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Here’s What Lampert’s $200 Million DieHard Sale Means for Sears

Sears has sold its DieHard brand, leaving just one crown jewel–Kenmore–left in its portfolio.

Transform Holdco, the holding company that owns the Sears and Kmart business, on Monday said it sold its DieHard brand to Advance Auto Parts Inc. for $200 million. Similar to its $900 million Craftsman deal to Stanley Black & Decker in 2017, Sears can still sell the brand in its stores, but those sales are through a supply agreement with the new owner.

Sears has always been best known for its three major brands: Kenmore appliances, DieHard auto batteries and Craftsman tools. Those brands formed the bedrock for Sears’ existence. While Sears, despite its efforts, was never really a go-to place for apparel, its inclusion with accessories and footwear as category adjacencies, along with home textiles, helped provide a one-stop shopping destination for families looking for softlines while they made hardlines purchases. And even as Sears tries to evolve, the signs keep pointing to the question that has been raised often over the last several years: Do Sears and Kmart really have a reason to be?

Edward Lampert is chairman of ESL Investments, the hedge fund that bailed Kmart Corp. out from bankruptcy in 2003 and then a year later engineered the $11 billion merger of Kmart with Sears, Roebuck & Co. During his tenure as chairman of the merged company, known as Sears Holdings Corp., the company divested itself of a number of assets. Those divestitures included: the spinoff of Lands’ End that helped Sears realized $500 million; the formation of Seritage Growth Properties, a real estate investment trust formed from the spinoff of 254 Sears and Kmart stores, which helped Sears raise $2.5 billion, and the sale of its Craftsman brand to Stanley Black & Decker in a deal valued at $900 million.

Sears Holdings filed a Chapter 11 petition in October 2018, and creditors were pushing for a liquidation, figuring the company was worth more to them dead than alive. Lampert bailed the retail operation out of bankruptcy in February in a $5.2 billion deal that would leave roughly 425 Sears and Kmart stores open.

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The DieHard deal reflects what appears to be a continuation of Lampert’s sell off of Sears’ assets, which tends to lend credence to critics’ comments that Lampert’s aim all along was to strip the company of its assets so Sears would limp slowly along a winding path to the retail graveyard.

Lampert, for his part, has argued that he’s trying to transform Sears to a modern-day omnichannel retailer that has been hampered by a legacy store operation. The bankruptcy cleared some of the old legacy obligations, and allowed Sears to exit with a cleaner balance sheet. But the DieHard sale suggests Sears, even under a new operating structure, now needs a cash infusion to enhance its chances for survival.

The transformation that Lampert’s trying to effect requires cash for investments and for operational overhead, but cash flow has been a problem for Sears as more and more shoppers have abandoned the store as a viable place to shop. That’s also reflected in the number of store closures this year. Since the retail operation exited bankruptcy proceedings as a going concern in February, Sears has closed 216 stores–93 Kmart doors and 123 Sears locations. That leaves it with just 209 in operation. While that helps cut overhead costs, Sears will likely have to close more sites if it can’t get enough shoppers to buy what’s in its stores or online.

Over the years, most of Sears’ valuable assets have already been sold by Lampert, but the retailer said it will continue to evaluate its store base and close unprofitable stores. It remains to be seen how many more stores Sears will close in 2020 and whether it can find a buyer for its Kenmore brand. There had been rumblings even before the Sears bankruptcy that Lampert was looking to unload Kenmore and that the brand was never sold because he couldn’t get the price he wanted. There’s not much left in assets for Lampert to monetize, and soon the question of whether Sears and Kmart still have a reason to exist will come up again.