Sears Holdings Corp (NASDAQ:SHLD) is doomed. Its passing into bankruptcy seems like only a matter of time.
SHLD stock is like a character from The Walking Dead, popping 6% on a short squeeze but down more than 40% since mid-April and plunging rapidly.
The curtain could fall next month, after the risk of a “fraudulent conveyance” charge of real estate to Seritage Growth Properties (NYSE:SRG), its real estate investment trust, passes. Sears Canada Inc. (NASDAQ:SRSC), in which Sears holds 12% and CEO Eddie Lampert 45%, is likely to go first.
The main reason bankruptcy hasn’t happened yet is that Lampert is trying not to go down with the ship. Seritage is part of that planning. So is his becoming Sears’ biggest lender. There are rumors he could even take the company private. Watch for the captain’s lifeboat going over the side, then get out of the way, seems the order of the day.
Wall Street Deathwatch
While former customers write their Sears obituaries and headquarters staff pack boxes, more heartless types are looking at what else may die with Sears.
Mall store closings can mean big defaults on Commercial Mortgage Backed Securities (CMBS), commercial mortgage loans, as whole shopping malls go down when their anchors die.
When mall anchors close, they take other stores with them. The bankruptcies of Payless Inc (NYSE:PSS) and The Gymboree Corporation (NASDAQ:GYMB) stem, at least in part, from mall closings.
Any company whose stock is attached to the survival of the mainstream mall seems to be at risk in the present environment.
New Sears Openings?
Despite all this, there are some new Sears stores opening.
The new stores are small, located in rural communities, they don’t always carry the Sears name, and some are operated like franchises. In the border town of Pharr, Texas, a new Sears Appliances and Mattresses store opened just last week, complete with a ribbon-cutting and giveaways.
A former Sears auto center was recently re-opened in San Antonio as a DieHard Auto Center, selling maintenance plans, pushing vehicle evaluations and basic repairs.
By minimizing or eliminating the Sears name, going into underserved areas, and partnering with local businessmen, there may be a new chapter opening. But, not every Sears is even a Sears.
Many of the new outlets are owned by Sears Hometown and Outlet Stores Inc (NASDAQ:SHOS), spun off in 2012. I wouldn’t recommend the stock, though. Sales have been falling steadily, if slowly, and the company has not turned a profit since 2014.
If you’re looking to make money with Sears, even by shorting Sears stock, you may be too late, as our Ryan Fuhrmann writes. The buzzards, starting with the CEO, seem to have picked the carcass clean.
Collateral Damage
The slow-motion fall of Sears has brought with it immense collateral damage. Shopping malls, commercial loans, ancillary businesses related to malls, and the suburban lifestyle of the late 20th century are all seen as casualties. Local newspapers write about “our mall” being threatened, the downtown that replaced the downtown that the mall made redundant.
Malls that were once magnets for the middle-class are becoming magnets for the poor. Casual dining restaurants that once looked like easy money no longer are.
Few analysts seem to have considered the larger economic implications of what is happening to Sears and the malls it once anchored. As former “rotten urban cores” bloom, new “rotten suburban cores” are being created, taking residential property values down and increasing commercial bankruptcy rates.
While investors are busy celebrating the success of Amazon.Com Inc. (NASDAQ:AMZN), the failure of Sears and the suburbs it once stood for could overwhelm the larger market.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.
