Sears Contemplates End Of Lands’ End As It Explores Spin Off Of Iconic Clothing Brand, Auto Centers

By |
0 Comment
It was, some thought, a mismatch from the beginning. When Sears(SHLD) purchased Lands’ End for $1.9 billion in 2002, the New York Times spoke of a union of “pants and power drills”.  The hope of then-CEO Alan Lacy that Lands’ End would revive Sears’ struggling apparel business was never realized. By the time Kmart purchased Sears in late 2004, it was widely acknowledged that the acquisition had been ill-conceived and the integration poorly executed, as in this December 2004 New York Times article:

Retail analysts agree that the fit between Sears and Lands’ End has been awkward, and with Kmart now in the mix, the clothing line has little to gain and much to lose. Lands’ End was a longtime catalog seller that was also a pioneer in Web-based apparel sales. It built a strong following by offering high-quality merchandise like Squall parkas, cashmere sweaters and down vests, a wide range of sizes, and a high level of customer service.

“Lands’ End was one of the most brilliant brands of the 20th century, and under Sears, one of the most irrelevant brands of the 21st century,” said Burt Flickinger III, managing partner at the Strategic Resource Group, a retail consultant in New York. “Lands’ End in the Sears stores is poorly positioned in between men’s suits, snow blowers, tools, denim and work clothes.”

Not long afterwards, speculation began that under new Chairman Eddie Lampert, Sears would sell off the Lands’ End division. These rumors have gained increasing currency over the last year as the division has been unsuccessfully shopped around, and have now become confirmed, as the company announced that it is evaluating the separation of Lands’ End and of the company’s Auto Centers.

Third, we seek to accelerate our transformation by becoming a more focused company that is easier to understand and to manage not just from the standpoint of our store portfolio but also from the standpoint of our portfolio of businesses. We are evaluating separating both our Lands’ End business and Sears Auto Center (“SAC”) business.  We believe separating the management of these two businesses from Sears Holdings would allow them to pursue their own strategic opportunities, optimize their capital structures, attract talent, and allocate capital in a more focused manner while bringing our business unit structure to life outside of the Sears Holdings portfolio.

Regarding Lands’ End, we believe that Lands’ End is an iconic brand with the potential to become a more global brand, and we presently anticipate that any separation, if pursued, would not be structured as a sale but rather through a transaction that would allow existing shareholders the opportunity to benefit from the significant potential for value creation over the long term.

Regarding Sears Auto Centers, we believe that SAC has a unique national footprint that can be leveraged to create significant value. We have begun the repositioning of the business around non-tire related services as tire margins have been compressed industry-wide over the past several years, leveraging the store footprint, the number of service bays and our auto technicians.  We are in the process of evaluating strategic alternatives for the business to maximize its value for our shareholders.

Investors reacted positively to the announcement, bidding up the stock over 10%. But they would do well to be cautious, given the division’s lackluster performance(sales are largely unchanged in the decade since the acquisition), the company’s inability to find a buyer for the division, and Sears’ track record spinning off companies.

Sears is no stranger to spinoffs, having spun off Orchard Supply Hardware, Sears Hometown and Outlets(SHOS), and much of its Sears Canada stake. Orchard Supply, the only straight spinoff of a distinct division, is most instructive.  Less than two years after its spin, Orchard filed for bankruptcy, wiping out shareholders.  Lands’ End seems to be a better business than Orchard Supply, but depending on how the deal is structured, the new company may find it difficult to operate effectively.

The Auto Center business is more likely to be sold than spun off to shareholders, says the mumbling consensus. If it fails to find a buyer, however, don’t be surprised to see it spun off to shareholders as well.  While Sears under Eddie Lampert has been terrible at making money, it has been wonderful at generating content for this site. Thank you, Eddie! We look forward to continuing to follow the frenetic action.

Disclosure: The author holds no position in any stock mentioned.

Related articles