Who killed Sears Canada?

It was once Canada's largest and most successful department store chain. Now, it's in liquidation. Customers are angry. Pensioners are worried. And 16,000 are out of work with no severance pay. Marina Strauss reports on the slow death of Sears Canada.

Calvin McDonald has many vivid memories of the 27 turbulent months he spent as the chief executive officer of Sears Canada Inc. But the one that haunts him most is the day he gave up and announced that it was all over for him.

It was a warm, sunny day in September, 2013, but he was exhausted. He'd tried everything to save the struggling department store chain, and now he was giving up. Earlier in his tenure, the dapper Mr. McDonald used to visit different floors at head office, accompanied by an assistant with a plastic milk crate. He'd pick a spot among the cubicles and ask the assistant to set it down so he could jump on top and deliver a Speaker's Corner-style impromptu pep talk to the staff.

Now, he was taking out his milk crate for the last time. To be accurate, this time is was an actual step stool – it was a special occasion. He had it set down in the middle of the dowdy grey cubicle farm outside the executive offices on the seventh floor of the Eaton Centre office tower in Toronto. Hundreds of employees crowded into the overheated room to hear what he had to say.

Mr. McDonald told his team that it was time for him to move on – that the board did not support his growth strategy for the department store, so he could no longer continue to lead it. He told them he still thought Sears could win, he believed in what they had accomplished and was proud of their commitment. Tears began to well up in his eyes as he spoke. Some of the staff began to cry, while others looked on with strained, pale faces.

When he was done, executives and managers formed a receiving line. It took more than an hour to get through it. Some had questions, others wished him well. Marinella Gonzalez, who had worked for the company as a planner, helping to budget and forecast merchandise purchases for almost 14 years, gave him a big hug. "It was very sad," she recalls. "He apologized. He tried to comfort people. He was going to bring this company forward. We thought he was going to save us."

Beneath the tears, though, Mr. McDonald was angry. He, too, thought he was brought in to save the company, but now he's not so sure. "I joined with a clear growth mandate," he says now. "I had an agreement with the board, to show that this business could perform. But it needed investments in almost every area – in the stores, online, in the supply chain, the systems."

The money needed for those investments never came. The purse strings were controlled by the board, and the board was, in effect, controlled by the company's majority shareholder: financier Edward (Eddie) Lampert, chairman of Chicago-based Sears Holdings Corp. Mr. Lampert had a reputation as a whiz with numbers, but he seemed to have an odd relationship with his Canadian outpost.

To fund his growth plan, Mr. McDonald agreed to sell off some particularly lucrative store leases, hoping that some of the hundreds of millions freed up could be reinvested in the company. Instead, most of the money was paid out in the form of special dividends. Mr. Lampert's company, as the largest shareholder, got the lion's share.

"Why would a business, which was supposedly trying to transform itself, dividend out all that resource?" Mr. McDonald now says. "I was not part of the board decision at the time, but it wasn't a vote of confidence that they felt the store had future potential." The former CEO now feels that "there was not a real long term commitment to save this business."

He is not the only one who feels that way. After dozens of interviews with current and former Sears employees and industry experts, it is clear that many feel the company's downward spiral – it began liquidating all of its stores this week – didn't have to happen. Sears Canada was once the largest and most successful department store in the country. It was one of the large retailers that managed to brush off the 1994 entry of Wal-Mart Stores Inc. into this country. With an extensive distribution network, a massive array of products and cutting-edge technology, in many ways, Sears was the Amazon.com Inc. of its time.

But over the past 20 years, it made huge mistakes. It bungled its attempts at retailing online, badly, and never did figure out its brand positioning. Each of a succession of CEOs steered it in a different direction, until eventually it became an ungainly hybrid that no one could understand.

More importantly, insiders say, the company was catastrophically damaged by the decisions of a board of directors that failed to pump enough capital back into the business and by a U.S. hedge fund manager who is rumoured to have never once visited the Canadian office.

Sears Canada didn't die of natural causes. It bled to death.

Mr. McDonald, who is now chief executive officer of the Americas at cosmetics giant Sephora, is furious and he isn't alone. Many of the chain's once-loyal customers are angry too, as are the 16,000 employees who are being laid off with no severance pay. John O'Brien, who has managed the Sears store in Avalon Mall in St. John's, Nfld., since late 2014, is one of them. He says that Mr. Lampert, along with Brandon Stranzl, who just stepped down as executive chair of Sears Canada after putting the company into creditor protection in June, "systematically and categorically dismantled a Canadian retail institution."

He's livid that millions of dollars from Canadian store sales were sucked out of the company while there was a $270-million deficit in the employees' pension fund.

"This was intentional," he says. "I know it, many others know it, and I won't quit until they are held accountable for what they have done to my family, my 175 employees and 16,000 of my Sears associates."