Follow Up: Sears Begins Liquidation Process

The seemingly impending demise of the once dominant American retailer, Sears, took another significant step in that direction on Tuesday. The news media is filled with reports that Sears has rejected a proposal from CEO Eddie Lampert who was attempting to put together an investment proposal through his private equity company to salvage Sears.

The Sears Board of Directors informed the judge overseeing their bankruptcy case that they intend to move forward with the liquidation process. This is the final step taken before a company dissolves, and Sears will now take the necessary steps of liquidating inventory, shutting down stores, and laying off employees.

It is a very sad day for the American retail business landscape because Sears was a huge player for over 100 years (126 years to be exact) and the end of that company and some of the brands associated with it, is an end of an era in retail. The company consolidated with Kmart about 14 years ago and that proved to be one of the key factors in the demise of Sears.

In earlier coverage of this story, I shared how Sears was a store that my parents shopped in frequently for tools and appliances. It is unfortunate that many people thought of Sears for those products, and not for anything more. It also did not help that Sears did not connect with consumers that were not my parents age or older, they lost that next generation of families as well as their children who are now young adults.

The aggressive marketing of Wal-Mart, Target, and Amazon siphoned those customers away from Sears and Kmart ; and neither one could recover from that setback. My local area is a good representation of that effect, the Sears has been there for decades and the Target has been there for less than twenty years. The Target location is consistently crowded, jammed. The Sears has been so empty the last five years that I would drive by and wonder if it was closed.

I read a post on social media earlier that was effectively stating that Sears will cease to exist after 116 years, which is longer than Wal-Mart, Target, and Amazon have been in business combined. The “Amazon effect” is hurting several brick and mortar retailers that have failed to innovate. Sears missed the window to innovate their business model.

Sears should have built up their website and used their physical stores as essentially distribution centers where the customer could come and pick up items, especially expensive items that they would not want shipped. Sears owned so much of the real estate that their physical store locations are located upon that they controlled so much of the costs of not having to lease or rent space from a commercial real estate landlord, that they could have reaped so many benefits from the order online, pick up in store scenario. They did not capitalize on that in a forward-thinking way, by the time they went that direction it was already too late to recover the business.

However, even Jeff Bezos, the CEO of Amazon conceded recently that one day he expects even Amazon to perish, to cease operations. That seems unthinkable to so many, myself included, but his full quote explains further that essentially everything has a shelf life, and at some point Amazon will outlive its usefulness.

Sears managed to cobble together a pretty good run when all things are considered in the retail industry space today. It was such a huge part of Americana, the trips I remember as a kid to Sears to buy a TV, a dishwasher, or going with my Dad to buy tools for a home improvement job. I also recall before I left for college my Mom taking me there to get clothes and lamps to get my dorm room all set up.

Those memories will be all I have as well as others will have left of Sears, it will join the list of retailers and in a similar fashion to Toys R Us, who were crushed by a debt load that was unsustainable. In a similar fashion, an ex-CEO of Toys R Us attempted to save the chain from going under, and was rebuffed by the board and the court in charge of the proceedings.

Eddie Lampert put together a $4.4 billion package to try to save Sears, or at least part of it. The number was deemed to be not adequate enough to effectively salvage the company for a sustained period of time. Lampert will receive criticism for his handling of the last years of the Sears brand. His involvement with a private equity firm has already drawn scrutiny from industry analysts. His next venture remains to be seen, but this loss is going to follow him around for a long time.

My own personal last visit to my local Sears store, which is slated to close very soon, was in mid-November. I went to get work clothes and active wear at greatly reduced discounts. The store was a wreck, and it was sad walking through empty corridors and empty areas of this huge store. The memories came flooding back from my childhood one last time, of days that were easier, simpler times. That is where those memories will stay, like Sears did, frozen in time. A piece of America is gone and is never coming back.

Follow Up: Toys R Us Buyout Bid From Larian Revisited

The fallout from the liquidation of the iconic toy retailer, Toys R Us, is back in the news cycle. The news about a week ago was that billionaire toy retail brand owner, Isaac Larian, the man behind the Bratz franchise; placed a bid to purchase about 270 stores in the former Toys R Us chain plus their operation in Canada.

The bid was rejected by the courts that oversee the liquidation of the once premiere toy retailer because they deemed the valuation was too low. The court and the management of Toys R Us have an obligation to get the best value for their creditors in selling the business. They deemed that the offer from Larian was not the best value they could obtain at this point.

In the past couple of days, Larian is back in the news stating that he will put another bid into play for the U.S. stores that he has targeted that are viable for his new concept for the rebooted brand.

Larian was outbid for the Canadian operation of Toys R Us by another investment group. His new bid is focused on saving a portion of the U.S. stores, would involve retaining the U.S. corporate headquarters in New Jersey, and would save between 7,000 and 10,000 workers according to CNN Money.

Toys R Us originally had 735 stores and 31,000 workers in the United States and the potential liquidation of the chain is already showing signs of impacting the toy industry in a deleterious manner. Hasbro, according to CNN Money, has just reported a 16% drop in sales based on the absence of Toys R Us from the equation.

Mr. Larian has a theory that the job losses at other toy companies and vendors that marketed products with Toys R Us will be significant if the company is not rebooted in some form. He has a vision for the company where each location will be renovated to be a type of “mini-Disney World” in each neighborhood. The visits to the store will be very experiential for the children and their parents and family members.

This plan may sound great on paper especially because it addresses some of the core issues behind the precipitous decline of Toys R Us; customer feedback in recent years centered on the shopping environment being cold, sterile, and not inviting. The renovation of the stores and the focus shifting to one of experiences and interactivity is necessary to breathe new life into a once prominent brand.

However, that plan will have to overcome some barriers, namely a brand that has been tarnished by underperformance and a liquidation proceeding. It is similar to any brand that struggles or fails the public perception of that brand is very powerful. The public could have made a decision in their mind about Toys R Us based on past experiences which will be difficult for Mr. Larian and his group to overcome.

The perception of the consumer public has doomed many other brands throughout the course of history. In the case of Toys R Us the brand does have value because it is the only retailer which focused solely on toys. The Larian group or whomever gains the winning bid for the brand has to refocus their business around the core niche of toys.

The unfortunate reality is that it is going to take a great deal of time and money to bring back Toys R Us in a form that will be relevant and competitive in today’s consumer marketplace. The competition from Target, Amazon, Wal-Mart, and other online retailers is very fierce. Those are the barriers that any rebooted form of Toys R Us must be ready to contend with in the future.

The demise of Toys R Us was a very sad side effect of a much larger issue that faces retailers today: the consumer today has different expectations from a brick and mortar shopping experience than they did even five years ago. Toys R Us in their original form could not afford to change with the times due to the debt load they were carrying on loans from private equity investors.

The potential for Mr. Larian or the next group to submit a bid to reinvent the brand should have one central theme: they can be the niche “go-to” place for toys. This is an important attribute in an increasing focus on specialization. They can be the experts on toys and the showcase area for people to experience toys. It can still be a place where children can go to dream.

The next few weeks will be critical in the future of the Toys R Us brand in the U.S. and the decisions made will then take several months to determine the progress or the chances of success for the revamped concept. In my own personal view, if the reboot of the store experience fails, I still stand behind the idea that the brand has definite value as an online only presence. This is substantiated by the visibility and nostalgia components of the brand and the connectedness with a variety of age demographics.

This is just another chapter in what could be a long story: whether it will be one of redemption is what time will reveal.