Sears Hometown Files for Chapter 11 Bankruptcy Protection

Sears Hometown Stores Inc., a franchise-owned unit of Sears, has filed for Chapter 11 bankruptcy protection, CNN Business reports. Sears spun off Sears Hometown in 2012 to give the parent company a much-needed infusion of cash. Transformco reacquired the company after it bought Sears out of bankruptcy in 2019. The chain, including locations run by independent dealers, has about 121 stores in 26 states and Puerto Rico, down from nearly 500 when TransformCo, also known as “new Sears,” reacquired it.

The bankruptcy filing lists assets of less than $50 million and liabilities of at least $50 million. It also lists Eddie Lampert, the CEO of Sears’ holding company, Transformco, as a 37 percent owner of Sears Hometown. Sears Hometown never stopped depending on Sears Holdings for just about everything. Most its goods, logistics and advertising support came from Sears Holdings.

Total Retail’s Take: Sears has been trying to crawl its way back to relevancy for years, and now its Sears Hometown Stores business is back into bankruptcy. The chain has been rapidly closing stores in recent years, following in the footsteps of its parent company, which now operates less than 20 full-size Sears stores. Sears Hometown noted in court papers that its “financial performance has suffered over the last few years from a number of factors, including declining sales, rising costs and the ‘hangover’ from the COVID-19 pandemic.”

This story leads back to Sears’ former CEO, Eddie Lampert. While declaring bankruptcy in 2018, Sears Holdings filed a lawsuit against Lampert alleging asset stripping and “rank” self-dealing in the years leading up to that company’s bankruptcy. Lambert bought Sears out of bankruptcy court for $5.2 billion in 2019, taking control as founder and CEO of parent company TransformCo, which in turn is largely owned by Lampert’s investment firm ESL Investments.

Now, Sears Hometown estimates it owes about $3 million to TransformCo, per the court documents. In the past year, disputes arose between Sears Hometown and TransformCo around finances and inventory. In particular, a “lack of inventory has caused a rapid downward spiral that contributed to the filing of these Chapter 11 cases,” the company wrote.