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Pro Analysis

Discover, Allstate are all part of a giant, but forgotten financial legacy Sears is leaving behind

Little is more satisfying than cracking open a vintage Sears, Roebuck & Co catalog and marveling at the breadth of its offerings, dated illustrations and all. The one for the spring and summer of 1971, for instance, runs to 1,071 pages and offers everything from Dacron polyester nurse uniforms to colonial birch-veneer bedroom sets. Sadly, this once-great American retailer of everything may not make it to its 130th birthday in one piece.

The more enduring legacy of Sears, however, which published its first catalog back when Grover Cleveland was president, can be glimpsed deep within the nearly half-century-old edition. On page 432 is an application for a credit card. A few pages later there's the "modernizing credit plan," allowing consumers in seven states to buy merchandise and defer payment.

Sears Holding, the retailer, looks to be rapidly hurtling toward bankruptcy under the stewardship of hedge-fund boss Eddie Lampert. The financial-services businesses spawned by this empire – so robust a few decades ago that it built, in Chicago, the largest skyscraper in the free world – are alive and kicking. Therein lies a cautionary history lesson for Amazon.com, Alibaba and other internet conglomerates seeking international domination.

The market capitalization of Sears has shrunk to around $1.25 billion, or a fraction of where it was a decade ago after Lampert merged it with rival Kmart to create what his investors hoped would form the foundation of the next Berkshire Hathaway. A recreation of Warren Buffett's model never happened. In fact, it's surprising that Sears shares have any value given the company's warning a week ago that it may not be able to continue as a "going concern," auditor-speak for bankruptcy.

Lampert dismantled much of what was left. He spun off a collection of real-estate assets, which trade as the $1.25 billion Seritage Growth Properties. He also stripped away the Lands' End apparel business, which Sears acquired for $1.9 billion in 2002 and now has a market value of $700 million.

Sears set its Hometown and Outlet Stores unit free four years ago, too, and it's worth $97 million. It did the same for Orchard Supply Hardware, which Lowe's bought for $205 million in 2013. Sears Canada still sports an independent equity stub worth C$200 million. And earlier this year, Lampert offloaded the iconic Craftsman brand of tools to Stanley Black & Decker for $525 million upfront, some $250 million in a few years and royalties for the next 15 years. All told, that's more than $4 billion of value from the retail remnants.

That sum excludes a significant portion of the Sears heritage, however. The company's attempts to offer credit to catalog shoppers led it to start the Discover Card in 1985. That business was bundled with Dean Witter Reynolds, the stock brokerage it acquired in 1981, and taken public in 1993. The combination later merged with Morgan Stanley, which spun off the credit-card arm a decade ago.