Edward Lampert has stepped down as CEO at Sears after the embattled US department store today (15 October) filed for bankruptcy and announced the closure of 142 stores.
The company released a statement to say it was rolling out a series of actions to position it “to establish a sustainable capital structure, continue streamlining its operating model and grow profitably for the long term.” As part of that move, the company and some of its subsidiaries filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the US Bankruptcy Court for the Southern District of New York.
However, the Sears and Kmart stores and online and mobile platforms remain open “and continue to offer a full range of products and services to members and customers.”
The company also said it is “committed to working with its vendors and other partners to help maintain inventory levels and ensure timely product delivery”
The move follows weeks of speculation Sears was heading toward bankruptcy.
In the half year to August, the company made an operating loss of US$419m and announced 46 stores were to be closed before the end of the year. Prior to this, it said it would close 72 stores.
At the end of last week, some lenders were urging the firm to file for Chapter 7 bankruptcy – which involves the liquidation rather than the restructuring of the business.
“Over the last several years, we have worked hard to transform our business and unlock the value of our assets,” said Lampert – who remains as the company’s chairman. “While we have made progress, the plan has yet to deliver the results we have desired, and addressing the company’s immediate liquidity needs has impacted our efforts to become a profitable and more competitive retailer.
“The Chapter 11 process will give Holdings the flexibility to strengthen its balance sheet, enabling the company to accelerate its strategic transformation, continue right sizing its operating model, and return to profitability. Our goal is to achieve a comprehensive restructuring as efficiently as possible, working closely with our creditors and other debtholders, and be better positioned to execute on our strategy and key priorities.”
The group said a further 142 “unprofitable” stores will close toward the end of the year.
The management board is also undergoing a shakeup as part of today’s announcement. Lampert has resigned as CEO with immediate effect, but remains chairman of the board. His post is replaced by an “office of the CEO” responsible for managing the company’s day-to-day operations during this process, and is composed of CFO Robert Riecker, chief digital officer Leena Munjal, and president of apparel and footwear, Gregory Ladley.
A restructuring committee has also been put in place to oversee the restructuring process. Mohsin Meghji, managing partner of MIII Partners has been appointed chief restructuring officer. And William L Transier, CEO of crisis management firm Transier Advisors, has joined Holdings’ Board as an independent director.
Neil Saunders, managing director of analyst GlobalData Retail, says Sears’ decision to continue trading through Christmas is a good move as it allows it to clear inventory, but the retailer is “running up a down escalator” with the only fix being a total change in management.
“Today is a day that will live in retail infamy. That a storied retailer, once at the pinnacle of the industry, should collapse in such a shabby state of disarray is both terrible and scandalous in equal measure. However, it is not surprising because this is a destination that Sears has been headed towards for many years, with virtually no serious attempt having ever been made to change the trajectory.
“In our view there are a multitude of factors that have contributed to Sears’ demise, but foremost among them is management’s failure to understand retail and evolve Sears in a way that would have given the chain a fair chance of survival. Although the present leadership team needs to shoulder much of the responsibility, the missteps arguably go back to the 1980s when Sears became too diversified and lost the deftness that had once made it the world’s largest and most innovative retailer.
“As much as today is a conclusion of sorts, it is not the end of the story. Chapter 11 means that Sears will continue on, at least for the foreseeable future, as it tries to find a solution to its financial woes and attempts to carve out a place for itself in the retail market.
“Neither of these things will be easy to accomplish. In our view, too much rot has set in at Sears to make it a viable business. The brand is now tarnished just as the economics of its model are firmly stacked against its future success.
“Over the longer term it is still unclear what Sears hopes to accomplish. In our view, there is no clear path to success. The group has tried to shrink its way to profitability for years to no avail, so it is hard to see why pursuing the same strategy under the auspice of Chapter 11 would result in a different outcome. Further asset sales may reduce debt, but they would not put the company on a sound financial footing nor would they solve the operating losses the group is racking up.
“Ultimately, Sears needs not just to fix its financial problems. It also needs to repair the deficiencies in terms of retail strategy. In our view, only a complete change of management will bring this about.”