Sears prepares to file for bankruptcy
The cash-strapped retailer has hired boutique advisory firm M-III Partners LLC to prepare the bankruptcy filing ahead of the deadline on Monday for a $134 million debt payment, the Wall Street Journal reported. Although, the report added, Sears was continuing to discuss other options and could still avert an in-court restructuring.
Neil Saunders, managing director of GlobalData Retail, said the news comes as no great surprise.
“In our view, this is the inevitable end game of an effective liquidation process that has been going on for many years,” Saunders said.
“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 said.
“However, the activity is 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.”
According to a report from Reuters, the bankruptcy filing would end a standoff between company CEO Eddie Lampert, the retailer’s biggest shareholder and lender, and a special board committee the company formed to consider Lampert’s rescue plan, which involved asset sales and a debt restructuring.
Saunders said it was a recipe for failure on a grand scale.
“The problem in Sears’ case is that it is a poor retailer,” he said. “Put bluntly, it has failed on every facet of retailing from assortment to service to merchandise to basic shopkeeping standards.”
Saunders said that this would be problematic enough under benign conditions, 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.”
According to Saunders, the company management’s consistent inability or unwillingness to address these issues is why he has never been confident about the long-term survival of Sears.
“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.”
There is a slim chance that Sears may avoid the latest bankruptcy threat, especially if lenders and stakeholders quickly agree to the restructuring program put forward by Eddie Lampert.
“However, in our view, this is not a long-term solution; it is simply a way to prolong the life of a company that has long since lost the will to live,” Saunders said.
Sears, which also owns Kmart, did not comment on the bankruptcy filing report.
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