Former Sears CEO Is Doubtful That Bankrupt Retailer Can Survive — Unless It Does This

A week before a court hearing is set to determine Sears’ fate, former chairman and CEO Alan Lacy has expressed skepticism about the ailing company’s ability to stay alive.

In an interview on CNBC’s “Squawk on the Street,” Lacy — who was the last to serve in the top role at Sears, Roebuck & Co. before its acquisition by Kmart in 2005 — said he believes it’s rare for retailers to emerge successful after bankruptcy.

“Obviously many people have said it: It’s doubtful and unlikely that a retailer that goes into a Chapter 11 process comes out of it and stays out of it,” he said.

Despite dozens of high-profile victims over the past couple years, a number of brick-and mortar mainstays that reduced their physical footprints and invested more resources in e-commerce have managed to find their footing. And, for what’s it’s worth, Payless ShoeSource and The Walking Co. are among several retail names to have filed Chapter 11 and stayed in business — although reports have recently emerged suggesting that Payless could be in trouble yet again.

According to Lacy, making a shift to an online-first strategy might be the deciding factor in possibly saving Sears.

“It’s possible, in my view, that [Sears] winds up with a going concern that’s basically based online,” Lacy said. “That area seems to be one area that Eddie has paid a lot of attention to, invested behind, seems to have a lot of interest in … and the stores that are left probably do have some retail value.”

Once a dominant force in the industry, Sears had struggled for years to turn a profit and was faced with mounting debt and eventually filed for bankruptcy protection on Oct. 15. Lacy also found fault in the company’s share repurchases prior to and during the 2008 financial crisis, with Sears spending about $6 billion in stock buybacks from 2005 to 2011.

“I do think that the Great Recession was really the nail in the coffin for this opportunity, and that’s obviously largely unrelated to [chairman Eddie Lampert]’s management style,” he added. “That was just a hugely impactful negative event, particularly for the Sears franchise, which is much more correlated to housing turnover than anything else in the economy.”

Lacy’s comments come less than two weeks after Lampert and his hedge fund, ESL Investments Inc., won a bankruptcy auction to keep the beleaguered department store chain in operation. Increasing his takeover bid to about $5.2 billion, the offer effectively prevented the company from liquidating its assets, saving up to 45,000 jobs and keeping open 425 stores across the United States.

However, unsecured creditors of Sears Holdings Corp. are opposed to the deal, with the committee filing a motion on Wednesday exploring a potential lawsuit against the billionaire executive and ESL. In the document, the creditors claimed that Lampert “worked hard to conceal” an “intricate scheme” to strip Sears of its assets, presiding over the closure of 3,500 stores as well as the loss of 250,000 jobs and “untold billions” in value.

Sears has until Jan. 29 to respond to creditors’ objections, with a U.S. bankruptcy judge scheduled to consider the deal on Feb. 1.

“One of the principal reasons that I did, in fact, sell the company was that I had doubts about Sears’ ability to survive for the longer term,” said Lacy, who helped facilitate the merger with Kmart Corp. “The Sears retail business had been a challenge for a long time and then you combine it with Kmart, who’s competing versus Walmart and Target. I think Eddie Lampert signed up for a very significant operating challenge.”

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