The economy and business world has undergone significant evolution since the advent of the Internet. The stalwarts of old are either evolving to adapt or dying off (it was fun while it lasted, Radioshack!). In the meantime, a new breed of tech-dependent and massively profitable corporations have taken the reins. As a result, some of America’s most iconic and largest companies of yesteryear are either putting everything they have into trying to stay relevant, or cutting their losses.
One of those companies, Sears, has done enough cutting to thoroughly spook its shareholders, and now those investors are demanding answers from the company’s leadership.
In this case, Sears’ CEO Eddie Lampert is under the gun for selling off some of the company’s physical store locations — many of them worth a considerable amount of money — for his own benefit. The suit has been reported by several Chicago-area media outlets, including the Chicago Tribune, which says that Sears’ shareholders allege that Lampert’s selling of the company’s prime real estate holdings will send $2.5 billion into a trust controlled by Lampert himself, and leave Sears in an even tighter spot than before.
“Sears and its stockholders would receive a severely inadequate cash payment that the defendant Lampert-controlled company may use to cover operating losses and debt obligations for another year or so, before stockholders are left holding the bag in an insolvency widely viewed as inevitable if the proposed transaction occurs,” the lawsuit says, according to Crain’s Chicago Business.
Sears did respond in a statement, with Sears’ vice president of corporate communications Chris Brathwaite writing that, “the company plans to contest it vigorously and believes the proposed real estate investment trust transaction will provide substantial benefits to Sears Holdings and its shareholders.”
Considering the amount of problems that some of the old retail giants have been experiencing in recent years, perhaps Lampert has been looking for ways to essentially sell off pieces of Sears for scrap. Just take a look at what’s happened to other companies like JC Penney, or Radioshack, as we mentioned before. Sears, like those others, has been unable or unwilling to adapt to a changing business climate, where Wal-Mart, Amazon, and a small contingent of others have quickly swooped in and secured massive amounts of market share.
The shift can’t simply be blamed on the fact that consumers are taking their dollars and shopping online — the vast majority of all retail transactions are still being done in physical storefronts. While there are many things that Sears and companies like JC Penney and Radioshack could have done to secure their footing, they’ve clearly been reluctant to do so, and have suffered as a result.
Though Sears’ shareholders are worried enough to actually file a lawsuit against Lampert, it’s not clear at all that the embattled CEO has been looking to pad his own pockets on the way out the door. It’s important to mention that Kmart is also under the Sears Holdings umbrella, and that a good portion of the real estate deals Lampert had been working out involved Kmart locations. Since Kmart has more or less become almost a total afterthought for many shoppers, it’s quite possible that those storefronts were more valuable to Sears Holdings as a cash injection to invest in its other stores.
It’s also important to note that this strategy of selling or renting out Sears’ locations has been going on for some time now, at least as far back as a year ago, according to The Consumerist.
Some serious investment into the long-term viability of the company, even if it means contracting, is probably what’s best at this point in time. Sears Holdings has seen profits drop for many quarters on end now, and even cost-cutting measures taken by Lampert and his staff haven’t been able to stop the bleeding. There has been some talk that the company may, in fact, never return to profitability.
That lends credence to the idea that Lampert’s real estate dealings have more to do with a last-ditch effort to save the company from falling into complete insolvency than making himself rich — though it looks like the courts will have to render judgment in the end.
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