Sears, once America’s biggest store, collapses in bankruptcy
Retailer has struggled through seven years of losses, hundreds of closures under CEO
For much of the 20th century, Sears Holdings Corp. defined American retailing with catalogs and department stores that brought toys, tools and appliances to millions of homes.
By the time Sears limped into bankruptcy on Monday, the once-great company was shriveled and sickly. Decades earlier, it had been dethroned by Walmart Inc. as the biggest U.S. retailer. Then it was crippled by a chief executive with unorthodox strategies, and Amazon.com Inc., an endless online catalog that sucked profits out of the business.
Sears, which merged with rival Kmart in 2005, has struggled through seven years of losses and hundreds of store closures under its billionaire Chief Executive Edward Lampert. Its unraveling has erased $30 billion in shareholder wealth from an April 2007 peak and more than 200,000 jobs.
“It’s an American tragedy and it need not have happened,” said Arthur Martinez, who was CEO of Sears from 1995 to 2000.
For much of its 125 years, Sears was a pioneer, launching brands like Kenmore appliances and Craftsman tools. It shipped a catalog to nearly every U.S. home and created its own credit card to spur sales. After World War II, it followed people to the suburbs, helping build the malls that moved retailing away from Main Street. It was the first major chain to build parking lots and
open its doors on Sundays.
Sears “helped spread the American automobile culture,” said Vicki Howard, a retail historian at the University of Essex in England.
The Sears catalog tapped into the desires of a budding consumer culture, bringing items that were once the province of city life to the rural population, such as men’s suits, vacuum cleaners and a “Stradivarius model” violin. “I dreamed a lot with that catalog,” said 64-yearold Frank Szafranksi of San Diego, who scoured it for James Bond toys and G.I. Joe dolls when he was a child. “You could find anything there.”
Many Americans still live in Sears kit houses, so named because they were purchased via the catalog and delivered in pieces by railroad.
Sears’s reach went beyond selling homes and the things Americans put inside them. It created Allstate Insurance Co. and the Discover credit card. In Chicago in 1973, it opened the 110-story Sears Tower, then the world’s tallest building; it was renamed the Willis Tower in 2009.
But Sears was distracted by shifting strategies and struggled over the years to compete, first with big-box retailers like Walmart Inc. and then with online shopping sites like Amazon.com Inc. It limped into a merger in 2005 with Kmart, which was headed by a hedgefund manager, Mr. Lampert, whose unorthodox retail strategy of cutting spending on advertising, inventory and store improvements would hasten Sears’s decline.
“Eddie inherited a difficult situation, but he made the operating performance worse,” said Steven Dennis, a Sears executive for nearly a decade until he left in 2003. “He cut costs in places that hurt the company and didn’t reinvest in the stores.”
Since 2008, Sears has closed or sold nearly 1,700 outlets, including 60% of Sears stores and 75% of Kmarts, according to data from AggData. As sales declined, Mr. Lampert shed units such as the Craftsman brand and Sears Canada, which liquidated last year.
“Everything I have done as an investor in Sears Holdings has been with the goal of helping the company and its people succeed,” Mr. Lampert said in a statement.
“We chose transformational rather than traditional strategies,” he said. “Some efforts gained traction while others did not, and there were external factors that have severely hurt the company.”
Mr. Lampert said his hedge fund will continue to press for Sears to emerge from bankruptcy in a stronger position. “I invested so much of my time and money in the company because I believe Sears has a future,” he said.
Sears’s troubles were fully exposed as smartphone shopping supplanted trips to the mall and the industry slid into tumult. Earlier this year, Toys “R” Us Inc. closed all of its 879 stores after filing for bankruptcy. Yet the U.S. economy is strong, and consumer spending is boosting sales at Walmart, Best Buy Co. and Home Depot Inc., chains that are thriving in part from the Sears retreat. There might have been no Sears at all if Richard Sears, a 19th-century railway agent, hadn’t received an unwanted shipment of watches. He sold the watches to station agents up and down the rail line and then teamed with Alvah Roebuck, a watchmaker, to form a Chicago mail-order watch business in 1893 called Sears, Roebuck & Co.
The founders weren’t the ones to make Sears a retailing powerhouse, though. By the early 1900s, the duo had left Sears, and Julius Rosenwald, a supplier of men’s suits, was in charge.
Mr. Rosenwald expanded the Sears catalog into dry goods, durables, medicine, hardware and furniture. Under him, Sears became “a full-fledged working economy unto itself,” according to “The Big Store,” a 1987 history. Among his innovations was the “satisfaction guaranteed or your money back” policy.
Sears opened its first store in Chicago in 1925. A decade later, its combined store sales surpassed those of its catalog. In one 12-month period from that era, Sears was opening a new store on average every three days.
