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Why Did Sears Go Out of Business?

Why Did Sears Go Out of Business?

Trading and Investing

On October 15, 2018, Sears Holdings Corporation found itself succumbing to the pressures of financial distress and initiated Chapter 11 bankruptcy proceedings. Despite a series of aggressive measures including store liquidations and bargain sales to remain solvent, the corporation was unable to reverse its fortunes, declaring assets of $6.9 billion against debts totaling $11.3 billion.

The need for restructuring became apparent when Sears Holdings was unable to repay $134 million in debt due on the day of its bankruptcy filing.

At the time of its Chapter 11 filing, the company operated approximately 700 stores nationwide, a stark contrast to the over 3,500 stores it had when Sears and Kmart merged in 2005. Eddie Lampert, who acquired Sears for $11 billion in 2004 and merged it with Kmart, renaming the enterprise Sears Holdings, witnessed the company’s valuation plummet. Competition from retail giants such as Walmart and Amazon intensified, alongside rivals like Macy’s, JC Penney, Home Depot, Lowe’s, and Best Buy. See our article: Home Depot Founder Ken Langone Sits Down With Rebellion Research

The company divested various business units and brands over time.

Over the years, Sears Holdings Corporation sold several of its most iconic and valuable brands in an unsuccesful effort to streamline operations and raise capital. Lands’ End, a clothing and home decor brand, spun off in 2014 as an independent company. DieHard, known for its durable automotive batteries, sold to Advance Auto Parts in December 2019. Craftsman, a great American brand of tools, lawn, and garden equipment, sold to Stanley Black & Decker in March 2017. The Kenmore brand, another household name famous for its appliances also became put up for sale. However, with Edward Lampert’s ESL Investments, Sears Holdings’ largest shareholder and creditor, offered to buy it in 2018. However, a final sale did not immediately materialize.

Eventually becoming delisted from the Nasdaq in October 2018, 112 years after Sears issued its initial public offering back in 1906.

The sign outside the now defunct Landover Mall.

A bankruptcy judge approved a $5.2 billion sale of Sears Holdings’ assets to Lampert in a bankruptcy auction, leaving about 425 stores operational and preserving approximately 45,000 jobs as of April 2019.

The company ceased selling Whirlpool appliances a year prior. Ending a century-old partnership over pricing disputes. Lampert, through his hedge fund ESL Investments, proposed to acquire the Kenmore appliance brand for $400 million in cash after other buyers showed no interest. ESL also bid to purchase Sears’ Home Improvement business for $80 million.

Lampert expressed in a statement that although the company strived to transform its business and unlock the value of its assets, the results were lacking. Lampert felt the Chapter 11 process would provide the company with the opportunity to reorganize its finances, right-size its operations, and put it back on a path to profitability.

After filing Chapter 11, Sears Holdings filed a lawsuit against Lampert and ESL Investments!

Alleging that they stripped the company of its most valuable assets, which precipitated the bankruptcy. Including brand names and retail operations, valued at approximately $2 billion. ESL countered, dismissing the lawsuit’s claims as baseless.

But, the story of Sears is more complex than a mere shift in retail trends or a single company’s ascent.

It is a tale of corporate hubris, internal missteps, and the harsh realities of a changing industry. While Sears once pioneered the mail-order business model, turning the tables on overpriced general stores, it now faced the same threat from e-commerce giants like Amazon.

Sears Holdings’ merger with Kmart, orchestrated by Lampert, promised synergies and savings, yet the business struggled to realize these benefits. Lampert, hailed as a savvy investor, faced criticism for his management style, which included a divisional structure that led to internal competition and inefficiencies.

The company’s fortunes continued to decline over the years.

Losing a staggering $10.4 billion lost between 2011 and 2016.

As revenues plummeted, the retailer’s attempts to innovate in online sales and cross-promotions with Amazon could not stem the tide of its financial woes.

In the end, Sears Holdings’ narrative reflected not just the triumphs and challenges of the retail industry but also the intricate dance between maintaining a legacy and adapting to the inexorable march of technology and consumer habits.

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