When I was growing up the most honored airline was Pan American World Airways endearingly known as PanAm. The planes were a beautiful white and blue with the large globe on the tail. Captains were respected as they walked through the terminal in their perfect uniforms and bulging flight cases filled with important charts enabling them to conduct the long international flights. Flight Attendants were the ultimate professional in service and usually spoke several languages. Unfortunately, PanAm ran into financial troubles. In an attempt to save the bankrupt airline expenses were slashed and assets were sold to holding companies that created trusts that leased back routes, landing slots and aircraft. Eventually, these elaborate asset sale and leasing schemes fell apart and even a New York landmark, the PanAm building, was sold to cover operating expenses. In the end, PanAm parked the planes and ceased to exist in any form of its honored past.
I wonder if the same pattern of events is reoccurring at SEARS? From the simple start in 1886 by Richard Sears and Alvah Roebuch as a watch distributor, the retailer grew into a powerful retail anchor in every downtown across America. Management continued their success in the 1970’s by fully making the transition to anchor shopping malls, including the jump from strip mall to enclosed mega mall. At one time the executives at SEARS were respected throughout the world with many vendors coming to Chicago to be humbled by the massive height of the SEARS Tower, a building internationally recognized as a landmark. In finance, the SEARS management group was well known, respected and sometimes feared.
Today, the company is continuing with a desperate move to create a trust known as Seritage Growth Properties that will own 254 stores worth an estimated $2.5 billion. This new financial structure will also eventually receive properties that are being used to structure other joint ventures with Simon Property and General Growth Property, two of the largest mall owners in America. SEARS will be contributing numerous properties into the joint ventures and then leasing them back for their stores. Eventually, the joint ventures will be combined or sold to Seritage.
Rarely, does moving the chairs around on the deck save the ship when, on an operating basis, the boat is sinking. For the past 20 years, SEARS has failed on every account to return the retailer to the status it once held in world commerce. It has attempted every possible change known in the corporate structuring tool kit only to come out at the end in the same place as PanAm.
In Steve’s View, this stock is not for the investor looking to take advantage of the expected growth in retailing. It may be successful for the investors that are structuring, restructuring and leasing the retail properties, but I seriously doubt, it will be successful for the shareholders, vendors, employees, or creditors. Eventually, just as in the case with PanAm, the planes may end up parked at the gate, one last time.