It is no longer news that one of America’s most iconic retail brands, a trailblazer which bestrode America’s retail space for several decades is locked in a desperate struggle for its very existence.
Sears, Roebuck and Company (“Sears”) the Illinois – based retail giant founded 126 years ago in 1892, filed for Chapter 11 bankruptcy in early October 2018 before the US Bankruptcy Court for the Southern District of New York in White Plains, New York.
America’s story will be incomplete if Sears is not mentioned as Sears had over several decades, grown to become a permanent fixture of everyday American life.
Founders; Richard Warren Sears and Alvah Curtis Roebuck had from its earliest days envisioned Sears as a game changer as well as a trailblazer in the US retail industry. This intention was first demonstrated when Sears launched its mail order catalogue which dramatically transformed access to merchandise and goods for Americans who resided in remote rural communities; who before this time had had to rely on local general stores which tended to have a narrow and limited supply of merchandise offered at considerably higher prices. Sears pioneered the strategy that has been replicated across the world by retail giants on virtually every continent, the strategy which would ironically be used several decades later by competitors to topple it from its position at the top of the retail hierarchy – selling everything to everyone.
With a disruptive streak of innovation, Sears’ Mail Order Catalogue grew from 322 pages in 1894 to 532 pages in 1895 comprising an ever expanding inventory of merchandise ranging from stoves, dolls, sewing machines, jewelry and from childrens’ toys to bicycles and house building kits. Sears was the Amazon of its time and the small town general stores simply could not match the convenience and diversity of merchandise that was offered by Sears to Americans residing in previously underserved communities.
Sears blazed yet another trail when in 1906 its highly successful IPO (Initial Public Offering) became the first for an American retailer and by the following year, 1907 the retail behemoth had achieved annual sales in the neighborhood of $50million ($1.3billion today) and would continue its upward trajectory for several decades thereafter, eventually achieving an all-time high of $1.5billion in 2006.
In 1925, Sears opened its first store in Chicago and nearly half a century later, after several decades of unchallenged dominance in the retail sector, Sears opened what was then the world’s tallest building; Sears Tower (now Willis Tower) in 1973.
Until October, 1989 when it was surpassed by Walmart, Sears had the largest domestic revenue of any US retailer but from around 2010, the company experienced a sharp decline in profitability as its physical store count spiraled downwards from 3500 in 2010 to 695 in 2017 and in the months leading up to its October 2018 Chapter 11 Bankruptcy filing, the Company has continued to shut down an increasing number of its stores in an attempt to stop hemorrhaging cash.
A variety of factors contributed to the slow and painful death spiral experienced by Sears. For example, by the 1990s, Walmart had made massive and irreversible inroads into the retail space where Sears had once dominated. Walmart lured away Sears loyalists by offering a dizzying and diverse array of merchandise at prices that Sears could not hope to match.
Again, Lulled into a false sense of security and dominance, which invariably came from being America’s number 1 retailer for over seven decades, Sears failed to recognize and take proactive measures in the face of seismic shifts that were starting to occur in the retail industry as shoppers increasingly turned to Amazon and other online retailers for their shopping needs. Simply put, Sears flouted one of the major rules of the retail industry – a rule which had decades earlier helped it climb to the top of the retail industry; it failed to continue innovating even in the face of disruptive new technologies such as online shopping and the menace of e-commerce giants such as Amazon.
By the time Sears began to take steps to regain its deeply eroded market share, it was too late.
In the years leading up to its bankruptcy filing, the company has had to sell off several valuable brands in addition to shuttering several physical stores all in a bid to return to profitability. These efforts have been largely futile.
Additionally, the Company’s vendors and suppliers had long seen the handwriting on the wall and had gradually decreased the number of products that they were willing to supply on credit. This made it virtually impossible for the company to compete meaningfully with other retail giants who in the meantime continues to eat relentlessly into its market share.
Sears recent bankruptcy filing is from all indications, a last ditch attempt to avoid liquidation (as was the case with a few other US retail giants such as Toys ‘R’ US, Sport Authority and Payless Shoes) and to enable it reorganize its business and hopefully, return to some level of profitability. It is however unclear how it hopes to tackle the stiff challenge posed by e-commerce giants.
As part of its Bankruptcy restructuring, Sears CEO, Edward S. Lampert will step down but will remain as Chairman of the Company.
Mr. Lampert who has been at the helm of affairs for the past decade and who oversaw the selloff of many of Sears’ valuable brands is a successful hedge fund manager and his Hedge Fund, ESL Investments is said to be involved in negotiations towards extending a much needed $300 million loan to Sears.
Another proposed measure under the Company’s Chapter 11 Bankruptcy filing would be the closing of a further 142 stores. It has been revealed that Mr. Lampert’s strategy is to whittle down Sears physical stores to just 400 profitable outlets in a bid to return the company to profitability. It is as yet unclear how far this will go in pulling the retail giant back from the brink of liquidation. However, industry analysts do not hold out much hope that a Chapter 11 Bankruptcy filing will return Sears to any sort of relevance in the retail industry. It is very likely that millions of Americans who grew up shopping and doing much more at Sears will have to bid goodbye to an iconic American brand that had dominated the retail industry for many decades.
Sears bankruptcy proceedings will be overseen by Judge Robert Drain with Sears being represented by the Law Firm of Weil, Gotshal & Manges.