Sears Plan to Get Out of Bankruptcy Has a Familiar Ring

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Sears, which filed for bankruptcy protection on Monday, says it will close 142 unprofitable stores. In the last decade, the company has shut down 1,000 stores, including this outlet in Santa Monica, Calif.CreditCreditColey Brown for The New York Times

By Michael Corkery

Oct. 15, 2018

In its bankruptcy filing on Monday, Sears argued that, given enough time and less debt, it would be able to reverse the decades-long decline of its retail business.

But the company’s latest turnaround plan looks a lot like its previous turnaround plans: close unprofitable stores, sell properties and borrow more money from the company’s chairman and largest investor, Edward S. Lampert.

As part of its Chapter 11 reorganization plan, Sears says it will close 142 unprofitable stores, or about 20 percent of what remains of its once vast footprint that also includes the discount retailer Kmart. The company also plans to sell its Kenmore and Home Services brands.

Those cuts would come on top of the 1,000 stores the company closed in the past decade, and the sale of brands like Lands’ End, Craftsman and Sears Canada.

Mr. Lampert, a hedge fund manager who has already lent the company about $2.5 billion, said he would extend another $300 million to keep the retailer operating in bankruptcy. The loan comes in addition to the more traditional financing from banks that Sears received on Monday.

Mr. Lampert’s hope is that by focusing only on a core group of 400 profitable stores, the company can stop hemorrhaging money and restore the confidence of its customers and vendors. Many suppliers have stopped advancing products to Sears on credit and are owed millions of dollars.

Missing from that plan was any explanation of how Sears would gain the ground it had lost to big-box stores like Walmart and the e-commerce giant Amazon. In 2005, Sears had 2 percent of all retail sales. It now accounts for less than 0.3 percent, according to Customer Growth Partners, a research firm.

“Honestly, Sears is essentially dead already,” said Gerald L. Storch, the former chief executive of Toys “R” Us and Hudson’s Bay, the parent of Saks Fifth Avenue. “Maybe it limps along for while. But it is walking zombie.”

Sears listed $11.3 billion in liabilities in its bankruptcy filing and $7 billion in assets.

Industry analysts, investors and former retail executives said Sears’s Chapter 11 filing is only a short stop on the way to liquidation.

In recent years, bankruptcy has not been kind to old-school retailers seeking a second life.

Toys “R” Us had hoped to cut its debts and reorganize as a smaller, more nimble company when it filed a Chapter 11 case last September. But rather than keeping the company going, its lenders decided they could recoup more by putting up its toys in a fire sale and shutting down all its stores. The clothing chain Bon-Ton also liquidated earlier this year and closed all its stores.

Sears could follow a similar path, particularly after Christmas when its stores have finished selling out their holiday inventory and will be less productive.

The one wild card is Mr. Lampert, who has continued to sink money into the company despite long odds.

In bankruptcy documents, Sears said Mr. Lampert’s hedge fund was willing to make the opening bid to essentially buy the company’s 400 most viable stores and keep them operating.

In a document, the company’s chief financial officer, Robert A. Riecker, said the hedge fund’s “support has ensured that the company’s doors remain open, and over 68,000 individuals remain employed.”

But Mr. Lampert may have other interests in making sure Sears keeps the lights on. He is the chairman of and a large investor in Seritage Growth Properties, a real estate company that owns 230 former Sears properties. Sears pays rent to Seritage and a liquidation would imperil those payments.

“Why Eddie is still in this is anybody’s guess,’’ said David D. Tawil, a co-founder of Maglan Capital, a New York hedge fund, that makes investments in the debt of troubled companies.

“We are dealing with a new age in retail bankruptcies, and Sears is the weakest player in the market,’’ Mr. Tawil added. ”If it makes it out of bankruptcy, it would be an astounding accomplishment.”

President Trump lamented the company’s decline on Monday, saying its bankruptcy filing was a “shame.” But he added that Sears “has been dying for many years.”