SEARS CAN SURVIVE IF · even talk to a few customers. He also needs to cultivate the press. Talk to...

1—STRAIGHT TALK Summer 2017—

SEARS CAN SURVIVE IF …By Ron Olbrysh, N.A.R.S.E. Chairman

We have all seen the doom and gloom bankruptcy headlines about Sears when they announced several months ago that past operat-ing results indicate that “Substantial doubt exists relat-ing to the company’s ability to continue as a going concern.”

Sears CFO Jason Hollar said that this disclosure was in line with regulatory standards and didn’t reflect management expectations for the business’ near-term health. He added: “We are a v iable business that can meet its financial and other obliga-tions for the foreseeable future.”

As Chairman Edward Lampert said at the company’s May 10th Annual Meeting, “There have been extreme measures written about us for the past 10 years. But we’re still here.”

The chairman tried again to reas-sure investors that the company can turn things around, pushing back against warnings that Sears and Kmart are nearing the end.

Sears, once the largest retailer in America, has been put under a mi-croscope after its dramatic fall from

the top. The company has booked annual losses for six straight years, shedding more than $10 billion, and ratings agencies such as Fitch have identified Sears as a retailer at risk of collapsing in a very tough retail environment.

Shopping Habits ChangeAs a result of the change in shopping habits of customers, in part due to online buying, many brick-and-mortar retailers, including Sears,

have suffered lost revenues and have closed many of their stores. So have many other retailers including

Macy’s, J.C. Pen-ney, Nordstrom, and Kohl’s. E-commerce is surely to blame for some of those lost revenues. How-ever, falling sales can become a self-fulfilling prophecy for retailers that cut their brick-and-mortar footprint.

Many analysts may point out that some of these troubled retailers are not just a victim of e-com-merce competition,

but also poor management.

Volume 20, Issue 1 Summer, 2017

This issue of STRAIGHT TALK:Sears Can Survive If … p. 1

Sears Annual Meeting p. 5

Durham, NC, Retiree Club p. 6

Tampa Bay, FL, Retiree Club p. 6

Evansville, IN, Retiree Club p. 7

Renew Membership for 2017 p. 7

Sears Future and Past p. 8

Chairman’s Page p. 11

New Obligations for MetLife p. 12

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It has been said that brick-and-mortar stores are not dead. They are evolving. It is now up to retailers to figure out how to adapt, and the ones that can adapt will be around for a long time.

According to Perry Kramer, vice president at Boston Retail Partners, “The trick to surviving in the new convenience economy is competing on the service experience.” He cites Apple stores as an example of a retailer that has done a good job of providing customers with a ser-vice experience. They can try new products, ask questions of knowl-edgeable sales associates and learn how to best use them. “Apple stores are full in any mall,” Kramer says.

In other words, it’s going to be critical for retail-ers to offer their customers more than just a shop-ping opportunity, but an exper i-ence. Sears must provide existing customers and new customers a reason for shop-ping at its stores. Customer tastes a re cha ng ing , and the company must adjust to these changes to retain relevancy over time.

Shop Your WaySears has an online shopping and membership platform called “Shop Your Way.” Chairman Lampert has said that this platform is a “key priority” for the company. However, signing up for this program at the cashier counters in stores has caused much delay and confusion.

As was reported in Business In-sider, a Sears’s employee made the following comment about the Shop Your Way program. She said:

“[Eddie Lampert’s] ideas of reward cards to transform the company was a waste of time and money. If [customers] didn’t have a card, you were supposed to enroll them while you have 10 customers waiting in that line to check out. Most people were so disgusted when they finally got to pay, they didn’t want to apply. They just wanted to pay and go.”

The Shop Your Way program and its benefits have not been adequately explained to customers. In addi-tion, the program needs an easier way to sign up “members” without aggravating them. Shop Your Way

needs a “do-over” so that customers know the true value of membership and why it is superior to any other competitor’s program.

Maybe there could be handouts at the registers explaining the benefits of the Shop Your Way program, which could include an enrollment form that could be either given to the cashier or mailed in at a later time.

