Published: Mon, October 15, 2018
Markets | By Erika Turner

Sears files for Chapter 11 bankruptcy amid plunging sales, massive debt

Sears files for Chapter 11 bankruptcy amid plunging sales, massive debt

Sears Holdings Corp CEO Eddie Lampert has stepped in to contribute towards a financing package of between US$500 million and US$600 million that the United States department store operator was close to securing on Sunday (Oct 14) to fund operations during bankruptcy proceedings, people familiar with the matter said.

According to Bloomberg, Sears could declare Chapter 11 bankruptcy as early as Sunday, as the October 15 maturation date of a $134 million debt package looms large.

With the bankruptcy, about 150 of the company's department stores could be closed, Reuters said late last week.

Sears joins a growing list of retailers that have filed for bankruptcy or liquidated in the last few years amid a fiercely competitive climate. However, the company now has too much debt and not enough shoppers.

A store closing sale sign is posted next to a Sears logo in New Hyde Park, New York, U.S., October 10, 2018.

The company has racked up $6.26 billion in losses, excluding one-time events, since its last annual profit in 2010, according to Ken Perkins, who heads the research firm Retail Metrics LLC. Lampert, who is Sears's biggest shareholder and will remain as chairman, acknowledged in the statement that turnaround efforts so far have fallen short.

Sears was making progress in its negotiations with banks on Friday for financing to keep it afloat through the holiday season while in bankruptcy court, with lenders expected to provide several hundred million dollars, the sources said. A release from the company also says the current Chief Executive Officer will step down, effective immediately.

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Sears said it will sell assets and begin closing 142 unprofitable stores by year-end with the aim of reorganizing around a smaller platform of around 700 of its best stores.

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. Lampert partially spun off the company from its parent in 2012 and was Sears Canada's biggest shareholder.

"It is all well and good to undertake financial engineering, but the company is in the business of retailing and without a clear retail plan, the firm simply has no reason to exist", said Neil Saunders, managing director of GlobalData Retail, in a recent analyst note.

Sales at the company's established locations tumbled almost 4 per cent during its fiscal second quarter. Lampert bought Sears in 2004 and merged it with Kmart, in which he had a controlling stake, the next year.

The Sears catalog eventually sold products ranging from hardware and automobiles to kits for building an entire house.

"There was a time when Sears was the Amazon of its day". The company has said it's the nation's largest provider of home services, with more than 11 million service calls a year.

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