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Sears nears bankruptcy filing after years of losses

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Sears Holdings, once the nation’s largest retailer, now appears to be headed for bankruptcy, according to the Wall Street Journal. The company has struggled to adjust as e-commerce has gained share in the retail space, and has begun to hire bankruptcy advisers to prepare for filing as soon as next week.

The news comes as Sears faces a massive $134 million debt payment due next Monday. Sears CEO Eddie Lampert put forth an offer to restructure some of Sears’ debt load through his own hedge fund, ESL Investments, but was unsuccessful as the company’s creditors have not accepted any current proposals.

Investors have lost confidence that a deal can be reached to restructure in time to meet the company’s current obligations. Shares of Sears’ stock tumbled nearly 30% in the aftermath of the Wall Street Journal’s report, and have lost two-thirds of their value since late September when the proposals to restructure debt were announced.

How did we get here?

Analysts have long been expecting an eventual Sears bankruptcy, as the company has struggled mightily in the face of rising e-commerce sales. The 125-year old company, which was the largest retailer in the country in the 1960s, was slow to invest in e-commerce infrastructure when online shopping began to take hold within retail, and has lagged behind competitors such as Walmart and Target in the e-commerce space in recent years.

As a result, Sears has become one of the posterchilds for the “retail apocalypse”. The company has lost money in every year since 2010.  During this time, the company has tried a number of strategies to pull itself out of the red, including shuttering many of its stores and selling off some of its brands. CEO Lampert has even poured some of his own investment money into the company in an attempt to keep it afloat. However, none of these strategies have worked, and the company continued to see big losses in 2017.

What happens in a Sears bankruptcy?

A Sears bankruptcy filing would not necessarily mean the end for the retail giant, however. The company could use the bankruptcy process to get out for under some of its debt load and remain in business. Companies such as Eddie Bauer have filed for Chapter 11 in the past, restructured operations, and returned to the retail landscape. Sears was already scheduled to close down several of its stores before the holiday season this year, but will likely continue operations for the immediate future.

But for every success story, there are stories of like Border’s or Blockbuster where companies never recovered from bankruptcy. Sears’ path strikes a similar tone to that of Toys ‘R’ Us, which also struggled to adjust to the dominance of e-commerce within retail. Like Sears, Toys ‘R’ Us brought on personnel that specialize in corporate restructuring in 2017. By 2018, the company filed for bankruptcy but included a plan to liquidate some its stores and return to profitability with a new approach. These efforts failed, however and the company was forced to close all of its US stores, with the last store closing in June of this year.

Representatives from Sears declined to comment following the Wall Street Journal article, leaving the longer-term plan for the company unknown.

 

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