Glassdoor ReviewGlassdoor is a website where em-ployees and former employees anonymously review companies and their management.

Last year, based upon CEO ratings and employee satisfaction reviews from Glassdoor, Edward Lampert was reported to be the most hated CEO in America. Only 23 percent of Kmart employees and 19 percent of Sears’s employees approved of their CEO. Many complaints centered on layoffs and stagnant wages, likely attributable to falling sales at the stores. The company’s revenue has declined substantially in recent years, from $39.8 billion in 2013 to $25.1 billion in 2016.

Associates often compla in in Gl assdoor r e -views about the out-of-touch up-per management. One employee from the compa-ny’s headquarters in Hoffman Es-tates, I l l inois, wrote: “Corpo -rate employees are in deep denial about how bad things are and seem content to get a check and

babble on about ‘transformation.’ ”

Crit ics of CEO Lampert have also chided him for promising transformation, while by most fi-nancial measures, the company has consistently showed signs of continued decline.

Required Qualities of a CEOThe three qualities that a CEO needs to be successful are: cred-

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Survive continued from page 1


ibility, competence, and caring. These qualities were explained by Joel Trammell, a Forbes contribu-tor who is the CEO of Khorus, a business management software system for CEOs; author of The CEO Tightrope; co-founder and manag-ing partner of the private equity firm Lone Rock Technology Group; and chair emeritus of the Austin Technology Council.

CredibilityCEOs who lose credibility can never regain it. When you communicate, do your associates, shareholders, media believe that you are telling them the objective truth? If they do, then you have credibility.

To maintain credibility you have to tell the truth 100 percent of the time. Telling the truth 90 percent of the time is not much better than telling the truth 10 percent of the time. It only takes a few instances of delivering non-credible statements to to-tally lose your credibility. Once you lose your credibility, you cannot successfully lead. For example, when cutbacks and layoffs come after a CEO has claimed that everything is OK, all credibility with employees is lost.

CompetenceYou can be seen as credible but not competent. To be seen as com-petent, CEOs need to show a deep understanding of their company’s business model, how their prod-uct is bought and sold, as well as how their product is made, or how their service is constructed and delivered. CEOs need to show a willingness to learn and adapt. In addition, they need to prove that they understand the responsibili-ties of the CEO job.

CaringPeople must believe in both the message and the messenger. Having competence but not caring about your people or the organization’s mission will not get you very far. Caring is about showing that the CEO puts the organization above himself. Like credibility, it can take time to build this trust and a mo-ment to destroy it. CEOs violate the trust of the organization by show-ing a lack of commitment to the organization’s goals and vision, or by placing their own interests above all others.

Chairman Lampert may be cred-ible, competent, and caring but

may fail in adequately displaying these qualities.

More TransparencyThe company certainly needs more transparency. There is a lack of management communication to-wards employees and also towards shareholders, the media and cus-tomers, or as Mr. Lampert likes to refer to customers, and “members.”

Regarding the media, Mr. Lampert appears only once a year at Sears’s headquarters for the company’s an-

nual meeting. And this year, he did not even hold a press conference. However, he gave an interview to the Chicago Tribune the day before the company’s annual meeting, some-thing he has not been known to do.

As reported elsewhere in this is-sue, Lampert accused the media of getting Sears into trouble. There’s some truth to it because negative news flow really has an impact on the ability of a company to conduct its business. Without a doubt, every time people use the word bankrupt-cy, somebody who reads that doesn’t get past that word. It certainly makes it very unfair to the company and creates a very uneven playing field.

The best way not to become the proverbial punching bag is by not making yourself an easy target. To do that, Sears need-ed to show at least a glimmer of hope over the past decade. It never happened—at least not in a meaningful way—once during that time. However, it is never too late to start.

Reputation is not just something that benefits you in the future; it benefits you every day if it’s a good one and hurts you if the opposite is the case. Once there is talk of a company defaulting, there’s a real reputation cost and

there are real operating difficulties.

Operating difficulties include: sup-pliers getting anxious; associates, including senior management leav-ing; employees being distracted; and customers shopping elsewhere. And all of this has and is happening to Sears Holdings.

