After the parent company of Sears and Kmart department stores said Tuesday that there is “substantial doubt” whether it can stay in business, consumers may be left wondering whether it’s safe to shop at the struggling retailer—and what will happen to Sears warranties and gift cards.
In January, Sears Holdings announced plans to close 150 stores. But what can consumers expect if the retailer succumbs to its financial woes?
“The answer, of course, is that it depends—and there’s no easy answer,” said Tara Twomey, an attorney with the National Consumer Law Center (NCLC).
Currently, Sears Holdings is still in the midst of a restructuring plan designed to rescue the 131-year-old retailer, and retail analysts say it's possible the company may still survive.
If that plan fails, however, there is a chance that Sears will cease to exist—at least not as customers know it today.
(A Sears spokesperson declined to comment for this article beyond a prepared statement from company CFO Jason Hollar. It said, in part, that the company is “a viable business that can meet its financial and other obligations for the foreseeable future.”)
How the company chooses to wind down operations, and whether it is able to spin off its best-known brands, would largely determine how customers could redeem gift cards, make warranty claims, and get parts and service for items they’ve purchased.
One scenario, which Twomey called “unlikely,” is a bankruptcy in which all Sears’ assets are liquidated. In that case, retailer and extended warranties would not be honored, and gift cards would be worthless.
“If they completely shut down, just closed their doors, you wouldn’t be able to take advantage of that warranty,” she said. Prospects would be better for consumers if the company reorganized under bankruptcy protection: “It’s possible that these warranties could survive,” she said. And even without coverage from Sears, some products may have manufacturer warranties that remain valid.
A more likely case is that Sears Holdings will continue attempts to spin off its remaining brands, like Kenmore appliances and DieHard automotive supplies.
Earlier this month, Sears already completed a $900 million sale of its Craftsman brand of tools to Stanley Black & Decker. Although that sale is now a cause of some concern, the new owners announced plans to continue honoring warranties—including a well-known lifetime warranty on Craftsman hand tools.
According to Twomey, such a warranty transfer is not uncommon when a famous brand is sold. “Maybe they have no legal obligation to honor that warranty, but as a means of keeping customers they agree to honor those warranties.”
Katherine Hutt, a spokesperson for the Better Business Bureau, said that customers will likely be taken care of in some way if Sears does fold. The company has been a BBB member since 1926, and currently has an A+ rating.
“A company like Sears that has been known for its customer service and its warranties and long-term guarantees on things like Craftsman tools—they’re not likely to leave customers in the lurch,” she said. “If you have a warranty or a guarantee, you’re probably going to be OK.”
There is precedent for what happens to consumers after major retailers fold. When Circuit City shut its doors in 2009, a third party insurer administered some extended warranties. Stores occasionally give customers a chance to redeem gift cards before they become worthless.
Additionally, consumers who already own a Kenmore dishwasher or Craftsman lawnmower can rest easy, as replacement parts will still be available. That’s because products wearing Kenmore, Craftsman, and DieHard badges are all manufactured by third parties who would not be affected if Sears shut down.
For example, today’s Kenmore washing machines are made by Whirlpool Corporation and LG Electronics, while Craftsman-branded garage door openers are made by Chamberlain, who also makes LiftMaster. Shared parts and common designs mean it will be possible to service Kenmore, Craftsman, and DieHard products even if those brands no longer exist.
In the end, the decision of whether to shop at Sears is up to the consumer. According to Hutt, customers should ask questions and read the fine print before they buy.
“You need to understand your own personal risk factor,” said Hutt. “You have to balance the discounts that will come if they are liquidating inventory with not having customer support in the future.”