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HomeNEWSAmerican giant Sears has filed for bankruptcy

American giant Sears has filed for bankruptcy

News of Sears’ demise has shocked global retail markets, with the company filing for bankruptcy after it failed to pay a USD$132m debt due on Monday. Parent company Sears Holdings (SHLD) also owns the US Kmart brand. Once America’s largest employer, it’s failed to turn a profit since 2010 and have burrowed itself into debt. 

This doesn’t spell the end for these household names though, with the company promising to keep open profitable stores and their websites. But having already shed 300 stores and 21,000 workers since February, things aren’t looking positive for employees of SHLD although it is looking for a buyer for a large number of its remaining stores. 

So, what went wrong, and what does it mean in New Zealand? In reality Sears has been suffering for decades as the likes of Walmart offered shoppers greater convenience and cheaper prices. But a failure to invest in both store fit-outs and marketing has also been seen as part of the root cause of its demise by US commentators. While some have been quick to blame the online boom and companies like Amazon for taking Sears down, Chris Isidore at CNN Business says that Macy’s and Kohl’s made smart marketing decisions and “rebuilt their businesses for the digital age,” while Sears focused on cutting costs which ultimately made it less relevant to the consumer.  

In 2005 Sears was bought by hedge fund operator Eddie Lampert who merged it with Kmart, and set about slashing core investment in the business. Over 13 years it closed approximately 2,800 stores and sold its Craftsman brand to Black and Decker. Much of the company’s real estate was sold to a company also owned by Lampert, and Sears then began paying rent on its bricks and mortar –  a strange decision which was designed to pay off creditors but further stressed its finances.

“This is the bankruptcy that everyone predicted a long, long, time ago, at least back to 2005,” said Jaime Ward, head of retail finance group at Citizens Bank talking to CNN. “He’s a hedge fund guy who … purposely avoided investing in the core of the business.”

Lampert has now stepped down as CEO although he’s still company chairman, owner of 31 percent of shares, and still appears to be investing in the company via his hedge fund ESL with a view to avoid liquidation. Apparently, an out of court restructuring deal was rejected by creditors, resulting in the bankruptcy, but in what is being described as a ‘rallying cry’ by CNBC, Lampert told employees on Tuesday that, “We need to show material progress over the next few months to establish to our senior lenders that a re-organisation of the company is realistic and to avoid a shutdown and liquidation.” 

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