What Can Lampert Do?It is very difficult to change a per-son’s personality. Mr. Lampert is

CEO Edward Lampert

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a very private individual. We have been told on a one-on-one basis that he is a very congenial man. However, he does not like the me-dia, and his video conferencing with his staff is not the best. He should improve his communication skills with his associates, the public and the media.

He needs to come back to Hoffman Estates on a regular basis to talk to his associates, and his senior management. He needs to tell them how the company is doing—both the good and the bad.

Just a crazy suggestion, but maybe Chairman Lampert could find out more about his company by going on the CBS reality series “Under-cover Boss” to learn what really is happening in his company. The show’s format features the experi-ences of senior executives working undercover to investigate how their firms work and to identify how they can be improved, as well as to reward hard-working employees.

Maybe Chairman Lampert could learn what associates are saying about him? How do the stores look? How is the company’s cus-tomer service? What can be done to improve sales? Maybe he could even talk to a few customers.

He also needs to cultivate the press. Talk to them more often. The news about Sears may not be ideal, but it is better to have friends in the media rather than naysayers. Bite the bullet and meet with the media on a regular basis.

Since so few shareholders attend Sears annual meetings, N.A.R.S.E. has suggested to Mr. Lampert on a number of occasions that his report to shareholders at the com-

pany’s annual meetings should be streamed live on the internet. This would give the chairman the ideal opportunity to introduce himself to the public and if done right, show that he is a credible, competent and caring CEO. He needs to put a posi-tive face to the company.

RetireesA great resource of the company is its former employees—the retirees. We remember when the company we worked for, Sears, Roebuck and Company, was the iconic No. 1 re-tailer in the world.

As set forth in Cosmopolitan mag-azine many years ago: “Which

company do you think has the most stores, the most customers, the most sales, the most profits—and at the same time is the most loved, the most far-flung, and most legendary, the most American institution ever to charge two bucks for a bottle of snake oil?” Sears, of course.

For the most part, for Sears’s first 90 years, it had been the king of the mountain. That of course is a dangerous and difficult place to be. Competitors and regulators, con-

sumers and the media, all look for signs of weakness or poor judgment.

The days of being the king of the mountain for the company appear to be gone. The entire retail land-scape has changed as a result of the internet. To stay ahead of the pack today, the company must know what its customers want, excite them when they walk into the store or shop the internet and get them to open their wallets.

In other words, the company must stay in touch with the needs of its consumers. It’s admittedly easier said than done, but after years at the helm, Mr. Lampert must have

the proper people in place who know how to accomplish this.

Chairman Lampert needs to re-gain the trust of the public, the company’s customers, its em-ployees, and his retirees. Retirees can be Sears’s strongest sup-porters and advocates. Retirees and their families are sad about all of the negative press about the company. We were once the “Big Store,” but now we are the “Shrinking Store.”

We want the company to grow, not liquidate. This is no doubt due to some self-interest, but it is also the honest expectations of retirees after a working life

invested in Sears.

N.A.R.S.E. is willing to assist the company in any way needed. We hope that Chairman Lampert will consider some of the suggestions set forth in this article. Change is not easy. Success is even more dif-ficult. But we are looking to a future with Sears still in it.

N.A.R.S.E. is not going away. We hope Sears is not going away either.

Undercover Eddie



“Are Sears and Kmart Goners?” “Will Sears Go Bankrupt?”

“Profit Down, Sears May Hold Yard Sale.”These were the headlines that CEO Edward Lampert displayed on a large screen at Sears Hold-ings annual shareholders meeting on May 10. He displayed these headlines twice during what he acknowledged was a “little rant.”

He is very unhappy with the media. Lampert said that the “media just doesn’t get it! … Misconceptions have no doubt hurt us … the media is always creating negative press. They never seem to seek and point out the positives.”

On the day before the annual meet-ing, Lampert gave a rare interview with Chicago Tribune reporter Lau-ren Zumbach. In retrospect, one can’t but wonder if his combative tone during the interview was in some way related to what he was ex-pecting at the shareholder’s meeting.

SHC has not turned a profit since 2010. Revenue has fallen every year since 2007, and SHC shares are down 17 percent for the past 12 months.

