Sears has ‘lost the will to live’

Embattled US department store retailer Sears has reportedly hired advisors to prepare for a possible bankruptcy filing, a move which will surprise no-one in the retail industry.

Neil Saunders, MD of GlobalData Retail, says the company “has long since lost the will to live”.

The Wall Street Journal reported today that M-III Partners is preparing a bankruptcy filing that could come as early as this week. M-III’s staff have been working on the process for the last three weeks as a $134 million debt repayment deadline looms.

Saunders says there is “a slim chance” Sears may avoid the latest bankruptcy threat, especially if lenders and stakeholders quickly agree to a restructuring program put forward by CEO and cornerstone shareholder Eddie Lampert who is also its largest creditor.

The WSJ reports that Lampert is proposing cutting $1 billion from Sears’s $5.5 billion debt load, selling another $1.5 billion of real estate and $1.75 billion of assets, including the Kenmore appliance brand, which he has offered $400 million to buy himself.

But Saunders says such a plan “is not a long-term solution”.

“In our view, this is the inevitable end game of an effective liquidation process that has been going on for many years. Throughout that time the sale of various assets along with injections of cash from Eddie Lampert have kept the ailing retailer from going under.”

He likens the ongoing bailouts and asset sales as akin to bailing out water from a holed ship: “it keeps the vessel afloat for longer but does nothing to sort out the underlying problem”.

“Sears is a poor retailer. Put bluntly, it has failed on every facet of retailing from assortment to service to merchandise to basic shopkeeping standards. Under benign conditions, this would be problematic enough but in today’s hyper-competitive retail environment it is a recipe for failure on a grand scale.

“That failure has manifested itself in lost customers, lost market share, and a brand that has become tarnished and increasingly irrelevant.”

Saunders says Sears management has been unwilling or unable to address the company’s flaws.

“It is all well and good to undertake financial engineering, but the company is in the business of retailing and without a clear retail plan, the firm simply has no reason to exist.”

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