Sears Canada Brand Check-up: Paying Out Instead of Investing
Sears Canada closed its last stores on January 14, 2018, ending a business that began in Canada in 1952 as a mail-order catalogue. More than six years later, we look at how a national name reached liquidation. The record shows a company that sold its best locations, paid out cash and changed leaders often, while its revenue kept falling.
Key takeaways
- In 2013 Sears Canada agreed to sell leases on seven prominent stores for a combined $591 million and paid a $509 million special dividend in the same year.
- Its US parent, Sears Holdings, cut its stake from about 95 per cent in 2012 to 12 per cent by 2017 through a spin-off and a rights offering.
- Revenue fell about 17 per cent in fiscal 2016 to $2.61 billion, and the company sought creditor protection in June 2017 before liquidating every store.
- The lesson for growing companies: cash taken out of a declining brand is cash the brand can never spend on its own recovery.
Download the full Sears Canada Brand Check-up (PDF): vital signs, timeline, diagnosis, treatment and sources.
The symptoms
Sears Canada’s revenue fell to $2.61 billion in fiscal 2016, the year to January 28, 2017, from $3.15 billion a year earlier, a drop of about 17 per cent. The net loss was $321.0 million. In the first quarter of 2017 revenue fell 15.2 per cent, and on June 13 the company said its conditions raised “significant doubt as to the Company’s ability to continue as a going concern.” On June 21 the shares traded at 62 cents, against $40 in 2000. Trading was halted the next morning.
A parent that sold down its stake
Sears Holdings, the US parent, owned about 95 per cent of Sears Canada in 2012. In November 2012 it distributed about 44.5 per cent of the shares to its own stockholders and kept about 51 per cent. In October 2014 it offered up to 40 million shares through a rights offering at C$10.60 each. By 2017 it held 12 per cent, and Edward Lampert, who ran Sears Holdings, owned about 45 per cent. In five years the controlling parent became a minority holder. A brand that needed patient investment had become a holding its owner was selling.
Selling the best stores, then paying out the cash
In June 2013 Sears Canada sold its leases at Yorkdale and Square One to Oxford Properties for $191 million. In October it agreed to sell five more leases, including the Toronto Eaton Centre flagship, to Cadillac Fairview and partners for $400 million. Evan Mann of Gimme Credit called that deal “a ‘sugar coated’ continuation of the struggling retailer’s orderly liquidation.” In November the board declared an extraordinary dividend of $5.00 a share, about $509 million, paid on December 6. In one year the company agreed to sell leases on its most visible stores for $591 million and paid out $509 million.
Many leaders, a new logo and no clear reason to shop
Leadership changed hands several times between June 2011 and July 2015. In August 2016 it changed its logo for the first time in 32 years, adding a maple leaf. A new mark does little when shoppers lack a reason to choose the store behind it. Mirella Pisciuneri of Richter put the squeeze plainly to CBC: “If you want upscale you go to The Bay.” Name recognition can flatter the numbers while the reason to buy erodes, a pattern we cover in our piece on branded search inflation. Meanwhile the print catalogue, the channel Sears had built on in Canada since 1952, was published only until the last quarter of 2016.
The collapse and the pension shortfall
On June 22, 2017, Sears Canada obtained protection under the Companies’ Creditors Arrangement Act, with plans to close 59 stores and cut about 2,900 jobs. The TSX delisted the shares on July 28, 2017. Liquidation sales began on October 19, and the final stores closed on January 14, 2018, with the loss of nearly 12,000 jobs. The pension plan was more than $260 million short. In December 2018 pensioners agreed to an estimated $48 million from the insolvent retailer, while the court-appointed monitor sought to sue Lampert and his fund, ESL Investments, over the 2013 dividend.
What growing companies can learn
Treat cash from asset sales as fuel for the brand before you treat it as a payout. Keep leaders in place long enough for one plan to show results. Check your brand’s health on a schedule, through a regular marketing audit, not only when the numbers force it. As retail analyst Bruce Winder told CBC, “Momentum in retail takes years to gain and years to lose, but once you lose it, it’s gone.”
This check-up uses public information available on June 4, 2024. It is brand and marketing analysis, not investment advice.
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