During the Chicago Tribune in-terview, he admitted that Sears is struggling and that the turnaround is taking longer than expected. But he also complained about media coverage speculating on possible bankruptcy, saying it is under-mining the company’s efforts and has made it tougher for Sears and Kmart to work with suppliers. He called such coverage “unbalanced.”

“We don’t need more customers. We have all the customers we could possibly want,” Lampert said at the annual meeting. “As soon as we start making money, people are gonna say, ‘How did I miss this?’ ”

“I give you my assurance I am not in denial,” he added.

In response to Lampert’s “we have all the customers we possibly want” comment, Paula Rosenblum in Forbes magazine, said: “After six years of declining results, you might want to se if you can encourage shoppers to come back to your com-pany, not milk the ones you think will never leave you.”

She added that, “it’s incomprehen-sible that one of the world’s largest retailers (No 18 on Stores Magazine 2015 Top 100 Retailers list) is be-ing run by someone with no retail experience whatsoever.”

The headline in Paula Rosenblum’s Forbes article declared: “Edward Lampert: Sears’ Troubles Are Ev-eryone’s Fault But Mine.” She said: “What do you say when your com-pany is falling into an abyss? What do you say after six consecutive years of losses and many rounds of store closings? What excuse can you make when you haven’t been able to hold onto senior executives who actually know the industry?”

“If you’re Edward Lampert, Chairman and CEO of Sears Holdings, you blame everyone and everything but your own leadership,” Rosenblum added.

Retail FoxBusiness reporters Mat-thew Rocco and Jeff Flock said that Lampert tried again to re-assure investors that Sears can turn things around, pushing back against warnings that the company is nearing the end.

And James Brumley in Seeking Alpha said that even though Sears

has not shown a profit in six years and revenue has fallen every year since 2007 and Sears stock is down 95 percent since 2007, the way Lampert tells it, the demise of Sears is mostly everyone else’s fault.

It’s interesting that Lampert made a point at the annual meeting of saying he wasn’t in denial. That sounds like the very first thing someone who was in denial would say. They never see it in themselves, according to Brumley.

Lampert said that the company has done a lot to getting closer to the goal of profitability, while taking care of associates and retirees. He spe-cifically mentioned pensions. At one time Sears was paying out pensions to about 400,000 retirees. Today, that number is around 130,000.

There were very few questions/comments during the Q & A period. One shareholder suggested that the company should be more trans-parent. Lampert agreed. Another shareholder suggested a “simple solution” to Lampert’s complaints about the consistent pessimism: share more details on the compa-ny’s progress to bolster confidence.

Lampert cited regulatory and competitive reasons for keeping some details close to the vest, and pointed to Amazon’s resistance to disclosing the number of shoppers in its Prime membership program.

The last person to take the mike suggested that Lampert make more public rebuttals to all of the negative press. Eddie said that is something he will consider.


Sears Best Retiree Club of Durham, North Carolina

By Harold Scroggs

The Sears Retiree Club of Durham, North Carolina was formed during May 1992 with 13 retirees. The club now has over 67 members.

We meet on the first Wednesday of each month for lunch and have held our meetings at Shoney’s, The Golden Corral and now the Hibachi Grill. We use both e-mail and a phone tree to inform our members about our monthly meetings. Usually 20 to 30 people attend our luncheons each month.

During our meetings we discuss what is happening at Sears. And at one of our past luncheons, a local Sears store manager and the district manager joined us.

Our secretary, Margie Herndon, will send get-well cards to our ill members.

I recently conducted a poll of the years of service at Sears for most of our members, and to date it is 704 years!

Sears Tampa Bay, Florida Retiree ClubBy Lloyd Van Schoyck

There are just a few remaining active Sears retiree clubs in the country today, and the Tampa Bay Club is remarkable for its longevity and for its active mem-bership. The club has been in existence for about 26 years.

The club holds its meetings at the historic Columbia Restaurant at 2117 Seventh Ave., Ybor City (Tam-pa), Florida. Ybor City is the Tampa neighborhood where in years past Cuban immigrants hand rolled fine cigars using imported Cuban tobacco leaves. Some, not all of course, of the members of this

retiree club are descendants of those early cigar makers.

