Sears files for Chapter 11 amid plunging sales, massive debt
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The company has struggled with outdated stores and complaints about customer service even for its once crown jewels: major appliances like washers and dryers.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.
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.