My readers may recall that I previously blogged about the now-defunct retailer Kmart and how the Internet Archive has recordings of the in-store entertainment which ran for shoppers when those stores still existed. Catch my coverage at https://hgm.sstrumello.com/2018/12/strange-archives-attention-k-mart.html for more. As we approach the 2024 holiday season, some people may find that a walk down memory lane!
However, in late September 2024, the U.S. news was filled with different stories about how the once-ubiquitous discount retailer Kmart was officially closing the company's last remaining store still operating in the United States. The Associated Press article found at https://apnews.com/article/kmart-closing-sears-blue-light-last-store-6b302bbaec8c003351f62aefcf0528b4 was as good as any of those covering that particular news.
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| Photo credit: Laura Oliverio/CNN |
Reportedly, the last full-sized Kmart store still operating in the U.S. was located in Bridgehampton, NY (located on Eastern Long Island, which is located in the area referred to as "the Hamptons"), which is also an area which is perhaps best known for its having multimillion dollar mansions for the rich and famous and also being just steps away from some of the best beaches in the Northeastern United States. The store itself had opened in 1999, so it was not really a long-standing store location. However, evidently, for basic necessities like trash bags, bath towels or light bulbs, there were few other places out in the Hamptons where people could actually buy those things at fair prices, hence the Bridgehampton Kmart store managed to survive even after hundreds of other Kmart locations had closed around the country).
The October 20, 2024 news reported that the quiet closing date for the Bridgehampton, NY Kmart store had been discovered when the press called that store location, and the closure date was according to an employee who answered the phone at the Kmart store (she did not want to give her name). The manager of the last remaining Kmart store was not available, but the corporate owner was an entity known as Transformco, the company that bought the remains of the old Sears and Kmart out of the bankruptcy of what was known as Sears Holdings back in 2019, and the owner did not return an email from the Associated Press requesting comment.
That Kmart store closure will reportedly leave just one much smaller Kmart store located in Miami, Florida although there are still also a handful of Kmart stores located on the islands of Guam and on the U.S. Virgin Islands. Back in its heyday, there were more than 2,000 Kmart store locations in the U.S. (or even more if you include the locations of the former mall anchor known as Sears (which also happened to be another formerly-giant U.S. retailer earlier in the twentieth century; back in the day, Americans even bought home plans from Sears and some of those homes are still standing). The two chains were combined in an odd marriage of convenience a number of years ago thanks to a vulturous private equity investor.
As noted, the 2009 Sears-Kmart combination was always odd, but it was orchestrated by a hedge fund multibillionaire named Edward (Eddie) Scott Lampert who ran the hedge fund (which was largely Lampert's own money) known as ESL Investments; the name was derived from Mr. Lampert's initials. In 2003, ESL Investments took control of a then-bankrupt Kmart and merged it with another failing retailer known as Sears two years later in an $11 billion deal that eventually sank both retailers. An excellent overview of Mr. Lampert's "predatory capitalism" was chronicled by the publication known as Institutional Investor in an article entitled "Eddie Lampert Shattered Sears, Sullied His Reputation, and Lost Billions of Dollars. Or Did He?" (see the article at https://www.institutionalinvestor.com/article/2bsxn8l0u5yr6zhelmhog/corner-office/eddie-lampert-shattered-sears-sullied-his-reputation-and-lost-billions-of-dollars-or-did-he for the entire article).
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| Eddie Lampert. Photo credit: Vincent Laforet/The New York Times |
Mr, Lampert truly earned the pejorative nickname "fast Eddie" and "vulture capitalist" for an excellent reason.
Under his ownership, ESL swapped an estimated $2.6 billion in Sears debt with secured debt, bringing the total to nearly $3 billion. Most of those debts which he transferred to the Sears balance sheet were from ESL's books. In other words, he had loaded a struggling retailer up with debts which were never created by Sears or Kmart in the first place. That was little more than a convenient and legal way for a private equity firm to eliminate many of its own debts derived from failing companies which ESL had acquired by loading one of the acquired companies up with their debts, and ESL would simply not bother repaying those bonds, screwing bondholders in the process, all while Eddie Lampert eliminated some of his company's debts. In other words, Sears-Kmart was viewed as a disposable entity serving only the needs of Eddie Lampert's ESL Investments to get rid of some debts it actually owed.
Regardless of the idea of disposing of two old retailers in order to enrich himself, the loss of these stores left many big mall operators around the country, such as the Simon Property Group, with hundreds of big vacancies nationwide and few apparent replacement retailers who are able to fill those now-vacant stores. That's forced a number of mall locations to become more creative by repurposing and leasing the vacant old Sears stores to other retailers like Target or Costco which is a straightforward leasing arrangement. However, others have been converted into movie theaters (except many movie theater chains are in no position to expand given their own weak balance sheets). Still, others have been forced to convert those store locations into things like affordable apartments instead. The latter has grown to become quite a popular option, and it does solve two issues: the vacancy problem for the malls themselves, and also more affordable housing.
For its part, Kmart was once one of America’s leading discount retailers, but has now closed its final, full-size store in the mainland United States. The Sears and Kmart retail operations were eviscerated a number of years ago. Mr. Lampert knew nothing about the retail business in the first place, but as noted, the closure of two large retailers left shopping centers including enclosed malls and strip malls alike across the country vacant.
While Kmart and Sears may be vestiges of the nation's retailing past, the bigger issue in my assessment is the debt swap orchestrated by private equity investors. If lawmakers want to do something meaningful, disabling private equity firms ability to transfer debts incurred to other companies they own should arguably not be permitted. For private equity owners, it represents a shrewd way of eliminating debt as if it were a mere accounting gimmick. But in reality, that gimmick screws bondholders out of money they should and would otherwise be entitled to collect from the company which the private equity firm owns. Perhaps leaving a retailer for dead to write-off debts from bad investments is not a good policy?
https://hgm.sstrumello.com/2018/12/strange-archives-attention-k-mart.html
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