The next two meetings of the Tam-pa Bay Retiree Club will be held on September 19 and the Annual Christ-mas celebration on December 12. These meetings are attended by up

to 400 participants, although attendance is narrowing.

For more information about this club, contact its president, Jim McCurtain, 261 1st Ave., SW, Largo, Florida 3370. His e-mail: [email protected]. His phone number is 727-584-8821.


Sears Best Retiree Club of Evansville, IndianaBy David Eager, President

Our Sears Best Retiree club con-tinues to be very ac t ive . I t was formed in 1985! Most of our re-tirees are from Un i t 13 3 0 i n Evansville, Indi-ana—the home of the first brick-a n d - m o r t a r retail store out-

side of Chicago.

We meet for lunch every month at a different restau-rant. Our attendance is usually 35 to 45 members. Our group is lead by three committee ladies: Carolyn Schapker, Wanda Chapman and Shirley Chambers. As my wife says, “If you want a job well done, get a woman.” And, our three ladies have certainly “done it right”!

At our luncheons, each person donates $1.00, and at our December luncheon, each member donates $5.00. At the end of the year, a donation is made

to one or more organizations. This past year, our retiree group donated $100.00 to five not-for-profit local groups which were:

1. The Potters Wheel—Provides spiritual, physical, emotional and education needs of those in the inner-city.

2. Gilda’s Club—Serves as a community of car-ing individuals that provides social, emotional, and educational support to all people impacted by cancer.

3. Osanam Family Shelter—Provides emergency shelter services to homeless familes.

4. Holly’s House—A non-residential child and adult advocacy center for victims of intimate crimes and abuse.

5. Tri-State Food Bank—Their mission is to feed the hungry.

We hope to remain active and continue to support not-for-profit organizations in the future.

To learn more about our club or to join, you can e-mail me at: [email protected], or call (812)-401-5986.

President David Eager

Renew Your 2017 Subscription Now!This December, N.A.R.S.E. will be celebrating its 20th anniversary. We could not have achieved this significant event without the broad cross-section support of former and very active Sears’s retired workers.

Thank you for your financial sup-port over the past two decades. We are the oldest, active retiree organization in the country. With so few local Sears retiree clubs to-day, N.A.R.S.E. is now the primary contact with Sears headquarters.

N.A.R.S.E. represents the interests of all retirees nationwide, and as set

forth on page 11, we have a proposal for Sears as to how it can save re-tirees’s life insurance in case of the company’s bankruptcy.

Our June meeting is scheduled to take place on the Sears campus, and we will be meeting with a num-ber of Sears executives to discuss issues important for our retirees.

Enclosed is a N.A.R.S.E. Member-ship/Renewal Application, and mailing envelope. The suggested annual donation is $15, but you are the judge as to what your contribu-tion should be.

If you have already renewed for 2017, please pass the application to someone you feel could benefit from our communication efforts and our continued campaign to protect your life insurance benefits if, as Sears has said, there is “substantial doubt … relating to the company’s ability to continue as a going concern.”

With your continued support, N.A.R.S.E. is not going away. And we certainly hope that Sears will not be going away.


Sears Future May Be in Doubt, but Its Past Was Very Impressive

While there is much negative news about Sears today, its past is quite the opposite. With articles written by Chris Isidore, CNNMoney (“How Sears Changed America”); and Jodi O’Connell, AOL Finance (“The Rise and Fall of Sears”), the following recap from these two writers takes a look at Sears’s dynamic history, its rise to retail royalty and its slow, steady decline to near obscurity.

A Company’s Watchful BeginningAt 17, Richard W. Sears worked as a station agent for the Minneapolis and St. Louis Railway to support his widowed mother and sis-ters. While working at this job, a small but life-chang-ing event set the stage for what would become the department store giant.

When a local jeweler refused a shipment of watches, Sears got permission from the manufacturer to sell the watches himself at low price. He netted $5,000—nearly $124,000 by 2017 standards—for his efforts. He started his own mail-order watch business in 1886, calling it the R.W. Sears Watch Company.

