Sears Canada Moves Toward Liquidation

Sears Canada (SCC.TO) announced yesterday (10/10) that it would seek court approval to close all of its stores and lay off nearly all of its 13,000 employees.  The move comes after the company’s Executive Chairman Brandon Strazl failed to obtain sufficient financing for his bid to acquire the company.  The Board of Sears Canada has approved the liquidation.  A court hearing is scheduled for October 13.  If nothing changes, the company could begin liquidation sales on October 19.

Liquidation of the company would be somewhat of a surprise, because Sears Canada has made progress in restructuring its business:  closing unprofitable stores and launching a new streamlined store format to win back customers.  Bankruptcy should have afforded the company the opportunity to further reduce its cost base and shrink back to a more viable core.  Even with these efforts, however, Sears Canada would probably still face a rocky road to viability.

Despite the announcement, I will be surprised if Mr. Lampert, who still owns 51% of Sears Canada’s common shares, simply walks away from his investment.  A complete liquidation of Sears Canada would likely raise product costs for Sears Holding, because the two companies sold much the same merchandise (e.g. Kenmore appliances).  Sears Holding would therefore lose volume purchase discounts.  (This is the likely reason for today’s 7% decline in SHLD to nearly a new 52-week low.)

Mr. Lampert or Sears Holding could still conceivably place a bid for the entire company or, what is more likely, Sears Holding could bid for some of Sears Canada’s assets in liquidation.

Thus, I do not believe the story is over yet for Sears Canada, even though the move toward liquidation is clearly not a positive development.

My previous post on Sears Holding is available here.

October 11, 2017

Stephen P. Percoco
Lark Research, Inc.
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spercoco@larkresearch.com

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