Horrors! Eddie Lampert, scion boss of Sears, is back in court. While Lampert was able to purchase 425 Sears and Kmart stores for $5.2 billion, it turns out that it was not a clean transaction. Various parties are now trying to settle their claims.
Let me enumerate some of those claims.
- Transform Holdco LLC is the newly formed company doing business as Sears and Kmart. They claim that Sears Holding (otherwise known as old Sears) delayed some payment to vendors.
- Transform Holdco LLC also claims that old Sears short-changed the new Sears on inventory.
- Old Sears claims it is owed $57.5 million on the purchase price. Reports claim that new Sears will not sit down with old Sears to discuss anything until this claim is settled.
- New Sears claims that the transaction included $147 million of prepaid inventory. However, it only received a portion—claiming a shortfall of $78 million.
- Stanley Black & Decker has sued the retailer over its use of the iconic Craftsman brand, claiming breach of contract and trademark infringement by marketing a line called the Craftsman Ultimate Collection Brand. In 2017, old Sears sold the Craftsman line for $900 million but retained a limited license to sell some Craftsman products. Sears is now promoting their stores as “the real home with the broadest assortment of Craftsman” which SBD feels belittles their assortment of Craftsman tools and deliberately tries to confuse customers.
- Stanley Black & Decker still owes new Sears $250 million for the remainder of the purchase.
Many of the claims can be settled by arbitration since the principals are in agreement about the basic transaction. The claims underscore bad faith on the part of the seller (old Sears) and sloppy due diligence on part of the buyer (new Sears).
I have never liked the idea of Sears selling any of its three legacy brands—Craftsman tools, Die Hard batteries or Kenmore washers and dryers—to others. I believe that these iconic brands reaffirmed Sears’ strength as a wholesome retailer. I am not a lawyer and cannot express a legal opinion, but once a sale was made to SBD there was no earthly reason why the brand (slightly altered) should reappear in Sears stores.
The genius behind all of this is Eddie Lampert, the former CEO of Sears and owner of new Sears through ESL investments. I was going to congratulate Eddie for saving 45,000 jobs for people in the 425 remaining stores, but then I remembered that he was the same person who got rid of 3,418 stores when he formed Sears Holding in 2005; he did this by selling or closing divisions and individual stores.
As the company tries to get respect and legitimacy among vendors, customers and associates, these claims are disruptive and unsettling. Too bad Eddie can’t just wave his magic wand and have everything go away. That does not seem possible, and I suspect it will be prudent to settle all claims before it gets ugly. Customers read the newspapers, and they are not likely to shop in a store they do not trust.
The new 425 store company is supposed to have smaller stores with less emphasis on apparel. These smaller units are supposed to feature appliances and home care products. They will compete with Amazon, Best Buy, Home Depot, Lowe’s, Target and Walmart. I fear that the stores will not have the competitive clout they will need to keep up with these strong players.
Date: March 14, 2019