It didn’t take long to see the need for watch repair as supplementary part of the business. Less than a year later, Sears joined forces with Alvah C. Roebuck to repair watches. The business moved to Chicago and published a mail-order catalog selling watches, jewelry and even diamonds, all with a money-back guarantee.

Sears sold his successful mail-order business for $100,000—more than $2.5 million today—just three years after he started it. Afterward, he moved to Iowa to become a rural banker.

Richard Sears ReturnsSears returned to Minnesota and reconnected with Roebuck and transformed the mail-order watch and jewelry business, then known as the A.C. Roebuck

Company, into Sears, Roebuck and Company and moved back to Chicago in 1893.

By that time, the pages of the catalog went far beyond just watches and jewelry. With 65 percent of the U.S. population living in rural areas at the time, Sears, Roebuck and Company was on the cutting edge of ac-cessibility, making things like musical instruments, sewing machines, bikes and shoes easily available through mail-order. Within a year, the catalog had grown to 507 pages and was written almost entirely by Sears.

In 1895, Roebuck sold his one-quarter interest in the company to clothing manu-facturer Julius Rosenwald, whose administrative skills worked as an ideal match for Sears’s creative mar-keting. At this time, the company had annual sales of $750,000, the equivalent of $20.6 million by today’s standards. By 1907, the company’s annual sales had skyrocketed to $50 million, more than $1.2 bil-lion in today’s money.

World’s Largest BuildingThe success of the company resulted in the building of a

merchandising plant covering 41.6 acres on Chicago’s west side in 1904. With nine floors and three million square feet of floor space, the mail-order plant was the largest building in the world at the time. The com-plex was also home to the original Sears Tower, and included a one-story power plant to provide all of its heating and cooling needs.

This complex had its own fire department, some of the earliest in-building sprinklers, a bank, a cafeteria and nine miles of pneumatic tubing for transporting letters between departments. It also housed extensive athletic fields and sports facilities for employee use. Sears

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referred to it as a “city within a city,” and it served as company headquarters until the second Sears Tower was built in downtown Chicago in 1974 and became the world’s tallest building.

The Glory YearsIn its heyday, it was more than just the largest U.S. employer or the country’s retailer. It actually reshaped the nation, transforming the average citizen’s lifestyle.

In 1925, automobiles had become more easily acces-sible to families, so Sears opened its first department store in Chicago. As the population shifted from ru-ral areas to cities, Sears opened additional Chicago area stores.

Its State Street store in downtown Chicago em-ployed more than 1,000 people during the Great Depression. In 1931, re-tail sales exceeded catalog profits for the first time. By 1933, 400 stores were open across the nation.

At a time when the major-ity of Americans lived on farms or in small towns, “it was life changing for many rural Americans,” said Amanda Nicholson, professor of retail practice at Syracuse University. And once Americans started to move to the booming sub-urbs following World War II, Sears’s stores anchored the malls that helped those suburbs to grow.

“You could argue that for a suburb to grow, first comes the water and sewer lines; then came the retailers,” said Greg Portell, lead partner in the retail practice with A.T. Kearney. “Sears democratized retail in America.”

Sears made consumer credit widely available, which was a first for many of its customers. That allowed families to buy labor-saving appliances and electronics like washing machines, stereos and TVs that otherwise would have been out of reach. At one point, Sears claimed that 50 percent of American homes had an appliance made by Kenmore, the Sears brand.

“It was the place that people went to furnish their home,” Nicholson said.

Sometimes Americans even bought their actual homes directly from Sears. Sears’s iconic Craftsman houses came with a floor plan and all materials required to build one. Precut lumber, wallboard and other materi-als were shipped by rail to the buyer to be constructed with minimal labor. Sears says 75,000 of the homes were sold between 1908 and 1940.

More Than Just RetailAs Sears reached to every corner of the country, it also branched out into new businesses that reflected the changing American economy. It started Allstate Insurance in 1931 and purchased both the Dean Wit-ter brokerage firm and Coldwell Banker real estate

in 1981. It teamed up with IBM to form Prodigy, one of the very first internet ser-vices in 1984, and created the Discover Card in 1985.

