Sears goes bankrupt, mired in debt and deserted by shoppers

Fredrick Soto
October 15, 2018

U.S. retailer Sears, a brand that once dominated shopping malls in the country, has filed for bankruptcy.

Sears' management has reportedly said it hopes to use Chapter 11 of the bankruptcy law to stay in business rather than Chapter 7, which leads to closing.

Sears was down as much as 25% ahead of the opening bell.

Sears is 132 years old, but is just another retailer in recent years that has filed for bankruptcy, including Sports Authority, Toys R Us, Radio Shack, etc. The Wall Street Journal reported that Lampert, who will step down as CEO but remain chairman, believes he can restructure the company around the 300 stores that are profitable.

Sears said 142 stores would close in the next three months.

Neil Saunders, managing director of GlobalData Retail, said Sears' troubles stretched back to the 1980s when it became "too diversified and lost the deftness that had once made it the world's largest and most innovative retailer".

The company already has commitments for $300 million of debtor-in-possession financing from its senior secured asset-based revolving lenders, according to the statement, and it's negotiating a $300 million subordinated DIP financing with ESL.

The so-called "Scratch & Dent Sears" outlet sells slightly defective washers, dryers and other goods, appliances that can still be purchased with Sears' trademark warranty, and on credit in monthly installments.

But Sears' board recently rejected the plan, according to reports.

"If they don't value a customer, then they don't need my money", Roberts said. He done so through deals and infusions from his hedge fund, ESL Investments Inc., which is the retailer's biggest equity holder and a major debt holder.

In addition, ESL is also exploring a stalking-horse bid to buy "a large portion" of the company's stores in the bankruptcy process.

A key unresolved aspect of Sears' negotiations with lenders involves setting deadlines for Sears to achieve specific business goals while under bankruptcy protections, the sources said.

"The problem in Sears case is that it is a poor retailer", he wrote. Sears and Kmart had some 3,500 locations when they merged under Lampert in 2005; now there are about 900 nationwide. For the healthy malls, landlords would welcome a Sears departure, allowing them to cut up the space and fill it with several smaller successful stores that combined would bring in higher revenue.

Sears stock has fallen from about $6 over the past year to below the minimum $1 level that Nasdaq stocks are required to trade in order to remain on the stock index. While losing the retail battle with Walmart, Home Depot and others, it was flanked on another side by Amazon's rapidly growing e-commerce business.

At its peak in the 1960s, Sears sold everything from toys to auto parts to mail-order homes, and was a key tenant in nearly every big mall across the United States. But the onset of discounters like Walmart created challenges for Sears that have only grown.

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