Sears teeters on the edge of bankruptcy

Oct 10, 2018

Shares of Sears fell today on reports from the Wall Street Journal that the company has hired advisors to prepare a bankruptcy filing. The department store chain has been struggling for decades, announcing one turnaround effort after another.

Sears has been around since the 1890s. And for a long time, it was where you went to buy everything: toys, appliances, clothing. But in the 1960s, the discount chains Walmart and Target opened their doors, and they sold a lot of the same stuff for cheaper.

“All of a sudden [Sears] had massive amounts of new competition,” said Randy Allen, a management professor at Cornell. In 2005, Sears merged with Kmart. The plan was to reinvent the two struggling retail chains. Allen says that kind of turnaround takes a lot of money. “You need to invest money in the stores, in marketing, in people,” she said. “But the two companies weren't generating sufficient cash.”

Instead, over the years, management focused on cutting costs. Sears closed thousands of stores and sold off popular brands, like its Craftsman tools line. “Every time they did something like that, it was oriented around stabilizing cash flows and getting the ship on the right course,” said Robert Rostan, a principal at Training the Street.

Ultimately, Sears CEO Eddie Lampert cut too much, and didn’t invest enough, Rostan said. And the business suffered. “Stores get shabby and dark and dingy and worn out,” said Mark Cohen, a Columbia Business School professor and former CEO of Sears Canada. “And then they become less and less likely as destinations for customers to shop.”

Sales at Sears have been falling for six years. The company is more than $5.6 billion in debt. And deals with Lands’ End and Amazon haven’t saved the company from where it is today, on the brink of bankruptcy.

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