“They had a phenomenal tradition of doing things that were highly innova-tive,” said Nicholson.

By the 1990s, the company said that one out of seven Americans either worked for Sears, or had once worked there. And these weren’t the low-wage jobs with few benefits associated with many retailers today.

“These were jobs w ith health care and benefits

and pension plans,” said James O’Rourke, a professor of management at Notre Dame. “People looked to spend their entire career at Sears Roebuck. People thought there was no limit to the innovation at Sears.”

The company was the undisputed king of the retail industry throughout most of the 20th century, though Walmart took the throne in 1994.

Still Fighting HardIt wasn’t any one thing that led to problems for Sears. The rise of discounters like Walmart and big box stores like Home Depot hurt, and obviously so did the onset of online shopping. There were also some bad decisions

Chicago’s West Side Facility

Past continued from page 8

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by Sears’s management, which never could manage to make the rest of its merchandise as popular as its appliances and power tools.

“As with so many things, the market moves on. Tastes change,” said O’Rourke. “People said, ‘that was fine then; it’s not fine now.’ When people go into Sears today, they say ‘I can do better.’ ”

Though the rise to the top was fairly rapid, its downfall has been long and hard. Sears was the star of the day, but it fell behind retail industry giants like Amazon

and Walmart. However, the trend isn’t unique to Sears. Forbes reported that nearly 3,600 retail stores would close in 2017.

CEO Lampert has denied that the company is fold-ing. In a May 2017 press release, he said: “For far too long, many commentators have rushed to conclusions about the future of our company. Not only have these predictions been off the mark and based on incomplete and selective information or biased sources, but they have also been harmful … while it hasn’t been easy, we are still here and fighting hard.”

Alvah Roebuck, Richard Sears: “What happened to our company?”

Past continued from page 9


Ron Olbrysh, N.A.R.S.E. Chairman

Chairman’s Page

How SHC Can Secure Retirees’s Life Insurance in Case of Bankruptcy

With all of the negative news about Sears Holdings Corp. (SHC), and the company pos-sibly filing for bankruptcy, you can hardly blame Sears’s retirees being concerned about the survival of one of their last remaining benefits.

Over the past several months we have received numerous inquiries from our retirees about: (1) the survival of

Sears; and (2) if Sears does not survive, what happens to their promised earned life insurance. The insurance we are talking about is the sponsored life insurance for retirees, the premiums that are paid for by Sears on an annual basis.

Retirees worked very long and hard during their careers with Sears to build the company into the suc-cessful general merchandiser it once was. N.A.R.S.E. wants Sears to survive. To grow—not to liquidate. This is no doubt due to some self-interest, but it is also the honest expectations of retirees after a career invested in Sears.

As a result of the company’s provided life insurance, many retirees cancelled their other life insurance and placed all of their trust in Sears that the company would honor their commitment to retirees for this insurance.

In the worst-case scenario, if Sears would liquidate its assets through a Chapter 7 bankruptcy filing, the premium payments by Sears would cease, and the life insurance promised to retirees by the company would be cancelled.

There is nothing securing life insurance in a bank-ruptcy, even though there is a 2002 court approved Settlement Agreement involving the Sears Retiree Group Life Insurance litigation.

Unfortunately, this settlement agreement is an unse-cured claim, meaning that it has no priority if Sears liquidates. In other words, the Sears’s sponsored life insurance will be gone.

Guarantor & Nonguarantor SubsidiariesA little history first: SHC’s various business interests fit into two critical, special purpose entities: Guaran-tor subsidiaries and Nonguarantor subsidiaries. For a detailed explanation of this complicated web of subsidiaries refer back to the Winter 2014 issue of Straight Talk for the article titled: “Sears Reinsurance Company Ltd.—The Crown Jewel!”

The assets in the guarantor subsidiaries can be used to pay back bondholders in the event of an SHC bankruptcy. However, assets in the nonguarantor sub-sidiaries are shielded from bondholders in the event of an SHC bankruptcy.

