• by Thom Forbes  @tforbes, October 15, 2018

Sears Holdings’ announcement early this morning is about as surprising as an observation that retailers will be slashing their prices on Dec. 26 -- but there are still lessons to be drawn from the saga of the aged-out department store chain. Many of them are along the lines of what not to do, alas.

Let’s start with the obfuscating headline on the company’s press release this morning: “Sears Holdings Initiates Processes To Accelerate Strategic Transformation And Facilitate Financial Restructuring.” What actually happened is more clearly stated at the end of the first paragraph: “the Company and certain of its subsidiaries have filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York early today.”

It will also close 142 stores by the end of the year, in addition to the 46 that are in the process of shutting down by next month.

In addition, hedge-fund honcho Edward S. Lampert is stepping down as CEO, although he will remain chairman. A three-person committee -- Robert A. Riecker, the chief financial office; Leena Munjal, the chief digital officer, customer experience and integrated retail; and Gregory Ladley, president of apparel and footwear -- will form an office of the CEO.

“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,” Lampert states in the release.

“As part of the reorganization plan, Sears has negotiated a $300 million loan from Wall Street lenders to help keep its shelves stocked and employees paid. The company said it was still negotiating with Mr. Lampert’s hedge fund, ESL Investments, for an additional $300 million loan,” Michael Corkery reports for the New York Times.

“It’s a sad day for American retail,” Craig Johnson, president of Customer Growth Partners, a retail research and consulting firm, tells Corkery. “There are generations of people who grew up on Sears and now it’s not relevant. When you are in the retail business, it’s all about newness. But Sears stopped innovating.”

As hard as it may be to fathom now, innovation had, in fact, been the company's lifeblood.

“Sears was founded in 1887 and first incorporated in 1892. It evolved into an American one-stop shop for everything related to the home. Its annual Christmas catalog was immensely popular -- at its height, it spanned over 500 pages. In the first half the 20th century, the company even sold about 70,000 pre-cut kit houses -- a small part of its then-booming sales. Its strategy of offering all the home merchandise one could dream of in accessible catalogs was path-making,” writes NPR’s Emily Sullivan.

“Sears taught America about the modern world through this catalog,” Jerry Hancock, a self-proclaimed Sears scholar, tells NPR's Lulu Garcia-Navarro. “It completely changed American life. That catalog was sort of a window into this new consumer world, and it really made a connection with people.”

In addition, it launched “brands like Kenmore appliances and Craftsman tools. It … created its own credit card to spur sales. After World War II, it followed people to the suburbs, helping build the malls that moved retailing away from Main Street. It was the first major chain to build parking lots and open its doors on Sundays,” Suzanne Kapner writes for the Wall Street Journal.

But “for years, Sears has contended with the threat that it would become the latest big-name retailer to fall to online competition and crushing debt. The icon once known for its pristine catalogs, and more recently known for decrepit showrooms and a controversial chief executive, saw its stock price plunge last week after reports that it had hired an advisory firm to prepare a bankruptcy filing ahead of the Oct. 15 payment,” writes Rachel Siegel for the Washington Post. 

That debt payment due today was for $134 million.

The Chapter 11 filing comes 14 years after Sears optimistically announced a merger with rival Kmart and follows seven years of struggling through losses and hundreds of store closures under Lampert. “Its unraveling has erased $30 billion in shareholder wealth from an April 2007 peak and more than 200,000 jobs,” WaPo's Siegel reports.

“The intention is to bring the company out on the other side,” a person familiar with negotiations with creditors to to secure a debtor-in-possession loan of several hundreds of million told the WSJ’s Siegel late last week. But consumers, investors, analysts and pundits alike are left to wonder what it has left to offer.