Insolvent Sears Canada Inc. is set to start its liquidation sales on Thursday, the first step to it shutting down its remaining 131 stores and putting 12,000 employees out of work.
Ontario's Superior Court on Friday gave Sears, which has been operating under court protection from its creditors since June, the green light to start its going-out-of-business sales on Oct. 19 and continue them until Jan. 22. By early next year, Sears will disappear from malls across Canada.
Sears timed the liquidation sales so that it could take advantage of the busy holiday shopping season. Technically, a buyer who wants to keep Sears operating could come forward with an offer before Thursday. But the chances of that happening are close to nil, lawyers in the process suggest.
Sears already has sold off some of its best store leases and other assets to various suitors during the court-protection process, raising money for creditors and making the prospect of a going-concern acquisition less attractive.
Sears's insolvency came after years of declines and red ink at the retailer amid shifting strategies and leaders. At the same time, its major U.S. shareholder – hedge fund manager Edward Lampert – profited from Sears Canada's asset sales over the years in the form of generous dividends while leaving relatively little money to invest in the chain.
"It's just sad that we've come to this point after 65 years," said Vera Asselin, an inventory analyst at Sears until she was laid off with no severance along with 2,900 staff on June 22. "It's not a pretty picture for any of us." Ms. Asselin had worked at Sears for almost 34 years.
"It's very sad – I spent a long time with that company," added William Turner, a senior executive at Sears for 36 years until he retired in 2002 – and is now heading a retiree group that is fighting for their pensions. "Now we have other concerns about retirees that are still to come."
In a court filing this summer, Mr. Turner predicted that Sears would not survive. "Sears has not attracted new customers and its customers base is shrinking," he said at the time. "I have no confidence that current management, without significant change, can reverse the situation."
A management group led by Sears executive chairman Brandon Stranzl had submitted a bid, and revised it, to acquire a slimmed-down Sears and save thousands of jobs. But the company said the offer wasn't viable.
Of the remaining 12,000 employees, 75 per cent of them are part-time; among Sears's 131 stores are 74 department stores, eight home outlets and 49 are Hometown stores. Sears has already closed roughly 60 stores and laid off 2,900 employees since June 22.
A group of four liquidators, including Gordon Brothers and Tiger Capital, will carry out the Sears sales until Jan. 22, with another two weeks to clear out store shelving, racks and other fixtures.
They will need to follow strict rules, such as refraining from using the words "bankruptcy," 'liquidation" or "going out of business" in connection with the sales. Mall landlords frown on that wording because it can tarnish the image of their shopping centres.
For the same reasons, the liquidators can't distribute leaflets or other written material to shoppers on landlords' property outside of the stores unless permitted by the specific lease. They are also banned from using giant balloons, flashing lights or amplified sound to advertise the liquidation sales or solicit customers except if permitted under a lease or agreed to by the landlord.
The liquidation approval follows the failed attempt by Mr. Stranzl's group to save the retailer. The court-appointed monitor in the Sears insolvency process said a liquidation would generate higher recoveries for creditors than the Stranzl group's bid.
On a wind-up basis, the pension has an estimated $267-million deficit. Sears stopped contributing to the plan last month. Andrew Hatnay, lawyer at Koskie Minsky LLP which represents retirees, said it didn't want to see the demise of Sears but a workable alternative had not yet emerged.
He said he has been in "extensive" talks with the Stranzl group to try to make the bid work. But the Stranzl group has already asked the company to return its $10-million deposit for making the bid – and got it back.
Mr. Stranzl said in an interview he is moving on to launch an e-commerce and technology startup focused on appliances to try to cash in on Sears's departure, given its leading position in that field in Canada. And he said he will also look at other "disruptive ideas" in the beauty business and home decor that he had been working on at Sears.
He said Sears's sale process made it difficult for a bid such as his to succeed because the process had a tight schedule that revolved largely around liquidations. And while insolvent companies often develop a restructuring plan within a creditors court protection process, his bid was an outside offer that didn't have support from the company – making it tougher to pull off. The sale process "had a lot of components and mechanics in it that didn't make a going-concern plan as easy to accomplish as it would have otherwise been," he said.
But he also acknowledged the company was in a tough position because it was losing so much money.
Mr. Stranzl defended his group's going-concern bid, saying some creditors, such as employees, would get full recoveries while those not part of the ongoing Sears operation – such as some landlords and suppliers -- would get less than in liquidation. "It has nothing to do with viability. It's just a choice that the company and its advisers made," he said.