As reported by Bloomberg, troubled retail giant Sears officially filed for Chapter 11 protections, in the face of mounting debt and long recovery odds.
The move is meant to shield the company from a host of creditors (it listed “more than $10 billion in debts” in the filing). However, both Sears and Kmart stores “plan” to stay open for now “with help from $600 million in new loans.”
(What would motivate anyone to invest $600 million in a rapidly sinking ship remains unclear, but the deals are apparently done, so shop away.)
“Once a force in U.S. retail so dominant that it could be called the Amazon of the 20th century, [Sears was] suffocated by debt and a steady erosion of revenue,” the story says. And while other companies “had seen cash flow increasingly constrained by interest payments… Sears also has the added pressure of pension liabilities.”
But even in this Current Climate™, it was the timing of the filing that was the most telling. A year ago, the story said, “a Sears bankruptcy would have fit better into the U.S. retail narrative, given the steady decline of shopping malls and foundering chains,” but now, “bankruptcy is a clear sign of individual weakness, not an industry trend.”
“While department-store competitors invested in e-commerce and tried new brands and formats,” the story noted, “Sears withered as [leadership] repeatedly cut costs and shuttered stores.” Ultimately, those moves stripped company shares of about 90 percent of their value.
“The retailers that are succeeding are investing in being good retailers,” one expert said. “All Sears did was close stores and sell assets, and it was a study in financial engineering that didn’t work.”
So if there’s a silver lining (for the industry, at least), it’s that Sears’ situation isn’t indicative of anything besides bad management, and that we shouldn’t “expect [their] failure to be a contagion threatening to infect the rest of retail.”
You can read more about it at Bloomberg.