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Sears’ story a cautionary tale about picking the right franchise

Sears has made national news on a regular basis in recent years. The news was rarely good, with the storied retailer’s ongoing struggles to stay alive, the selling off of the company’s more profitable entities, the closing of stores (including three here in Georgia this year) and the sale or repurposing of stores in more desirable locations. The latest chapter is filing for Chapter 11 bankruptcy protection in October of 2018.

Is Eddie Lampert friend or foe?

This bankruptcy filing is the biggest milestone in the long decline that the 2005 merger with Kmart orchestrated by Edward S. Lampert, who stepped in as CEO in 2013 and now is out after the bankruptcy filing. Lampert dismantled the company worth $8.4 billion in 2005 by selling of the lucrative parts (including Land’s End clothing, Kenmore and the Craftsman tool brand) to himself and his ESL Investments venture capital group. This caused many critics to label him as the reason for the retailer’s downturn.

Lampert cannot be blamed for everything

There are other reasons as well, including Sears not keeping up with the times, not having a strong online presence like Amazon (though the famous Sears catalog is considered a precursor to Amazon’s one-stop shop approach), and unable to compete with rapidly growing big box retailers like Walmart and Home Depot.

The bankruptcy

The company founded in 1886 has plans to close 142 unprofitable stores by the end of 2018. The number of remaining stores is 506 (it had 3,500 in 2005). According to some experts, the bankruptcy gives the company flexibility to transform from a down-and-out brick-and-mortar chain to an operating model that is profitable. If this does not work, about 68,000 people will be out of a job.

What does this mean for franchisees?

Owners of Sears outlets are asked daily whether the store is still in business and it is hard to attract good talent if the job may not be there is six months. Many franchisers were optimistic entrepreneurs when they started out, figuring that they were partnering with a well-known brand that had a long history. With all the financial maneuvering by the corporate parent, it will continue to be difficult for some time, and the company could end up closing anyway if the funding from Lampert’s team dries up.

All this is a cautionary of picking the right franchise. Attorneys with experience handling litigation and transactions involving franchisers and franchisees can guide owners through these challenging times, helping them make smart and savvy decisions.

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