Gail Blount beat breast cancer. She figures she will survive the financial collapse in December of her former employer, which operated as Sears Home Services.
“I’ve always been a survivor,” says Blount, 59, of Newmarket.
She is thinking of launching her own design business at a time when most people are thinking of retirement.
Blount is one of nearly 650 former Sears employees left jobless 12 days before Christmas because the company that had taken over Sears Homes Services abruptly went into receivership.
Blount and her colleagues aren’t the only ones affected by the failure of one of the most trusted names in home services in Canada.
The shock waves spread far and wide.
Affidavits filed with the Ontario Superior Court of Justice reveal suppliers have been left unpaid and without work as a result of the closure, forcing them to lay off staff and, in some cases, close their businesses.
Customers were left with deposits down and jobs in various states of completion.
Shares in the Calgary investment firm that helped finance the deal plummeted on the TSX.
There was a time when Canadians who needed work done in their homes knew they could rely on Sears Home Services to do the job well — from rooftop to basement.
But last March a struggling Sears Canada sold its home services business and brand name to SHS Management Systems.
SHS was a new company, formed by the owners of Installation Services Org. Ltd. (ISO), a national flooring installation services company based in Calgary, in order to take over the Sears Home Services business.
The owners of ISO wanted to grow their business. Sears was looking to divest theirs. It seemed like a great match.
Sears employees had two choices: they could sign on with SHS and continue doing the same job they had done for Sears on essentially the same terms or they could quit. They signed up.
Then, on Dec. 13, nine months after taking over from Sears, SHS abruptly went into receivership. Employees were paid their last commissioned wages. Their benefits were terminated immediately.
They were shocked, then outraged.
If Sears had shuttered the Sears Home Services division, employees would have received severance packages that recognized their long years of service to Sears.
But as new employees of a new, failed company called SHS, they got nothing.
“Employees were jammed into something that wasn’t going to work,” said Pete McLauchlan, an HVAC salesman with 35 years of service at Sears.
Sears Canada and SHS are blaming each other for the failure of the home services business.
Former SHS principal Michael Clements said SHS made mistakes, but the main reason it failed is that it did not live up to sales projections provided by Sears.
“We were never prepared for the losses that were coming,” said Clements, in an emailed response to questions from the Star.
“The first month we took over the business our revenue was $10 million, which was down a whopping 40 per cent from the previous year of $17 million. We incurred a $3-million loss in the first month of operations and we had just taken it over.”
The fiasco left loyal customers like Lois Vance, 84, wondering who she was dealing with when she agreed to pay $1,500 for four window blinds last autumn. Only half the work was done and she is still missing a set of blinds.
“At my stage of the game, that is a lot of money,” says Vance, a retired secretary who lives in Mississauga.
She did not know that Sears had sold the division. The salesperson’s card said Sears. The blinds arrived wrapped in Sears bags.
The full cost of the blinds went through on Vance’s Sears card the day before SHS went into receivership. She has had to pay it to avoid incurring interest charges.
“Sears is working with (the receiver) on options to complete all orders,” wrote Sears in an emailed response to questions from the Star.
“Sears reiterates that it will honour all Sears Home Services warranties, regardless of which company handled the actual installation.”
The receiver, PwC, has been deluged by inquiries since SHS Management failed. The website had 5,300 hits in less than a month and more than 500 emails. The call centre received 11,600 calls; the hotline received 2,000.
Horst Rohde, president of a numbered Ontario company that operated under the Sears banner for 18 years, filed an affidavit in Ontario Superior Court saying his company is owed more than $45,000.
He said he had to close his business, which employed 18 people in the Ottawa area providing duct cleaning and heating, ventilation and air-conditioning services (HVAC) services for Sears.
“We are just winding everything down now,” he said, when reached by phone, before declining to comment further.
Blount and the other sales associates at Sears Home Services worked on commission only, earning between $24,000 and $100,000 year, depending on their skills.
It was physical work, lugging heavy sample books up flights of stairs for customers to consult at home and taking measurements. It involved paying attention to the smallest details, to centimetres and inches and percentages off. It meant working evenings and weekends.
One sale could take several hours over several visits.
Blount, who underwent surgery last year and feels fortunate to have emerged cancer-free, was proud to have worked for Sears for 14 years.
“Sears technicians weren’t allowed to cut corners. That is why Sears had such a loyal base of personnel,” said Blount.
