Amazon... amazon.... amazon ...
"Emerging from Chapter 11 with a right-sized and flexible balance sheet, the
Buyer will expand upon its aforementioned success through its increased capacity to
appropriately invest capital in attractive new opportunities. Kamlani Decl. ¶ 41. And, in
recognition of the inevitable business risks associated with its efforts, the Buyer is planning
responsibly, such that certain aspects of the Business Plan are even more conservative than the
well-developed and realistic plan prepared by the Debtors. For example:
• Externalizing Kenmore beyond Sears and Amazon. Despite its previously
constrained distribution, the Kenmore home appliances brand remains a leading brand with significant market share. By forming new external partnerships and
selling to mass discounters, big box specialty stores, and online retailers, the
Buyer will be able to generate additional revenue from Kenmore. Business Plan
21-22.
• The Business Plan expects Kenmore third-party revenue from Amazon customers to increase from $80 million in 2018 to $300 million by 2021, which is
approximately 50% less than the Company Plan’s revenue expectation.
• Growing its relationships with third party customers including Amazon through
expansion of Innovel logistics network. Business Plan 21-22. This third-party
business can be expanded with minimal additional infrastructure investment.
Business Plan at 33. Further, ESL expects the Buyer to forge strategic
partnerships across Sears Home Services, Innovel and other key assets to fill in
known or expected gaps and unlock opportunities that Buyer cannot access alone. Kamlani Ex. A. The Business Plan expects $300 million in Innovel revenue by 2021 while the Debtors’ plan expects $500 million by 2021. Id.
• Tailoring the Shop Your Way program in a non-capital-intensive way. Because
the technological capabilities exist already, and the Buyer will continue to test marketing strategies as it gains an increasingly sophisticated understanding of its members, the Business Plan indicates that the Buyer will be able to decrease its reliance on third-party digital marketing, and will accordingly save approximately $8 million in market costs in fiscal year 2019 alone. In particular, the Business Plan proposes the Buyer will continue to leverage the benefits of the Shop Your Way platform with respect to the Shop Your Way credit card agreements, which is expected to bring $44 million in EBITDA in 2019.
• While both the Business Plan and Company Plan call for approximately the same
amount of capital expenditure, the Company Plan included within this projection
a plan to build 100 small footprint stores, while the Business Plan takes into
account that funding for new small footprint stores will stem from proceeds
accrued from closing certain large stores. Compare Kamlani Ex. A with Kamlani
Ex. C.
• The overall EBITDA projections in the Business Plan are more conservative in
the near term than those in the Debtors’ plan. The Business Plan projects
EBITDA of $25 million in 2019, $171 million in 2020, and $378 million in 2021
compared to $117 million, $204 million, and $311 million respectively in the
Debtors’ plan. Kamlani Decl. ¶ 46.
• The Business Plan added approximately $10 to $15 million of SG&A to the
Debtors’ numbers in recognition of the need to complement the existing
management team with new senior managers. Kamlani Ex. A.
71. The Buyer will emerge from the Chapter 11 process with 425 stores. These 425
stores combined delivered $457 million of EBITDA in fiscal year 2018, compared to $317
million of EBITDA in 2015. A majority of the operating stores generate a positive EBITDA,
and, in the aggregate the 425 stores have been EBITDA positive since at least 2010. Kamlani
Decl. ¶ 35. Contrary to Kniffen’s contention that these projections are unrealistic, Kniffen
Report ¶¶ 72-79, revenue projections at these stores are wholly consistent with historical
performance, and in fact, the Business Plan’s projections are, in many instances, below historical
performance."
