Sears files for Chap­ter 11 amid plung­ing sales, mas­sive debt

The Standard Journal - - LOCAL - By Anne D’In­no­cen­zio AP Re­tail Writer

NEW YORK — Sears filed for Chap­ter 11 bank­ruptcy pro­tec­tion, with plans to shut­ter 142 un­prof­itable stores in the hopes that it can stay in busi­ness.

The ques­tion now is whether a smaller ver­sion of the com­pany that once tow­ered over the Amer­i­can re­tail land­scape can be vi­able. Sears, which started as a mail or­der cat­a­log in the 1880s, has been on a slow march to­ward ex­tinc­tion as it lagged far be­hind its peers and in­curred huge losses over the years.

It filed for Chap­ter 11 pro­tec­tion on Mon­day, Oct. 16.

At its peak, the op­er­a­tor of Sears and Kmart had 4,000 stores in 2012 but will now be left with a lit­tle more than 500.

“This is a com­pany that in the 1950s stood like a colos­sus over the Amer­i­can re­tail land­scape,” said Craig John­son, pres­i­dent of Cus­tomer Growth Part­ners, a re­tail con­sul­tancy. “Hope­fully, a smaller new Sears will be health­ier.”

Oth­ers don’t share John­son’s op­ti­mism. “That a sto­ried re­tailer, once at the pin­na­cle of the in­dus­try, should col­lapse in such a shabby state of dis­ar­ray is both ter­ri­ble and scan­dalous in equal mea­sure,” said Neil Saun­ders, man­ag­ing di­rec­tor of Glob­alData Re­tail, in a note pub­lished last week. “In our view, too much rot has set in at Sears to make it vi­able busi­ness.”

Even Pres­i­dent Don­ald Trump weighed in on Sears’ col­lapse, call­ing it “a shame.”

“Sears, Roe­buck, when I was grow­ing up, was the big deal. And it’s very sad what hap­pened, very, very sad,” he said to re­porters on last week out­side of the White House. But Trump added that many of the Sears’ sites will be put to “good use” and mean a lot of jobs.

The com­pany has strug­gled with out­dated stores and com­plaints about cus­tomer ser­vice even for its once crown jew­els: ma­jor ap­pli­ances like wash­ers and dry­ers. That’s in con­trast with chains like Wal­mart, Tar­get, Best Buy and Macy’s, which have been en­joy­ing stronger sales as they ben­e­fit from a ro­bust econ­omy and ef­forts to make the shop­ping ex­pe­ri­ence more invit­ing by in­vest­ing heav­ily in re­mod­el­ing and de-cluttering their stores.

Sears Hold­ings will close 77 Sears stores and 65 Kmart stores near the end of the year and liq­ui­da­tion sales are ex­pected to be­gin shortly. That’s in ad­di­tion to the clo­sure of 46 un­prof­itable stores that had al­ready been an­nounced.

Ed­ward S. Lam­pert, the com­pany’s largest share­holder, has stepped down as CEO but will re­main chair­man of the board. A new Of­fice of the CEO will be re­spon­si­ble for man­ag­ing day-to-day op­er­a­tions.

The com­pany said it has se­cured $300 mil­lion in fi­nanc­ing from banks to keep the op­er­a­tions go­ing through bank­ruptcy. It’s ne­go­ti­at­ing an ad­di­tional $300 mil­lion loan from Lam­pert’s ESL Hedge fund.

The fil­ing listed be­tween $1 bil­lion and $10 bil­lion in as­sets while li­a­bil­i­ties range be­tween $10 bil­lion to $50 bil­lion. It listed the Pen­sion Ben­e­fit Guar­an­tee Corp., the fed­eral agency that in­sures pen­sions, as Sears’ big­gest un­se­cured cred­i­tor, but noted the amount it owed as “un­known,” ac­cord­ing to court doc­u­ments.

Sears joins a grow­ing list of re­tail­ers that have filed for bank­ruptcy or liq­ui­dated in the last few years amid a fiercely com­pet­i­tive cli­mate. Some, like Pay­less ShoeSource, suc­cess­fully emerged from re­or­ga­ni­za­tion in bank­ruptcy court. But plenty of oth­ers like, Toys R Us and Bon-Ton Stores Inc., haven’t. Both re­tail­ers were forced to shut­ter their op­er­a­tions this year soon af­ter Chap­ter 11 fil­ings.

Given its sheer size, Sears’ bank­ruptcy fil­ing will have wide rip­ple ef­fects on ev­ery­thing from al­ready ail­ing mall land­lords to its tens of thou­sands of work­ers. But un­like other re­tail­ers that have gone bank­rupt, there are not a lot of spoils for ri­vals to pick up. The com­pany, once a big seller of toys, now has a tiny 2 per­cent mar­ket share in that area, ac­cord­ing to in­vest­ment re­search firm Jef­feries. And its mar­ket share in ma­jor ap­pli­ances has shrunk to just un­der 10 per­cent from 41 per­cent in 2001, ac­cord­ing to John­son of Cus­tomer Growth Part­ners.

Lam­pert has been loan­ing out his own money for years and has put to­gether deals to prop up the com­pany, which in turn has ben­e­fited his own ESL hedge fund.

Last year, Sears sold its fa­mous Crafts­man brand to Stan­ley Black & Decker Inc., fol­low­ing ear­lier moves to spin off pieces of its Sears Home­town and Out­let di­vi­sion and Lands’ End.

/ AP

For well over a cen­tury Sears has dom­i­nated the Amer­i­can re­tail­ing in­dus­try. Sears re­cently filed for Chap­ter 11 bank­ruptcy pro­tec­tion, with plans to shut­ter 142 un­prof­itable stores in the hopes that it can stay in busi­ness.

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