TORONTO — The future of one of the best-known brands in the retail travel industry – Sears Travel – is up in the air now that Sears Canada Inc. has filed for creditor protection.
TravelBrands, which manages Sears Travel, said it is consulting with its legal team before making a statement.
Sears Canada plans to close 59 stores and cut approximately 2,900 jobs under a court-supervised restructuring. The announcement came after the Ontario Superior Court of Justice granted the department store chain temporary protection from creditors under the Companies’ Creditors Arrangement Act (CCAA).
The company plans to continue operating throughout the restructuring and said it intends to emerge as a leaner, more focused operation better able to compete in the hyper-competitive retail industry.
“However, to achieve that goal and to right-size its business, the Sears Canada Group anticipates that a number of stores will have to be closed, operating costs reduced, business lines exited, and head count reductions implemented,” Sears Canada said in documents filed with the court.
The 30-day court protection from creditors will give it some “breathing space” as it tries to revamp its business, the retailer said. The court also authorized Sears Canada to obtain up to $450 million in financing to maintain operations.
Under the court-supervised plan, Sears Canada will close 20 full-line department stores, 15 Sears Home stores, 14 Sears Hometown locations and all 10 of its Sears Outlet stores. Its department stores range from 30,000 to 300,000 square feet, with many serving as shopping hubs in small towns throughout the country.
When TravelBrands filed for creditor protection in 2015, the Amended Sears Agreement – along with dwindling margins and lease obligations including $3.6 million in yearly rent on a vacant building, a holdover from the Thomas Cook Canada deal – was blamed as one of the factors dragging the company down.
With sales declining TravelBrands negotiated what’s now known as the Amended Sears Agreement to reduce its advertising commitments; adopt more flexible store hours; reduce the annual percentage of gross revenue payable as royalties; reduce its minimum annual commission payments by 27%; and reduce annual lease payments for common area charges by 13%. But sales continued to decline.
“The expense of operating a store-front operation, coupled with the decreased revenue associated with such operations, has caused a significant strain on TravelBrands’ profitability,” said the 2015 affidavit. “Furthermore, as noted above, store-front operations, like Sears Travel, are not a core part of TravelBrands’ business due to their high operating costs coupled with intense price competition across the Canadian leisure travel industry.”
The affidavit also stated that TravelBrands shoulders substantial commission and royalty payments under the Amended Sears Agreement, as well as rent and operational costs related to the staffing of 88 Sears Travel retail locations. The company’s fixed costs are payable regardless of the revenues achieved under the Sears Agreement and the Amended Sears Agreement. One industry insider called the Sears Travel deal “a bad deal from the get-go and a dying model. Agencies in stores in a chain that is shrinking and closing stores all the time … [no] upside.”
TravelBrands exited creditor protection in early 2016.
Like every other bricks-and-mortar retail chain Sears Travel has gone to great effort to keep up with changing preferences in how clients want to book travel, building up a strong online presence and making the move back in 2005 to use outside sales reps. It marked the first time a national travel brand had developed a home-based market with a specific focus on experienced agents.
Headquartered in Toronto, Sears Canada operates 225 stores in all, including 95 department stores and 65 Sears Hometown stores. It said it hopes to exit court protection as soon as possible this year.
With files from Associated Press
