Sears, the department store chain that once dominated the US retail landscape, filed for bankruptcy protection on Monday as it finally succumbed to a crushing debt burden and failure over several years to adapt to upheaval in the industry.
Tens of thousands of workers are facing an uncertain future after Sears' billionaire chairman and chief executive Eddie Lampert, who has led the group for about 14 years, was unable to convince creditors and directors to back his latest revival plan.
The retailer, which had limped on despite racking up more than $10 billion in losses since the turn of the decade, made the Chapter 11 filing in a US bankruptcy court in New York the same day as a $134 million loan was due.
“Some of the lenders have sort of said, ‘You’ve had enough second chances – this is the end of the line,’” said Hugh Ray, head of the bankruptcy practice at law firm McKool Smith.
Some lenders and investors warn that the retailer could be heading for an outright liquidation, but Mr Lampert remains hopeful the company can escape such a fate by restructuring "around a smaller store platform".
“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,” Mr Lampert said in a statement.
Debtor-in-possession funding
Lenders have stumped up $300 million in so-called debtor-in-possession funding to allow the retailer to keep operating during the bankruptcy. As part of the arrangement, at least 142 stores will close and liquidation sales will begin shortly.
Mr Lampert himself, who is also Sears’ largest creditor, may contribute a further $300 million in such funding through his ESL hedge fund to help the company continue to do business through the crucial festive season. This would be subject to court approval, however. Mr Lampert is stepping down as chief executive and his role will be split between three senior executives.
It was like two drunks holding each other up. Instead of taking care of the overwhelming debt, they simply kicked the can down the road
ESL could yet purchase some of the assets out of bankruptcy. It is in talks about making a so-called stalking-horse bid for the purchase of a “large portion” of the company’s store base, the company said.
Sears traces its roots back to a mail order company in the 1880s and went on to become the country’s largest retailer. The brand was a byword of suburban postwar consumerism and the eponymous tower that housed its head office in Chicago was once the world’s tallest building.
Floundered
But the company floundered in its efforts to compete, first with lower-cost rivals such as Walmart and Costco in the 1970s and 1980s, and more recently with online retailers such as Amazon.
Sears Holdings was created by a combination engineered by Mr Lampert in 2004 of Sears and Kmart, another big-box department store chain.
“It was like two drunks holding each other up,” Mr Ray added. “Instead of taking care of the overwhelming debt, they simply kicked the can down the road.”
Sears, now based in suburban Illinois, is the latest casualty in an industry grappling with the rise of e-commerce, and the most high-profile since the liquidation of Toys “R” Us last year. The outlook for the rest of the sector has looked brighter in recent months, however, as a robust US economy has encouraged consumers to spend.
Weil, Gotshal & Manges is serving as legal counsel, M-III Partners as restructuring adviser and Lazard Frères & Co as investment banker. William Transier, a restructuring expert, is joining the board.
– Copyright The Financial Times Limited 2018
