The Portrait Of Embarrassment: Sears And Walmart Learn Contractor Lesson

Sears (NASDAQ:SHLD) and Walmart (NYSE:WMT) are learning what happens when one contractor is allowed to control strategic and highly visible parts of your stores. St. Louis-based CPI, which owned and controlled thousands of portrait studios within those two chains, has suddenly shut down, leaving those stores-within-stores abandoned and the relevant websites (such as empty.

Although the move leaves both chains in a very temporary awkward position, it has some positive benefits. The same market conditions—high-quality photography permitted with low-end cameras and mobile phones—that were hurting CPI are the ones that also suggest that Sears and Walmart could use that portrait studio space today in more profitable ways.

The problem is that both chains—and especially Sears—have a long history of being associated with their portrait studios and it's a business they likely wanted to get out of, but to get out gracefully and on their own timetable. That said, it also takes some of the heat off, allowing them to both quickly get out of the photography business in a way that allows them to blame someone else.
The Cincinnati Enquirer reported that CPI and its subsidiaries ran about 2,700 studios in the U.S., Canada, Mexico and Puerto Rico as of November, according to a filing with the U.S. Securities and Exchange Commission. All but about 80 studios were located in Sears and Walmart stores at that time, the paper said.

"In a copy of an E-mail message obtained by The Enquirer, Interim President and Chief Executive Officer James Abel told employees that the business had been struggling in the past year, but officials tried to keep the company afloat," the story said.

"'During that time, we negotiated deals with our hosts, secured additional funding from our banks, and marketed our company to potential purchasers. Unfortunately, all of those efforts have fallen short. The decline of our business proved too great an obstacle to overcome and we will be forced to discontinue our U.S. operations effective today, April 3.' The letter said a buyer is being sought for the company's Canada locations."

The paper also described the company's financial hurdles. "Last month, CPI entered into its fourth forbearance agreement with lenders. At the time, the company owed $98.5 million to them. After the agreement expires Saturday, lenders can make decisions that would steer the company to bankruptcy," the paper reported. "In its last quarterly earnings report—which was a 16-week period ended Nov. 10—the company said it had a net loss of $20.2 million, or $2.58 per share, with revenue of $69.5 million."

For more:

- The Cincinnati Enquirer story
- CPI site

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