Myriad factors contribute to bankruptcy filing by Sears Hometown Stores

CHICAGO — Declining sales, rising costs and a “hangover” from the pandemic were cited as contributing factors for the Chapter 11 bankruptcy protection filing Dec. 12 by Sears Hometown Stores in U.S. Bankruptcy Court for the District of Delaware.

In the filing by Elissa Robertson, CEO of Sears Authorized Hometown Stores LLC and its parent, Sears Hometown Stores Inc., the company listed current operations as 121 independent stores in 26 states and Puerto Rico.

Ownership of Sears Hometown Stores is divided among ESL Partners LP (9%), Edward S. Lampert (37.75%), Hometown Midco LLC (45.23%), and Thomas J. Tisch and affiliates (8.03%).

Lampert is the former CEO and chairman of Sears Holdings who founded Transform Holdco, of which Sears Hometown Stores is a division, and ESL Investments.

As the filing details, the company relied heavily on Transform for its operation, including the acquisition of inventory for the stores, which encompassed “furniture items, sporting goods, housewares, appliances, certain apparel and toys, among other items.”

On the services side, Transform provided finance, IT, human resources and other corporate administrative, distribution and buying services.

With its strong dependence on Transform, the filing noted that Transform’s inability and unwillingness to continue to provide services and inventory led to the Chapter 11 status, which was exacerbated by falling sales, rising prices and the pandemic.

For the year ended Jan. 29, Sears Hometown Stores has incurred recurring operating and net losses from continuing operations of $16.2 million and $18.3 million, respectively.

In light of this, the company did take several steps, including closing unprofitable stores, reducing expenses in the areas of IT infrastructure and travel, and implementing strategies to increase sales such as an “easy order” system that allowed direct shipment from vendors.

The filing also says the company “reached out to several potential strategic buyers in January 2022 to assess interest in the company.”

But, in the end, the inability to secure additional funding from PNC Bank, along with Transform’s unwillingness to provide inventory and services without assurance of payment, became too much for the company to absorb.

A dispute also arose between the company and Transform over inventory ownership, with the $17.8 million owed under the merchandising agreement part of that disagreement.

To meet its debt obligations, Sears Hometown Stores planned to engage several companies to conduct inventory liquidation sales at its various locations.

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