The assets of SHS have been frozen, and secured creditors — not employees — are first in line when it comes to getting a share of what money is left.
In his affidavit to the court, Clements said he and his partners purchased the business from Sears because Sears claimed annual sales would be in the range of $208 million.
“The anticipated volume of revenue had never approached the amounts represented (and) anticipated,” according to his affidavit.
SHS lost approximately $14 million in nine months.
Clements said he and his partners, brothers Stephen Verhoeff and Paul Verhoeff, were pleased with the prospect of growing their business. They do not wish to get into a battle with Sears now.
Sears officials said Sears wanted to ensure that SHS was successful and took measures to ensure that success, which included making sure that SHS was adequately funded. It twice extended loans to SHS.
The financial difficulties at SHS arose after the company paid dividends of $8 million to its four principals, including Clements, on the first day of operation, according to an affidavit filed in court by Sears divisional vice-president Daniel Westreich
Sears officials told the Star the other principals included the Verhoeff brothers and a woman named Theresa Lea.
“Sears signed on with SHS because it believed in the track record of ISO and its principals, and because of the promises made by ISO regarding advanced operational capabilities that would modernize the business,” wrote Sears officials in response to questions from the Star.
Clements said the principals did not pay themselves $8 million.
“This is completely a false statement, the four principals were not paid $8 million on the first day of operations or any day of operations,” Clements wrote in an email to the Star.
Alaris Royalty Corp., a private equity firm in Calgary, invested $15 million in SHS.
Sears thought all $15 million was going to be invested into the business up front, even though the business plan and financial plan submitted to Sears made it clear that was not the case, said Clements.
Of the $15 million, $7 million was earmarked for business improvements and $8 million was set aside as a contingency.
Clements said that on the first day of operations, $5 million was invested back into Alaris as part of the contingency plan; $1.4 million went into paying bills that SHS had accrued setting up the business and the remainder went into “shareholder restructuring.”
The shareholder restructuring included buying out some shareholders. Clements declined to say who those investors were.
“It was just used to restructure the shares. It’s pretty typical,” he said.
Later on, $6 million went back into SHS, including the Alaris shares, which were sold, according to Clements.
Steve King, president and chief executive of Alaris, said that while there was fault on both sides, the principals of SHS did not pay themselves $8 million.
Clements said SHS invested heavily to bring the Sears home operation — which had been losing money for several years — up to date.
“We made a huge mistake in miscalculating the investment required to ‘fix’ this broken business … We tried to rescind the agreement and hand Sears Homes Services back to Sears but they did not want it back,” he wrote in an email to the Star.
He said that negotiations with Sears began in March, 2012, around the same time that Sears began selling store leases back to landlords.
“Sears minimized the negative effect and again did not disclose that this strategy of closing stores and selling of real estate would continue,” Clements emailed the Star.
Clements said the store closures affected home services sales.
SHS made offers of employment to employees that recognized years of service, vacation pay and sought to ensure similar levels of benefits, according to Sears officials.
“Most, if not all, of the transferred employees saw an increase in salary and other compensation such as vacation entitlement, and many were also promoted. The positions held by these transferring employees no longer existed at Sears after the transfer. Sears did not pressure the associates to transfer, but was clear that their positions would no longer exist at Sears after the transaction closed,” according to an email from Sears to the Star.
Blount was relieved to be paid her commissions and vacation time before Christmas.
“I am not bitter. Yes, I feel cheated, but I could have come out worse. I could have come out with zero in my bank account,” said Blount.
Dennis Spencer, 59, spent nearly 35 years at Sears. He said sales in heating and air-conditioning services plummeted after Sears announced it was closing stores in the GTA.
“It’s a confidence thing. People want to buy from a company that will be around for awhile,” he said.
Spencer is as also a Sears shareholder. Not a big one, but he still got dividend cheques, even as the company performed poorly.
“It was nice to see the dividend cheque. But I realized, ‘This isn’t right. This isn’t right at all,’ ” he said.
He believes Sears managed the business poorly over the past few years.
Maria Stalker, 58, worked for Sears for 29 years.
“It really saddened me that with all those brains at the top, they couldn’t make this company work. I know all these people they had. They are good, hardworking employees.”
Content retrieved from: https://www.thestar.com/business/2014/02/04/collapse_of_sears_home_services_affects_suppliers.html.