Eddie Lampert wants Sears Holdings' (NASDAQ:SHLD) vendors to know it has plenty of liquidity and will be paying all its bills this Christmas. The hedge fund operator and chairman of the retailer just agreed to loan Sears Holdings another $100 million.
It's clearly an attempt to calm supplier jitters ahead of the holiday season. Amid reports that vendors may be reluctant to help Sears and Kmart stock their shelves as insurance becomes more expensive to purchase, Lampert is trying to prevent them from bolting, which might force it into bankruptcy protection.
Lampert has been on a roll lately in devising creative and innovative ways to keep the retailer afloat and moving forward. Though it's likely a case of too little, too late, extending new credit to Sears is his way of forestalling a collapse.
Sears is borrowing $100 million at 11% interest, a debt that will be secured by liens on 61 properties it owns. It can borrow up to another $100 million by Dec. 1, and brings to $1.7 billion the amount of money Lampert has loaned the ailing retailer.
It does bring into question how long Sears -- and Lampert -- can continue with these stopgap measures to stay alive. Sales have fallen virtually every year since Lampert joined the company. It's only been able to post a profit, such as it did earlier this year, when it sells sizable portions of its real estate portfolio.
In reality, the company is still much too large and needs to aggressively shed even more stores to get down to a size that might be sustainable. Even with all of the locations it has closed so far, same-store sales continue to drop by double-digit amounts -- suggesting that even rightsizing its footprint may not be enough to keep it going.
Flashes of brilliance
Yet as critical as I've been of Lampert over the years, what he's been doing with Sears lately has been very smart. He's been using the substantial value that still remains in its Kenmore and DieHard brands to wring as much as he can out of them, including having third-party manufacturers build new products expand them in new directions, such as DieHard Auto Centers.
Just last month, he agreed to have Cleva build new Kenmore vacuums for distribution around the world, and have Dorcy manufacture alkaline batteries under the DieHard brand. Before that, Lampert relented and agreed to allow Kenmore products to be sold on Amazon.com.
Not that all of these deals will work. Just because consumers can now buy Kenmore appliances on Amazon doesn't mean they will. The brand holds value, but it's greatly diminished from even a few years ago, meaning the effort falls more into the "can't hurt" category.
But even Lampert understands the rising risk associated with his retail empire. The interest rate he's charging Sears on the latest loan is well above the 9.75% he charged the retailer this past summer when he gave it a $200 million cash advance.
Casting a dark shadow
Toys "R" Us plunged into bankruptcy because of a heavy $5 billion debt load that, when news reports surfaced it was considering filing for Chapter 11 protection, "started a dangerous game of dominoes," according to its CEO. Almost immediately, 40% of its vendors refused to ship product without getting cash on delivery.
That's what Lampert's trying to avoid. When Sears included a "going concern" notice in its SEC filings earlier this year, there were vast rumblings from the aftershocks -- even though it was largely boilerplate. Sears was even forced to sue suppliers twice to keep them to their contracts.
This latest loan is a clear statement that suppliers have nothing to worry about this holiday season. Unfortunately, it's what comes afterward that remains troubling.