SHC has numerous insurance risks, and Sears Rein-surance Company Ltd. (Sears Re) was formed for the purpose of providing centralized management of these insurance risks.

Sears Re is a wholly owned captive insurance company domiciled in Bermuda. As an insurance company, it is required to maintain liquid investments that are backed by segregated assets held by a “bankruptcy remote” subsidiary of Sears Holdings Corporation. A “bankruptcy remote” company is a company within a corporate group whose bankruptcy has as little econom-ic impact as possible on other entities within the group.

Very few people know anything about this reinsurance company. And since it’s not publicly traded, Sears Re largely flies under the radar.

According to the Investment Advisory, what the company is doing is placing its best assets in the nonguarantor Sears Re subsidiary making such as-sets untouchable in the event of Sears’s bankruptcy. To date, this subsidiary holds in excess of $35 billion in assets where debtors have no claim.

What assets are in the Sears Re nonguarantor sub-sidiary? Among other things, the company has legally transferred extremely valuable real estate and the cash flow it generates into this entity bondholders can’t touch. In addition, SHC, during 2006, trans-ferred to Sears Re the $1.8 billion intangible value

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New Obligations for MetLifeSears Hold ings recent ly an-nounced that MetLife Inc. would take on pension obligations for about 51,000 retirees. This will relieve Sears of about $515 mil-lion pension obligations making the largest U.S. life insurer re-sponsible for these payments.

To accomplish this, Sears purchased a group annuity contract from MetLife to transfer about $515 million in U.S. defined benefit plan liabilities.

As reported in Crain’s Chicago Busi-ness, Sears expects the deal to have an “immaterial impact” on the funded status of its total pension obligations, while reducing volatility and expens-es, helping the company reach its target to cut debt and pension obliga-tions by $1.5 billion this fiscal year.

Sears’s spokesman Howard Riefs said that the change should not affect retirees’s benefits. Pension benefits that MetLife takes on will no longer be covered by the Pension Benefit Guaranty Corporation’s insurance program but will be backed by life in-

surance guaranty associations for the states where retirees live, Riefs said.

Riefs said in an email that in gen-eral, the population affected is retirees who began accruing ben-efits on or before December 1, 2016, and have a monthly gross benefit of less than $150 in Sears Holdings Pension Plan 2. He added that Sears expects MetLife to begin making monthly payments on August 1.

As reported by Pensions & Invest-ments, in Sears’s most recent 10-K filing with the Securities and Ex-change Commission last March, the company disclosed it planned to contribute $312 million to its U.S. defined benefit plan in 2017; in 2016 Sears contributed $314 million; and in 2015 it contributed $299 million.

As of January 28, the company’s U.S. defined benefit plan assets to-taled $3.567 billion, while projected benefit obligations totaled $5.165 billion, for a funding ratio of 69.1 per-cent, up from 60.5 percent the prior year, according to that 10-K filing.

associated with the brand names Kenmore, Craftsman and Diehard.

The bottom line is that SHC is really two companies. One that makes money and will be preserved in the event of bankruptcy (Sears Re)—and one that loses money and will be liquidated in the event of bankruptcy (Sears Holdings). What the company is attempting to do is make Sears’s best assets untouchable in the event of an SHC bankruptcy.

A Viable SolutionWe ask the company not to dis-miss its retirees, their families and friends. Sears’s retirees are a valuable asset with institutional knowledge and years of experience that participated in the creation of the world’s greatest retailer.

Over the years, retirees helped build trust in some of the com-pany’s most valuable trademarks, including Kenmore, Craftsman and Diehard. It seems only fair that the income generated from these trademarks be used to fund the premiums for the retiree life insur-ance settlement.

Therefore, N.A .R.S .E . is pro-posing that the company, and specifically Chairman Lampert, consider placing the retiree life insurance settlement agreement within the “bankruptcy remote” entity the company established in the Sears Re operation. The premiums paid by the company for this retiree l i fe insurance will then be “untouchable” in the event of a bankruptcy.

We are asking Sears to make the right decision and honor its com-mitment to the company’s retirees and protect their life insurance premiums from bankruptcy.

Insurance continued from page 11

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