Mr. Dennis, the former executive, said Sears was “the first Everything Store,” borrowing a phrase that has become synon- ymous with Amazon. Unlike other department stores, Sears focused on hard-line goods like dishwashers, televisions and tool sets. Its clothing was more utilitarian than fashionable, with an emphasis on bluejeans and work shirts. It was where parents took children to get outfitted for the new school year. Frank Christian, who worked at Sears for nearly 30 years starting in 1967, remembers customers lined up outside the Peekskill, N.Y., store, waiting for it to open. “Some days were so busy there were lines at registers going into the main aisles,” the 67-year-old said.
Industry executives say Sears planted the seeds of its demise nearly 40 years ago, when it diversified from socks into stocks with the 1981 purchases of the Dean Witter Reynolds brokerage firm and real-estate firm Coldwell Banker.
“That was their first mistake,” said Allen Questrom, a retired retail executive who ran numerous companies including rival J.C. Penney Co. “They took their eye off the ball.” By 1985, when Sears launched the Discover card, it had become one of the largest U.S. consumer lenders; 60 million people carried one of its credit cards.
Sears returned to its roots in the 1990s, shedding most of its financial operations, including Dean Witter and Allstate. But another challenge was brewing.
Big-box stores like Walmart, Target and Home Depot were easier to shop than Sears, and they were rolling out in strip centers closer to where people lived. “Sears didn’t take the threat seriously enough,” said Mr. Martinez, the former Sears CEO. He took steps to shore up the chain, including closing the catalog, which he said was a money loser. “It loomed large in American history, but it wasn’t an economic proposition,” Mr. Martinez said.
Kmart, too, had been a trailblazer, with roots dating to1899, but by the early 2000s it was struggling. It filed for bankruptcy protection in 2002 and was taken over by Mr. Lampert, who had bought its distressed bonds.
Mr. Lampert had also been acquiring Sears stock, and his rationale for combining the two centered on solving Sears’s mall dilemma. “If you have the greatest store and it’s not where the customers are, that’s a problem,” Mr. Lampert said when the deal was announced.
After the deal closed in 2005, the combined company started converting some Kmarts into a new format, Sears Essentials. But the stores failed to deliver the expected sales bump, people familiar with the situation said.
It was the start of what would become a familiar pattern: Mr. Lampert would green-light a project, then quickly shut it down if returns didn’t materialize. That applied to investments other executives saw as necessary, such as store upgrades: Some stores had holes in the floors, broken fixtures and burnt-out lights.
Mr. Lampert would slash advertising, then goods wouldn’t sell, according to former executives. He would limit how much merchandise buyers could purchase, and stores would be left with empty shelves and outdated products, these people said.
The company cycled through three CEOs before Mr. Lampert himself took the reins in 2013. He ran the company from Florida, conducting meetings via teleconference and visiting its Hoffman Estates, Ill., headquarters once or twice a year, the former executives said.
Mr. Lampertwas an early believer that the internet would change how people shopped, and he tried to capitalize on the trend, according to a person familiar with his thinking.
Sears in 1999 was one of the first retailers to launch a website and later to offer in-store pickup of online orders. Still, Sears’s online sales accounted for only 12% of revenue in its most recent fiscal year, compared with 24% for Macy’s Inc., according to eMarketer, a research firm.
No matter which levers Mr. Lampert pulled, Sears racked up hefty losses. Its last profitable year was 2010. Since then, cumulative losses have totaled $11 billion, and its annual sales have dropped nearly 60% to $16.7 billion.
As the business deteriorated, the CEO spun off divisions including the Lands’ End clothing brand and sold stores to a realestate investment trust Sears created to fund operations.
Because the spinoffs were to shareholders, of which Mr. Lampert is the largest, the transactions exposed him to criticism of self dealing. A spokesman for Mr. Lampert’s hedge fund says he received the same terms as other shareholders and the deals raised billions of dollars for the company.
Vendors, concerned about the downward spiral, began demanding upfront payment in cash, further squeezing liquidity. “The business was eroding so quickly, it felt as if nothing we did could make a difference,” said a Sears executive who left in 2017.
In a last-ditch effort to keep Sears out of bankruptcy, Mr. Lampert earlier this year offered to buy the Kenmore brand for $400 million and proposed a broader restructuring of the company’s $5.5 billion debt load. But the plan never gained traction, according to people familiar with the situation. The bankruptcy filing threatens to put many of roughly 70,000 Sears employees out of work and throw the financial security of its 100,000 pensioners into doubt. It also leaves many shoppers without a go-to store.
Gloria Chavez of Berwyn, Ill., opened her Sears credit card in 1977 and bought everything there, from appliances to clothes for her three sons. The 66-year-old said she wouldn’t know where to go if Sears disappeared. “It’s been around forever,” she said.
Since 2008, Sears has closed or sold nearly 1,700 outlets, including 60% of Sears stores and 75% of Kmarts.