After more than a century of retail dominance, Sears looks close to collapse. Its holding company filed for bankruptcy today just as a massive payment on its debt was due. The company says it will restructure with fewer stores, but there seems to be little on the horizon to keep Sears from following Montgomery Ward into the nostalgia bin of retail:
Sears, the one-time titan of American retail, filed for bankruptcy ahead of a $134 million debt payment due Monday and announced that it will close 142 stores.
For years, Sears has contended with the threat that it would become the latest big-name retailer to fall to online competition and crushing debt. The icon once known for its pristine catalogs, and more recently known for decrepit showrooms and a controversial chief executive, saw its stock price plunge last week after reports that it had hired an advisory firm to prepare a bankruptcy filing ahead of the Oct. 15 payment.
Early Monday morning, Sears announced it had filed for Chapter 11 bankruptcy — which would allow it to reorganize and possibly reemerge from bankruptcy with some part of the business intact — and received commitments for $300 million in debtor-in-possession financing to carry through the bankruptcy period while it restructures its debt and reorganizes its business. The company is negotiating an additional $300 million in financing from ESL Investments, a hedge fund run by Sears’ former chief executive, Eddie Lampert. ESL Investments is also Sears’ largest stockholder and creditor.
“The intention is to bring the company out on the other side,” a person familiar with the negotiations told The Post on Friday.
If Sears ends up collapsing, the obituaries will blame Internet competition for undermining the big-box department store model. That might be true in part, but Sears has done much to hasten its own demise. It should be remembered that Sears started as a catalog business and that it remained part of the company’s structure right up until the commercial Internet launched. Of all the remaining big-box department stores at that time, both Sears and Montgomery Ward should have been able to exploit online sales with a solid catalog-buying customer base.
It’s also worth noting that Sears and Montgomery Ward were both disruptors of marketplaces in their own times. The catalog business heavily damaged the existing door-to-door retail market by offering a much wider variety of goods that could be purchased and delivered directly to customers’ front doors, and at a lower cost. Sound familiar? And yet neither company could compete, either in catalog business or in the big-box retail model.
Their bigger problem, CBS notes, was the brick-and-mortar competition:
The company began opening retail locations in 1925 and expanded swiftly in suburban malls from the 1950s to 1970s. But the onset of discounters like Walmart created challenges for Sears that have only grown. Sears faced even more competition from online sellers and appliance retailers like Lowe’s and Home Depot. Its stores became an albatross.
Some retailers beat Sears on price, Walmart in particular, while others beat Sears on quality. Kohl’s filled a gap between the two on clothes, offering better quality at competitive prices spiced with continuous discounting. Hardware behemoths took away the last reasons to stick with Sears on both variety and quality. The same thing happened to Montgomery Ward, although JC Penney managed to avoid it by focusing on quality and repositioning itself away from discount retail.
The Sears collapse has been a long time coming, but it’s still going to go off like a bomb — perhaps especially so in real estate. Closing 142 stores leaves a very large hole in the economies of the malls where they exist. Landlords who expected to get lease payments, and cities that expected tax revenues, from those operations will get left empty-handed. Mall economies haven’t been very good lately anyway, and one has to wonder how many of those operators will need to get some bankruptcy relief if and when Sears collapses. The ripple effect will be substantial.
Plus, that many closures will put a lot of people out of work. That’s the toughest part of this of all, of course; my first job outside of flipping burgers or making pizzas was at the Sears in Cerritos, California, where I worked for about eighteen months. Back then, it was a nice place to shop and a good place to work. We were treated decently, paid on time, and got reasonable discounts on good merchandise.
There will be a lot of people who won’t have jobs on the back end of this move, as necessary as it might be, and a lot more who have to look at management’s track record and assume the rest might be gone in the near future, too. The holding company has closed nearly 3,000 Sears and K-Mart locations over the past decade and are now down to fewer than 1,000 retail locations. Maybe this will let them turn things around, but it unfortunately looks more like a last stand before annihilation. Until they come up with a reason to exist in the marketplace, Sears won’t last for much longer.