The long and seemingly inevitable road to bankruptcy has finally come to an end for Sears. The 132-year-old retailer, one of the most iconic brand names of the 20th century, filed for Chapter 11 bankruptcy to reorganize debt and will close and liquidate 142 unprofitable stores by year-end.
The retailer intends to keep profitable Sears and Kmart stores open, and its online and mobile platforms will operate as usual. Additionally, the company expects its loyalty programs, including the Shop Your Way membership program, and the Sears and private label credit card rewards program, to continue as normal.
As of the filing, approximately 700 Sears and Kmart stores remained open and the company employed 68,000 workers. That’s down from 1,000 stores with 89,000 employees that it had as recently as February 2018, and significantly less than the more than 5,000 Sears and Kmart locations across the U.S. in 2012.
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Sears has been on a massive downward spiral for years, with many retail analysts believing the ship had long sailed for any potential recovery efforts to succeed. While the company crafted an identity based on being “America’s retailer” decades ago, it wasn’t able to evolve along with shopper preferences as more companies shifted their focus online and built out more differentiated product offerings and services. Even after re-focusing on its e-Commerce site, Sears continued to neglect the stores, leading to a very outdated customer experience.
“Everybody else has done this — Target just announced it would invest $7 billion into remodeling their stores,” said Lee Peterson, Executive VP of Brand, Strategy and Design at WD Partners told Retail TouchPoints in early 2018. “That’s the route. Sears never did that. They have much older stores, much more complicated floor plans, older footprints and older neighborhoods. To not touch those stores was mistake #1. If they would have thought about it and not been carried away with the e-Commerce moment, Sears should have taken any funding that they had to fix the stores.”
The Cost Of Not Keeping Up
The failure to adapt has been costly: Sears hasn’t turned a profit since 2010, losing a combined $11 billion cumulatively since 2011. Annual sales have dropped nearly 60% in during that same time frame, to $16.7 billion.
Sears Holdings listed $6.9 billion in assets and $11.3 billion in liabilities in documents filed in the U.S. Bankruptcy Court in the Southern District of New York.The bankruptcy filing was sparked by a standoff between CEO Eddie Lampert (the company’s biggest shareholder and lender) and a special board committee, over a rescue plan proposed by Lampert.
Last week, reports surfaced that the retailer hired advisers to prepare the bankruptcy filing and contacted banks to arrange the debtor-in-possession financing necessary to keep the company afloat during the filing. Sears had a $134 million debt payment due Oct. 15 that it previously reported it would not be able to cover.
In total, Sears Holdings secured commitments for $300 million in debtor-in-possession financing from its lenders, and is presently negotiating to secure an additional $300 million from with ESL Investments, Lampert’s hedge fund. Combined, Lampert and ESL Investments own nearly 50% of Sears’ shares and are its biggest creditor. The retailer owes Lampert and the fund approximately $2.5 billion.
Sears Holdings expects to market and sell certain of the company’s assets over the coming months, according to a company statement. But the company did not unveil which of the assets it intends to sell off. The most recent proposal from Lampert included selling off $1.54 billion in real estate and $1.75 billion in additional assets, such as the Kenmore brand and its home services branch.
Sears has been shedding its real estate for years as one way to raise cash, bringing Lampert significant scrutiny for stripping the company of some its most valuable assets. In 2014, Sears spun off Lands’ End into its own public company. In 2015, it spun off more than 235 stores to form a real estate investment trust, Seritage Growth Properties and convert the stores into more profitable uses such as offices and restaurants. And in another desperate attempt to raise funds, Sears sold the Craftsman brand to Stanley Black & Decker for $900 million.
In cases where ESL Investments buys the asset off Sears, such as the proposed Kenmore deal, Lampert would still own the property and make money on it despite the retailer’s continued financial difficulties.
Lampert Out As CEO, But Remains Chairman
Under the bankruptcy plan, Lampert’s executive role will be replaced by a three-person committee, though he will remain as Chairman of the Board. The Sears board has created an Office of the CEO, which will be responsible for managing the company’s day-to-day operations during this process. The Office of the CEO will include:
- Robert A. Riecker, Chief Financial Officer;
- Leena Munjal, Chief Digital Officer, Customer Experience and Integrated Retail; and
- Gregory Ladley, President of Apparel and Footwear.
Mohsin Meghji, a managing director of the M-III Partners corporate advisory firm, was appointed Chief Restructuring Officer.
