Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

The Death Spiral

Sears is suing Lampert and the US Treasury Secretary

The Sears/Eddie Lampert soap opera is getting weirder because Sears is suing Lampert and US Treasury Secretary Steven Mnuchin.

Specifically, Sears Holding Corp’s current management accuse Lampert, Mnuchin, and hedge fund ESL Investments of looting the retail legend, Reuters reports. Moreover, the suit claims Lampert; Sears’ former CEO, is responsible for the company’s “death spiral” into bankruptcy.

The plaintiffs include Sears’ current management and creditors. Not surprisingly, the suit seeks to recover “billions of dollars of value looted from Sears.”

The plaintiffs name Mnuchin because he was an investor and board member at ESL Investments, USA Today reports. To explain, ESL Investments is Lampert’s hedge fund. However, Mnuchin is merely the biggest name among a dozen defendants.

The lawsuit is part of Sears’ ongoing Chapter 11 Bankruptcy case, The Chicago Tribune reports. The United States Bankruptcy Court for the Southern District of New York is hearing the Sears’ case.

Management accuses Lampert and Seritage of looting Sears 

Other defendants include; ESL President Kunal Kamlani, and fund manager Bruce R. Berkowitz, and his Fairholme Capital Management. In addition, the plaintiffs are suing Lampert’s real estate investment trust Seritage Growth Properties (NYSE: SRG).

The plaintiffs name Seritage because it took ownership of 266 Sears’ stores in 2015. Moreover, Seritage can sell those stores to growing retailers like Amazon’s Whole Foods, the TJX Companies (NYSE: TJX), Aldi, and Kroger (NYSE: KR).

Notably, Amazon (NASDAQ: AMZN) could buy 110 Sears and Kmart locations for additional Whole Foods Market stores, claims. Thus Seritage can make money by selling or leasing empty Sears and Kmart stores to other retailers.

Thus, circumstances support the lawsuit’s allegations that Lampert and other insiders were conspiring to strip Sears of assets. The stripping allegedly includes hundreds of millions of dollars in rent and leases Seritage charges Sears.

Lampert Lawsuit could create Problems for President Trump

Strangely, the lawsuit could create headaches for President Donald J. Trump (R-New York).

The suit could trigger a political scandal because Mnuchin was Lampert’s roommate at Yale, Reuters claims. In addition, Mnuchin and Lampert worked together at Goldman Sachs (NYSE: GS).

Hence, Lampert, Mnuchin, and Seritage could soon face subpoenas from the U.S. House of Representatives and various prosecutors. To elaborate, Democrats in the House, the Manhattan District Attorney’s Office, the New York State Attorney General’s Office, and elsewhere are fishing for dirt on Trump.

Obviously, anything connecting a Trump official to a job-killing hedge fund will be attractive to Democrats. Notably, USA Today accuses Sears of killing 250,000 jobs in the last 15 years. Hence, the Sears collapse could end Mnuchin’s time at the Treasury Department.

Sears Opens New Stores

Bizarrely, Sears is opening three new stores after closing over 3,500 stores in the last 15 years.

Specifically, Sears plans three 10,500 to 15,000-square foot Sears Home & Life stores, Retail Dive reports. Sears will locate the Home & Life stores in Anchorage, Overland Park, Kansas, and Lafayette, Louisiana.

The Home & Life stores sell appliances, tools, mattresses, and lawn mowers. Interestingly, Sears operates Home & Life stores in Honolulu, Fort Collins, Colorado, Camp Hill, Pennsylvania, and Pharr, Texas.

Thus, Sears is trying to reinvent itself as a small box retailer. Moreover Sears wants to leave the hyper-competitive apparel, electronics, and home-furnishings markets. In addition, Sears could soon abandon the dying department store business.

Does Sears Have a Future?

An interesting opportunity for Sears is opening combination stores with other retailers.

For instance, German-owned grocer Aldi and Kohl’s (NYSE: KSS) are opening combination stores. The Aldi/Kohl’s combos feature a discount grocery and a clothing store, Retail Dive reveals.

Aldi, a bare+bones discount grocer, is among America’s fastest growing retailers. Business Insider calculates Aldi operates 1,600 stores in the United States. In addition, Aldi plans to invest $1.9 billion to become America’s third largest grocer.

Thus, Sears/Aldi or Sears/Kohls combination stores could soon sprout at a strip mall near you. Other chains experimenting with combination stores include Nordstrom (NYSE: JWN), Kroger (NYSE: KR), and Walgreens (NASDAQ: WBA). Any of those brands could be a partner for a Sears Home & Life store.

Can Amazon Save Sears?

Under these circumstances, Sears could have a future if it will work with other retailers like Amazon, Kohl’s, and Aldi.

In addition, Sears is integrating its Kenmore appliances with Amazon’s Dash Replenishment scheme. To elaborate Dash Replenishment allows customers to order products like laundry detergent from Amazon at the touch of button.  In addition, Dash sensors can automatically reorder consumer staples from Amazon.

Not coincidentally, Kohl’s features Amazon Smart Home Experience service centers in some of its stores. To explain, the Smart Experience allows customers to shop for Amazon devices and return Amazon products in store. Consequently, an Amazon Smart Home Experience will be a shrewd addition to a Sears Home & Life.

Thus Sears could survive but it will be a very different place from the store your parents and grandparents shopped at.