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Retail

Retailer Watch: Sears, FAO Schwarz, TRU & NRF

By Karina Masolova. Contact the Editor at karina@plainlanguagemedia.com.

Sears Holdings is joining the bankruptcy club, facing down $12 billion worth of debt (compared to $8.1 billion in assets). The retailer will undergo Chapter 11 reorganization and is expected to close 142 stores as part of those proceedings. Sears hasn’t turned a profit since 2010 and has $134 million of debt maturing this week; it has also reportedly missed scheduled payments in the last couple of weeks.

This is despite CEO Eddie Lampert’s efforts to inject cash through his own hedge fund, ESL Investments. In August, ESL made an offer to purchase Sear’s appliance brand Kenmore and the company’s home improvement business. That deal would boost Sears’ coffers by an estimated $400 million. (The company sold its signature Craftsman tool brand in early 2017 to Stanley Black & Decker for roughly $900 million.) Separately, last month ESL—which is Sears’ second-largest shareholder behind Lampert himself—also urged the retailer to sell $1.5 billion more in real estate and restructure $1.1 billion in debt to avoid bankruptcy. The hedge fund is currently negotiating to extend credit to Sears in bankruptcy, although it has managed to scrape up $300 million in financing elsewhere. ESL has been collecting about $200–225 million in annual debt payments from Sears, per USA Today. Lambert is also a key investor in real-estate investment trust Seritage Growth Properties, which has been snapping up Sears locations, only to lease them back to the retailer.

Lampert has since resigned as CEO, although he remains chairman and neither he nor ESL have sold any of their stake. The Sears board has created an “Office of the CEO” to run the company. A Chief Restructuring Officer, M-III Partners Managing Partner Mohsin Y. Meghji, will help lead the bankruptcy and report to a newly created board committee.

Sears reportedly stopped prepaying vendors last summer, per Reuters, and had recently shifted to a strategy of fulfilling orders once placed. The retailer has aggressively slashed its merchandising inventory; Sears carried $2.7 billion worth in August compared to $719 million the same time last year. Sears and Kmart operated around 1,000 stores in 2017; last year, almost 150 stores were cut. The company has 687 Kmart and Sears locations remaining.

No Shame in the Toy Game

ThreeSixty Group’s “global kids lifestyle brand” FAO Schwarz shares its international expansion plans. Plus, it marks Nov. 16 as the date the former toy retailer opens its flagship New York City store. The 30 Rockefeller Plaza location boasts 20,000 sq. ft. of FAO Swartz signature toys and experiences as well as offerings from Melissa & Doug, Marvin’s Magic, Build-A-Bear, and FAO Schwartz (in partnership with IT’SUGAR).

  • All of Canada’s 89 Hudson’s Bay Co. stores will host pop-up shops ranging from 300 to 1,200 sq. ft.
  • Kidsland China in Beijing is behind a 27,000 sq. ft. flagship in China set to open March 2019. More stores and pop-ups are planned over the next few years.
  • London’s Selfridges hosts a holiday pop-up early November 2018 as part of its “Selfridges Rocks” Christmas Shop.
  • El Corte Ingles in Madrid, Spain will open a pop-up early November 2018.
  • Australia gets two pop-ups, one each in Sydney and Melbourne, as part of Australia’s Myer Australia Giftorium Event starting in late October.

Is Toys ‘R’ Us on the same path as FAO Schwartz? The funds that now control TRU are backpedaling their plans to auction off the retailer’s IP in a new finding. Reports suggest that they are, instead, hoping to reorganize the assets into a new company which will maintain current license agreements and invest in new retail operations. As owners of the new entity, the funds will have discretion over trademarks, such as the Geoffrey the Giraffe mascot and the Babies ‘R’ Us, and receive royalty payments from their use internationally.

Consumer Insights via the NRF

Guess who’s not going bankrupt anytime soon? Discounters. According to the National Retail Federation (NRF)’s new Fall 2018 Consumer View report, everyone dips into the bargain bin. A full 89% of shoppers today say they buy from discount retailers like off-price, dollar, outlet, and discount grocery stores (like Dollar General, Family Dollar, Ross, and TJX). Among Gen Z (aged 18 to 23), that share rises to 93% of shoppers. These value shoppers come from every generation, income group, and region of the country. They look for deals on everything, but mostly clothing (75%), groceries (71%), home décor and furnishings (62%), personal care and beauty (60%), and electronics (52%). And even though they’re frequent shoppers (at least once a month), they also have low expectations—only 18% expect two-day shipping, 23% an entertaining shopping experience, 33% free standard shipping, 34% quality customer service, and 36% that it will be easy to find things.

And in part thanks to that trend, the NRF is revising its 2018 retail growth calculations upwards to at least 4.5%—higher than the rest of the economy at large. In 2018, an estimated 2,000 stores are expected to open—two for every one location closing, per the IHL Group. The food, drug, convenience and mass merchants/warehouse category has reported 3.7 companies adding stores for every one that is closing stores.

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