US department store operator Sears succumbs to bankruptcy
Famous US department store operator Sears has finally succumbed to bankruptcy proceedings, filing for Chapter 11 early Monday morning (US time), unable to meet a $134 million debt repayment due that day.
The Chapter 11 process was widely predicted with external consultants appointed to consider options several weeks earlier.
The process will allow the company to implement yet another restructuring plan as its owners struggle to save what was once the nation’s largest retailer. Under the plan a further 142 unprofitable stores will be closed, on top of the 46 closures announced in August and yet to take effect.
Once they close that will leave just 499 stores still trading, including those carrying the Kmart banner. That’s a fraction of the 3500 stores it operated as recently as 2010.
Liquidation sales are expected to begin within a fortnight.
“As we look toward the holiday season, Sears and Kmart stores remain open for business and our dedicated associates look forward to serving our members and customers,” Sears chairman, majority shareholder and largest creditor Eddie Lampert said in a statement.
While Sears management and the company’s advisors attempt to create a rescue program which would allow the business to trade its way back to viability, some analysts are questioning if they should bother.
“No one was shocked at the timing of Sears filing,” said Philip Emma, a retail analyst with Debtwire commented to US website Retail Wire. “If there is a surprise it might be that it took this long. Sears vendors have already been reacting to the impending problem.”
“Today is a day that will live in retail infamy,” said GlobalData Retail MD Neil Saunders, reacting to news of the Chapter 11 filing. “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.
“However, it is not surprising because this is a destination that Sears has been headed towards for many years, with virtually no serious attempt having ever been made to change the trajectory.”
Saunders said rescuing the business now will not be easy.
“Too much rot has set in at Sears to make it a viable business. The brand is now tarnished just as the economics of its model are firmly stacked against its future success. Sears will still be running up a down escalator.”
Saunders said that over the longer term it is still unclear what Sears hopes to accomplish.
“In our view, there is no clear path to success. The group has tried to shrink its way to profitability for years to no avail, so it is hard to see why pursuing the same strategy under the auspice of Chapter 11 would result in a different outcome. Further asset sales may reduce debt, but they would not put the company on a sound financial footing nor would they solve the operating losses the group is racking up.
“Ultimately, Sears needs not just to fix its financial problems. It also needs to repair the deficiencies in terms of retail strategy. In our view, only a complete change of management will bring this about.”
Electrolux promises support
One of the US department store operator Sears’ major creditors is appliance maker Electrolux, which issued a statement saying it intends to work with the retailer’s restructuring officer to explore the prospects of continuing its business relationship, while managing the financial and operational exposure.
The Sears business accounts for about 10 per cent of Electrolux North America’s major appliances business, leaving it exposed if a successful Sears restructure cannot be achieved.
“To ensure business continuity and to mitigate the financial exposure, Electrolux has been actively planning for various Sears’ contingencies while also growing the business with other customers. Therefore, the group does not currently assess a need for material one-time costs as an immediate consequence of Sears’ restructuring under Chapter 11.”