive Brief:
- Sears Canada said it has filed for creditor protection under Canadian law with a plan to downsize and reemerge as a going concern, just days after a report broke that it was bound for the Canadian equivalent of bankruptcy and would likely liquidate in the process.
- The restructuring plan calls for the department store retailer’s term loan and asset-backed loan lenders to provide $340.1 million ($450 million in Canadian dollars) for debtor-in-possession financing, with Wells Fargo Capital Finance Corporation and GACP Finance Co., LLC acting as administrative agents, according to a press release.
- Additionally, the struggling retailer plans to close almost 60 stores, including 20 full-line locations, 15 Sears Home stores, 10 Sears Outlets and 14 Sears Hometowns. All told, the company plans to cut about 2,900 positions across its retail network and at its Toronto headquarters during restructuring.
Dive Insight:
Sears Canada, for now, has a future. Its creditor protection plans are designed to leave the company as an operating retailer, after initial reports pointed toward a liquidation of the business, with its parts and assets being sold off piecemeal.
It was little more than a week ago that the retailer issued “going concern” language to its investors, noting that it did not have enough cash to meet its needs. Despite its liquidity issues, Sears Canada, which split from Sears Holdings Corp. in 2014, said in a release that the company had made headway in turning itself around and boosting sales.
In the last 18 months “Sears Canada rebuilt its front and back-end technology platform, redefined its brand positioning, revamped its product assortment, and rebooted its customer experience and service standards” leading to an increase in same-store sales in the previous two quarters, the company said. But, it added, financial pressure stalled the turnaround efforts and threatened the company's chances of survival.
After five years of operating losses and negative cash flow, the Canadian retailer said in a June 13 release that “cash and forecasted cash flows from operations are not expected to be sufficient to meet obligations coming due over the next 12 months.” Prompting the statement were negotiations with lenders for a liquidity injection that fell short of the retailer’s needs.
Sears Canada today operates separately from its former parent, though it is still heavily connected to the man who runs Sears. Sears Holdings CEO Eddie Lampert and his hedge fund, ESL Investments, own 45% of Sears Canada. Sears Holdings, run and partly owned by Lampert, owns another nearly 12% of the Canadian retailer. Sears Holdings of course faces well-publicized liquidity issues and credit strains of its own.
Sears certainly isn’t the first American-made retail brand to struggle north of the border. In 2015, two years after opening its first Canadian store, Target closed all 133 of its stores in the country. Target’s pullout in Canada was partly specific to the retailer, which suffered from logistical issues and currency fluctuations, and also excluded some of its brands from the Canadian chain. Target, like Sears Canada, also faced heady competition, including from rival Walmart’s Canadian counterpart and the Canadian department store operator Hudson’s Bay Company.
