What You Can Learn from the Sears Bankruptcy

Imagine a bill for $134 million dollars. Imagine that bill is due Monday, and you are already losing $125,000 per month. Now you know why Sears, the 132-year old titan of American retail filed for bankruptcy this week.

Pundits point the blame at Amazon, which is taking the lion’s share of American retail business and which independent retailers and mega corporations across the country have come to loathe. I’ll skip the debate on whether you actually should be rallying against Amazon instead of learning to play with them, but it’s safe to say Sears was firmly in the “against” camp. And their bankruptcy—regardless of who’s to blame—has put 68,000 workers at Sears and its subsidiary (Kmart) on red alert.

As of now, 687 Sears and Kmart stores remain open: but that’s down from more than 1,000 in February of this year, and its 68,000 person employee figure is 21,000 souls fewer than their February total … and 249,000 down from a total of 317,000 just 12 years ago.

Now the company plans to close an additional 142 stores by year’s end, while it hopes to restructure under bankruptcy. This, as approximately 200 vendors have stopped shipping goods to Sears stores.

It’s a retail nightmare that has ricocheted across the national news cycle; but if it’s got you scared, you may want to take a deeper look at how Sears wound up in this position and reimagine the boogeyman that took them down.

The wound is old and deep

Sears has been hemorrhaging sales since the formative  years of Amazon. In the early 2000s, the blame was pointed at big box competitors like Walmart and Home Depot. Those competitors beat Sears on price point, and supplanted them in the minds of consumers, as Generation X grew up, distant from the glory days that had made the Sears brand a stalwart in the eyes of Baby Boomers and the Greatest Generation. For many Millennials—who abandoned the shopping malls that many Sears stores anchor—the company might as well not even exist.

According to this week’s bankruptcy filing, Sears is currently losing $125,000 per month, and $11.7 billion since the dawn of this decade.

Two thousand eight hundred Sears stores have closed since 2005.

“The problem in Sears’ case is that it is a poor retailer. Put bluntly, it has failed on every facet of retailing from assortment to service to merchandise to basic shop-keeping standards,” Neil Saunders, the managing director of GlobalData Retail told Business Insider. “That failure has manifested itself in lost customers, lost market share, and a brand that has become tarnished and increasingly irrelevant.”

Vendors are spooked

According to a New York Post report, Sears is seeking 30-day payment terms from some vendors. And many of them have doubts about receiving payment once $300 million of bail-out money is expended.

Stores decay, die, and are sometimes reborn

Rats, collapsing ceilings, empty peg syndrome, and broken restrooms are just some of the problems facing many Sears and Kmart stores. An extensive 2017 report from Business Insider chronicles these issues, which highlight the (obvious) need to keep your facilities in top-notch shape. Without modernization, the article concludes, customers can begin to treat your retail operation “like a pariah.”

Reports indicate that the average rent for many of the company’s stores is $5 per square foot—far lower than the $50 or $60 mark paid by many shopping mall tenants. For some landlords, that gives incentive to look forward to new tenants in place of the retail giant. Meanwhile, in major cities across the country, former Sears distribution centers—many dating to the company’s catalog heyday in the early 20th century—are being reborn as new commercial, retail, and housing centers.

Sears will probably survive

Unlike small businesses, death for large corporations comes slowly and sometimes ends in resurrection. For every Radio Shack, there is a General Motors. In 2009, Six Flags filed for bankruptcy under a crushing $2.5 billion tab. Pizza empire Sbarro has filed for bankruptcy twice in this decade—once in 2011 and again in 2014. Private equity saved them from total destruction. Eddie Bauer filed for bankruptcy in 2003 and 2009, but its lifespan seems to be as durable as its products, as the company still runs 375 stores in the United States.

Former Sears CEO Eddie Lampert stepped down this week, but is already rallying private equity to revive the brand.