Sears is drowning. Since 2010, the iconic retailer that changed how America shopped for much of the 20th century has lost $11.7 billion. Sales have tanked causing Sears to close more than 2800 stores over the past 13 years. As a result, a New York court received Sears’ filing for bankruptcy this month. Is the Sears’ bankruptcy filing for Chapter 11 an opportunity to revive a dying business model? Or is Sears destined for the same graveyard fate as companies like Sports Authority, Radio Shack and Toys”R” Us?
The Retailer that Changed America
Sears has been in business for 132 years…that’s a long time. Therefore, many are shocked to hear about the Sears’ bankruptcy filing. Sears filing for bankruptcy provides tangible evidence that times have changed. An outcome many analysts believe could have been avoided with better leadership and stronger growth strategy.
Sears was, perhaps, just as disruptive in its heyday as companies like Amazon and Walmart are today. In essence, the Sears’ bankruptcy filing is little different from mainstream merchants having to close when Sears rose in prominence.
Founded in 1886, Sears quickly evolved from watches and jewelry to all sorts of retail merchandise. Their innovative approach to catalog sales completely revamped how consumers shopped. This was especially true for rural consumers. Subsequently, Sears fueled the suburbanization of America after World War II. Being shopping mall anchors, Sears provided staple brands like Kenmore, Craftsman, and Whirlpool. For those who experienced Sears’ dominance then, the Sears’ bankruptcy filing is hard to fathom.
The Big Decline – Increasing Pressures to Change
As is the case for many businesses, a single event does not account for Sears’ bankruptcy filing. Instead, Sears’ decline has been occurring for years if not decades. Sears has been hemorrhaging since the 1990s and was actually taken off the Dow Jones Industrial Average list in 1999. Faced with “big-box” store competition from Walmart and Home Depot, Sears failed to keep pace with change. Consumers quickly abandoned Sears for the better prices and conveniences these other companies offered.
Of course, these more modern retailers were not the only reason for Sears’ bankruptcy filing. Like many retailers, pressure from the online giant Amazon played a significant role in Sears’ filing for bankruptcy. But Sears’ efforts at digital transformation and online shopping experience for consumers has been too little, too late. Sears no longer offered the discounts, conveniences, and accessibility customers required. The potential for a Sears’ bankruptcy filing was already growing as early as a decade ago.
Self-Inflicted Wounds – Adding Insult to Injury
Sears’ bankruptcy filing was not just the result of changing times and competition. In part, Sears’ reaction to these competitive pressures played a large role in its decline. Rather than leveraging assets into modern strategies, Sears sold off many of its best holdings.
Advertising costs were cut, and hundreds of stores closed. Instead of reinvesting in innovation and modern technologies, Sears pursued a cost-cutting approach. As a result, customers flocked to Sears’ competitors leaving many of Sears’ stores ghost towns.
Sears’ filing for bankruptcy reflects an accumulation of loss for the company in recent years. In 2014, Sears cut its clothing line Land’s End and ended its anchor brand Craftsman in 2017. Whirlpool, once a cornerstone brand within the Sears’ family, pulled out of Sears last year as well. Chairman and former CEO Eddie Lampert and the Sears’ board have been looking for a potential buyer of its Kenmore brand for some time. Reportedly, Sears has been losing over $125,000 a month forcing Sears’ bankruptcy filing. Given this “head in the sand” approach, Sears’ filing for bankruptcy is not that surprising.
The Likely Outcome Isn’t Pretty
According to Sear’s bankruptcy filing, Sears has over $11 billion in liabilities. In contrast, Sears only has $7 billion in assets. For some companies, surviving Chapter 11 bankruptcy is viable when competitive strategies and business models are employed. However, Sear’s bankruptcy filing offers little such hope. For one, most of Sears’ assets have notable liability liens associated with them. Secondly, Sears has repeatedly failed to adopt the innovation and dynamic shifts required to compete in today’s retail environment.
Sears’ filing for bankruptcy comes in the wake of other notable companies struggling to survive in the age of digital transformation. JC Penney offers a perfect example of a company that suffered from a failure to change a dying business model. But the outlook for Sears is not favorable. The company is trading at less than $0.24 per share, and its current market cap is $39.88M with an enterprise value just north of $5B. Without a doubt, Sears tremendously shaped America’s consumer buying patterns throughout the 20th century, but without the commitment to change with the times, Sears will likely become a dinosaur of the past. Sears’ filing for bankruptcy may simply be a formality as this sad chapter comes to a close.
