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The [Friday] Papers

"In a symbolic milestone, Sears will soon close its last store in Chicago - the city the iconic retailer has called home or been closely connected to for 120 years," USA Today reports.

"The store, at 4730 W. Irving Park Road, will go out of business in mid-July with the liquidation sale of its merchandise starting on April 27."

That's the Six Corners store. It used to look like this. Now it looks like this.

Soon it will look like this:

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"The Chicago storefront is part of a batch of 265 Sears and Kmart locations that were purchased by the real estate investment trust Seritage Growth Properties in 2015, then leased back by the retailer. An investment firm owned by Eddie Lampert, Sears Holdings' CEO, has a significant ownership stake in Seritage."

Ohhhh.

"For Sears Holdings, the Seritage deal meant it now had to pay rent on properties it once owned. Sears Holdings paid an additional $200 million in rent and other expenses to Seritage in 2016," the New York Times reported last fall.

"In [a] statement, the company said rent payments would decline as Sears Holdings reduces the size of its stores, as more customers shop online. This year, it expects rent payments to total $160 million.

"But as Sears Holdings exits those leases, higher-paying tenants are coming in, which benefits Seritage shareholders, including Mr. Lampert's hedge funds. 'In properties where Sears has given up the lease,' said Wes Golladay, an analyst at RBC Capital Markets, 'Seritage has moved in restaurants, small grocers, gym chains, a pretty broad-based group of new lessees who are paying more than $18 a square foot, from the $4 that Sears was paying.'"

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But wasn't the fall of Sears inevitable? After all, Amazon.

"For many, the story of Sears is a reflection of the carnage occurring throughout much of retail right now. In recent days, the stocks of J.C. Penney, Macy's and Dillard's all tumbled after they reported another round of quarterly sales declines. Some analysts expect Sears to report a third consecutive double-digit decline in same-store sales in the second quarter.

"But what may ultimately lead to the collapse of the once-great retailer is a dose of Wall Street financial engineering.

"Under the direction of the hedge-fund moneyman Edward S. Lampert, Sears has borrowed to the hilt. Many of its most valuable assets have been sold off. Its stores have been starved for cash and attention."

Oh.

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Why does that sound familiar?

(Early warning.)

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"Mr. Lampert typically led from afar. As the largest shareholder through his hedge fund and, since 2013, the company's chief executive, Mr. Lampert has overseen the company's operations via videoconference from his home in Miami. He sets foot inside Sears headquarters in Hoffman Estates, Ill., roughly once a year for the annual meeting, according to interviews with several former executives."

Eddie Lampert, you are Today's Worst Person Barely Ever In Illinois.

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"Mark Cohen, who was CEO of Sears Canada from 2001 to 2004, and now is a professor at Columbia Business School, says that Lampert is 'the wizard behind the curtain, managing the business from Florida or Connecticut or aboard his yacht' via teleconference and taking from the company all he can," Vanity Fair reported last month in a deep dive titled "'They Could Have Made a Different Decision': Inside the Strange Odyssey of Hedge-Fund King Eddie Lampert."

Deck: "In 2003, many were skeptical when Lampert married Sears to Kmart. Now, with hundreds of stores closed and thousands thrown out of work, Lampert defends his strategies in his first in-depth interview in 15 years. The author also tracks down the man who kidnapped Lampert before the Kmart deal went through."

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"While admitting he runs the company primarily from Florida, Lampert counters that he has put a fortune of his own money into the business. Cohen responds that Lampert's money is collateralized against hard assets, of which Lampert will take control if the company defaults on the loans."

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At least Lampert runs his business like the State of Illinois, even if he refuses to visit:

"The pension fund, for retired Sears employees, is underfunded by around $1.6 billion, and both Lampert and Sears are being sued for investing employees' retirement money in Sears stock, when the top brass allegedly knew it was a terrible investment."

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At least Lampert runs his business like the City of Chicago, even if he refuses to visit:

"Lampert rarely visits Sears Holdings headquarters, outside of Chicago - some say only once a year, for the annual board meeting. Lampert dismisses any criticism of his long-distance management style, saying he's a big believer in handing over power to his management team. 'There are cultures where people work from home, and they still get things done,' he says. 'The ability to trust people, the ability to empower people, that's the model.'

"Mark Cohen, for one, isn't having it. 'He's had a puppet board who have never pushed back in any way that anybody has ever seen, and why would they?' he says. 'They're all handpicked Eddie acolytes, and people have asked me for over a decade, 'How does he get away with this - it's a public company and why isn't the board in action [given] the continued failure of the business?' To which I say, 'The board is meaningless . . . There's no governance here whatsoever.'"

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Finally:

Robert Chapman, a California-based hedge-fund manager, calls Sears Holdings "a total shit show" that is in "secret liquidation" mode. He says he recently came out of a Kmart in Jackson Hole, Wyoming, that offered so many bargains he couldn't believe his eyes. "He's not calling it a liquidation sale," he says of Lampert, "but if you've gone into one of the stores, it's a liquidation deal."

Cohen says, "[Lampert] is a guy who may have harbored some notion of running this business, but if he did he's pivoted to just simply manipulating it, if you will, for his own benefit . . . This is the creative destruction of a very weak brand [Kmart] and a perfectly viable brand [Sears], both of which together were doing something like $50 billion when he took over, and he's getting away with it because he's been able to treat this like a private company. No public company would ever allow a chief executive officer to remain in their seat who was so intimately tied to these manipulations and presiding over the failure of a business like this. This is not normal, if anything is normal these days. This is certainly not normal."

Cohen believes that a bankruptcy filing is inevitable, and that Lampert will end up benefiting from it because he will be able to "walk away" from onerous store leases and other liabilities, such as the underfunded pension plan, and get rid of those assets that he hasn't been able to sell. Since he's the largest Sears Holdings creditor, Cohen says, "he'll then bring this thing right back out as a new company, and he'll become the new shareholder, and he'll start this process all over again because Sears still has a substantial inventory of at least theoretically valuable real estate, and as long as there's any plus value to any consequential outcome it's all to his benefit."

Eddie Lampert, everyone.

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We Went Inside A Sears And Saw Why The Company Is Dying.

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Abandoned: Sears Canada.

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Come See The Deader Side of Sears.

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At least Sears has finally gotten the hang of the Internet.

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See also: Saving Sears | A Beachwood Special Report.

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New on the Beachwood . . .

Do U.S. Oligarchs Exist? Not In Mainstream Media
"That avoidance is revealing when one considers an indisputable fact: U.S. oligarchs have done far more to undermine U.S. democracy than any Russian."

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Pennies From Chicago
Adventures in coin roll hunting.

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The Week In Chicago Rock
Is in pre-production.

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The Beachwood Radio Sports Hour #196
Will be recorded on Saturday this week.

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ChicagoGram

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ChicagoTube

29th and Dearborn/Johnny Dodds and his Chicago Boys.

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TweetWood
A sampling.

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The Beachwood Tronc Line: Deal.



Permalink

Posted on April 13, 2018


MUSIC - The Week In Chicago Rock.
TV - Larry Smith TV In Winthrop Harbor.
POLITICS - Corporate America's Rampant Wage Theft.
SPORTS - Did The Cubs Keep The Right Guys?

BOOKS - Demystifying The Big House.

PEOPLE PLACES & THINGS - Recall! Winter Sausage Poultry & Meat.


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