Sears Bankruptcy 2018: The $11 Billion Fall of a Retail Giant

Katrina Ávila Munichiello brings over fourteen years of expertise as an editor, writer, fact-checker, and proofreader across print and digital media.

On October 15, 2018, Sears Holdings (SHLD) officially filed for Chapter 11 bankruptcy, marking a pivotal moment in retail history. Despite efforts including widespread store closures and restructuring deals, Sears was unable to overcome its financial struggles, reporting $6.9 billion in assets against $11.3 billion in liabilities at the time of filing.

Following the bankruptcy announcement, CEO Edward Lampert stepped down from daily operations, which were handed over to three senior executives, though he remained chairman of the board. The company’s failure to repay a $134 million debt due on the filing date triggered the restructuring process.

Key Insights

• In 2018, Sears operated approximately 700 stores across the U.S. before bankruptcy.
• Edward Lampert acquired Sears in 2004 for $11 billion, merging it with Kmart to form Sears Holdings.
• Major competitors included Walmart, Amazon, Macy’s, J.C. Penney, Home Depot, Lowe’s, and Best Buy.
• Sears divested multiple business units and iconic brands over the years.
• The company’s stock, first issued in 1906, was delisted from Nasdaq shortly after the bankruptcy filing.

Current Status of Sears

Post-bankruptcy, a judge approved the sale of Sears’ assets to Lampert for $5.2 billion. By April 2019, around 425 stores remained operational with roughly 45,000 employees. This was a significant reduction from nearly 700 stores at the time of bankruptcy and a far cry from the 3,500 combined Sears and Kmart locations in 2005.

In 2017, Sears ceased carrying Whirlpool appliances after a century-long partnership, citing pricing disputes. In 2018, Lampert’s hedge fund, ESL Investments, offered $400 million to acquire the Kenmore brand and $80 million for Sears’ Home Improvement division.

Lampert stated, "Despite efforts to transform the business and unlock asset value, Sears has yet to achieve desired results. Chapter 11 provides the flexibility to strengthen our balance sheet and accelerate strategic changes to return to profitability."

By late 2018, Sears’ stock price plummeted below $1 per share, reflecting investor concerns. The company later sued Lampert and ESL Investments, accusing them of asset stripping that contributed to the bankruptcy. ESL denied these allegations.

The Rise and Fall of a Retail Icon

Sears began as a mail-order watch company in the late 19th century and grew into a retail behemoth, pioneering catalog sales and later brick-and-mortar stores. However, it failed to adapt swiftly to the evolving retail landscape, especially with the rise of e-commerce giants like Amazon.

In 2004, Kmart acquired Sears for $11 billion under Lampert’s leadership, aiming to revitalize the brands but ultimately struggling to compete with Walmart and Amazon. Sears’ sales declined steadily after 2006, and its stock value fell dramatically amid the 2008 financial crisis and beyond.

Lampert’s management style, characterized by dividing the company into competing divisions and stringent cost-cutting, is widely criticized for accelerating Sears’ decline.

Historical Highlights

Founded in the 1880s by Richard Sears and Alvah Roebuck, Sears became a pioneer in retail through its expansive catalog and later retail stores. Notable brands like Craftsman, DieHard, and Kenmore originated under Sears’ umbrella. The company also diversified into financial services, launching Discover Card in 1985.

Despite early innovations, Sears struggled to keep pace in the latter half of the 20th century, culminating in the construction of the Sears Tower in 1973—a symbol of its former dominance.

Challenges and Strategic Moves

In the 1980s and 1990s, Sears expanded into financial services and online ventures like Prodigy but later divested many units. The company discontinued its iconic catalog in 1993 and faced increasing competition from Walmart and Amazon in the 2000s.

The 2004 merger with Kmart, orchestrated by Lampert, was intended to create a retail powerhouse but instead led to operational challenges and declining profitability.

Asset Sales and Declining Operations

Sears spun off real estate assets into Seritage Growth Properties in 2015 and sold key brands like Craftsman. Staff reductions and cost-cutting measures adversely affected store operations and customer experience.

Despite attempts to partner with Amazon and secure loans from ESL Investments, Sears continued to report significant losses, totaling over $11 billion since 2010.

Conclusion

Sears’ downfall illustrates that even retail pioneers can falter without adapting to market changes and consumer preferences. While e-commerce growth played a role, internal management decisions and competition from other big-box retailers were equally impactful.

The story serves as a cautionary tale about the complexities of retail reinvention and the importance of strategic agility in a rapidly changing industry.

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