US retailer Sears files for bankruptcy
October 15, 2018
The US department store chain Sears has filed for bankruptcy and will close 142 stores, it announced on Monday.
Crippling debts have dogged the famous institution of American retail for several years now. Sears has suffered losses of more than $10 billion (€8.64 billion) over the last decade alone, as it struggled to come to terms with low-cost competitors and particularly e-commerce giants such as Amazon.
A new revival plan put in place by billionaire chairman and CEO Eddie Lampert has not convinced investors and the store's many creditors, and as a result, the retailer made a Chapter 11 bankruptcy filing in New York on the same day a loan for $134 million was due and apparently unable to be repaid.
Chapter 11 bankruptcy is the route often taken by businesses that intend on reorganizing and ultimately surviving, as it gives companies the opportunity to find new ways of becoming profitable and to reduce debt.
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"The Chapter 11 process will give [Sears] Holdings the flexibility to strengthen its balance sheet, enabling the company to accelerate its strategic transformation, continue right sizing its operating model, and return to profitability," Lampert said in a statement.
Lenders such as Bank of America, Citigroup and Wells Fargo will provide at least $300 million of what is known as 'debtor-in-possession' funding to help keep as many Sears stores as possible open during the bankruptcy process. Lampert, who himself is Sears' biggest creditor, may also provide additional funds through his ESL hedge fund although that will require legal approval.
The threat of liquidation
While a successful reorganization under Chapter 11 may yet save Sears, several lenders and investors still believe the most likely fate of the 126-year-old company is outright liquidation.
"We think creditors are likely to recover more from a liquidation than if the company continues as a going concern," said Monica Aggarwal, analyst at Fitch Ratings, last week. "The underlying value of the assets is more valuable, given the ongoing losses in the business."
Sears confirmed it would close 142 unprofitable stores near the end of this year, having already announced the closure of an additional 46 stores back in August. The company currently has 506 stores in operation.
Workers at the company now face an uncertain future although given the travails of recent years, that is nothing new — having employed more than 300,000 people a decade ago, the company's workforce is now down to 68,000.
A retail icon
Sears' roots can be traced back to the 1880s, with the company first incorporated in 1892. It grew to become the biggest retailer in the world and was once an iconic symbol of American consumerism, particularly in its post WWII heyday.
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The growth of low-cost rivals such as Costco and Walmart ended Sears' dominance in the 1970s and 1980s but it is the growth of Amazon and e-commerce in general that has ultimately sealed Sears' fate. In the last few years, the decline of its share price has increased markedly.
It is far from the only former American retail giant to fall on hard times in the face of the e-commerce revolution. The famous Toys "R" Us retailer filed for bankruptcy last year while stores such as Macy's have also been forced to lay off workers.
Lampert, who had led the Illinois-based company since 2004, will step down as CEO as part of the reorganization but will stay on as chairman of the board.
aos/uhe (AFP, Reuters)