Household name declares bankruptcy; fights to continue as smaller entity.
When Sears Holdings Corp filed for Chapter 11 bankruptcy on Monday, it announced a plan to close 142 unprofitable Sears and Kmart locations and seek to rebuild around financially healthier stores.
A wave of store closures and deals in desperate attempts to stay afloat have failed to save the struggling retailer, which listed $6.9 billion in assets and $11.3 billion in liabilities in the filing.
The company announced that its CEO, Edward Lampert, has stepped down and day-to-day operations will be managed by three high-ranking executives. Lampert will remain chairman of the board. The firm began the restructuring process after it failed to pay back $134 million that was due on October 15.
Sears was once the giant of US retail, selling just about everything and shipping it right to your door–indeed, it was the Amazon of the early American twentieth century.
Ironically, however, the unveiling of the landmark Sears Tower in Chicago in 1973, the world’s tallest skyscraper at the time, also signaled the beginning of the company’s downfall. It adopted a “socks and stocks” strategy, expanding into financial services alongside its existing insurance business.
In 2000, Sears broke into online retail–ahead of Amazon–yet a string of bad business decisions saw it fall behind both the latter and its contemporary rival, Walmart.
Kmart announced in 1999 that it would buy Sears for $11 billion. The combined companies to be headquartered in Chicago and called Sears Holdings would operate around 3,500 locations. Management promised to save $500 million a year by 2007, partly through jobs cuts and store closings. Yet according to Shoshanna Delventhal of Investopedia, “Divisions found themselves acting like separate companies, even drawing up contracts with each other.”
“Compensation costs rose as each division hired its own senior management,” Delventhal writes. “These executives in turn had to form their own boards, and their pay was determined according to an in-house profit metric that led to cannibalization as some divisions cut jobs, forcing others to step in. The appliances unit found itself being gouged by the Kenmore unit, so it bought wares from LG, a South Korean conglomerate, instead.”
Sears attorneys were in court Monday urging a swift bankruptcy to preserve the company as a smaller entity.
“For us, time is absolutely of the essence,” said Ray Schrock of Weil, Gotshal, and Manges, which is representing Sears Holdings. “We have to do this for Sears and its employees.”