(Adds details on filing on pension payments and lawyer comment)
By Solarina Ho
Sears Canada Inc said
on Thursday it plans to cut jobs and close about a quarter of
its stores as it restructures its operations after a steady
decline in sales due to competition from big-box retailers and
online merchants.
Like many department stores, the Toronto-based company has
struggled for years to attract fashion-conscious shoppers who
have embraced apparel stores more adept at keeping up with
fast-changing clothing trends.
The company, which in 2012 was spun off from U.S. department
store pioneer Sears Holdings Corp, said it planned to
close 59 of its 225 stores and cut 2,900 of its 17,000 workers
as part of a restructuring approved by an Ontario bankruptcy
court on Thursday.
Sears Canada also plans to file a motion to request
permission to suspend certain monthly payments to its pension
plan because it is running low on cash, according to court
documents.
It also intends to stop payments to a post-retirement
benefit plan providing retirees with life insurance and medical
and dental benefits, according to the filing.
Retail experts said they were not convinced the company
would succeed in its effort to remain in business, but noted
that it could get more for its assets by winding down its
operations in several phases, rather than pulling the plug
through a liquidation.
“It’s just been baby steps toward the ultimate end,” said
Sally Seston, managing director at Retail Category Consultants
Inc. “A forced liquidation becomes a fire sale.”
“One way or another, it’s not going to be an easy road for
them. As is the case with all department stores,” said Maureen
Atkinson, a senior partner at retail consulting firm J.C.
Williams Group.
Existing lenders have agreed to provide up to C$450 million
($340 million) in interim financing to help the company
controlled by billionaire hedge-fund investor Eddie Lampert
focus on selling discounted designer labels and low-priced
clothing.
The plan shifts away from areas long associated with the
iconic Sears brand, such as home appliances, tools, electronics
and auto parts.
Lou Brzezinski, an attorney who represents several of the
retailer’s landlords and suppliers, said his clients were
relieved that the company had not given up.
“It’s a measured and a reasonable approach to continuing
operations in Canada and we’re happy to see that,” Brzezinski
said, but noted the fallout would hit employees and retirees the
hardest.
“It’s the older people who need the money for their medical
benefits and their dental benefits. They’re the ones that’s
going to have to pay the price.”
The company has total liabilities of C$1.1 billion as of
April 29, according to financial disclosures. That includes
outstanding loans, accounts payable, pensions and other debt.
Its shares tumbled 14.7 percent to 40 cents in Thursday
Nasdaq trading after touching a record low of 16 cents earlier
in the day. The stock did not trade in Canada, where it was
halted by the Toronto Stock Exchange.
About 78 percent of Sears Canada shares are held by Lampert
and others close to the company, according to Thomson Reuters
data.
Sears Canada named Bank of Montreal as its
financial adviser and the law firm Osler, Hoskin & Harcourt LLP
as its legal adviser. It said FTI Consulting would serve
as restructuring consultant.
($1 = 1.3249 Canadian dollars)
(Writing by Jim Finkle; Reporting by Solarina Ho in Toronto.
Additional reporting by Fergal Smith in Toronto, Jessica
DiNapoli in New York, Richa Naidu in Chicago, and Siddharth
Cavale, Yashaswini Swamynathan, and Gayathree Ganesan in
Bengaluru; Editing by Denny Thomas and Dan Grebler)