Sears Holdings Corp., the parent of the struggling Sears and Kmart retail chains, filed for bankruptcy protection Monday — a last-ditch effort to save an American icon that shaped shopping habits for more than a century.
The retailer plans to close 142 unprofitable stores by the end of the year, including five in Maryland — Sears mall stores in Columbia, Westminster and Bowie and two Kmarts. With the Chapter 11 filing, the company leaves millions owed to creditors, including two tool makers in Baltimore County, Stanley Black & Decker and Apex Tool Group.
Under the bankruptcy court’s protection, Sears buys more time for a turnaround, one it’s been attempting for years. Despite efforts to cut costs by closing hundreds of stores, Sears has lost more than $11 billion since 2011. The company now has 687 Sears and Kmart locations, a third of the stores it operated five years ago.
The bankruptcy filing comes 131 years after Richard Sears moved his watch company to Chicago, where it grew to become a retail empire that employed hundreds of thousands of people and mesmerized children everywhere with its annual Christmas Wish Book catalog. Sears was once the country’s biggest retailer, the go-to destination for everything, from Toughskins jeans to Craftsman tools and Kenmore washing machines. Sears adapted as its shoppers traded catalogs for downtown department stores, and followed customers to suburban shopping malls.
But it faltered as discounters, specialty chains and online merchants wooed consumers away in recent decades, and it never seemed to find the niche that would bring them back. Home Depot and Lowe’s moved into appliance sales, and with the rise of e-commerce, department stores weren’t the only place customers could go to find a wide range of goods in one place. Middle-market, mall-based chains that tried to sell all kinds of goods to all shoppers fell out of fashion.
“Once you lose your customers, once they’re not in the store anymore, it’s the end of the game,” said James Schrager, clinical professor of entrepreneurship and strategy at the University of Chicago’s Booth School of Business. “You have to spend a lot of money to try to get them to come back.”
Among the Maryland stores slated for closure are the Sears locations at the Mall in Columbia, Townmall of Westminster and Bowie Town Center. Kmart stores in Oxon Hill and Prince Frederick also are closing. Sears already had closed Baltimore area department stores at Hunt Valley Towne Centre, Eastpoint Mall and in Hagerstown, and had closed Kmarts in Crofton, Dundalk, Elkton and Salisbury.
The two Baltimore County tool makers could lose millions. Apex Tool International, a Sparks-based hand and power tool manufacturer, and Stanley Black & Decker are both among Sears’ top 15 unsecured creditors.
Apex Tool, which is owed $6.6 million, according to the Chapter 11 filing, could not be reached for comment.
Stanley Black & Decker, which has a growing headquarters in Towson for its power tools and storage divisions, is owed $5.9 million. It supplies Sears with tools, appliances and other products under brands such as Black & Decker and DeWalt.
Connecticut-based Stanley bought Sears’ iconic Craftsman tool brand in March 2017 for nearly $900 million to be paid over three years. The deal gave Stanley rights to sell Craftsman outside of Sears, while Sears can sell Craftsman products it developed prior to the agreement or any new Craftsman products it develops but only within Sears store channels. Under a 15-year, royalty-free license granted to Sears, Sears can not reassign the brand to any other entity.
“Our purchase of the Craftsman brand was structured in a way to minimize exposure to Sears,” said Tim Perra, a Stanley spokesman. “We assumed no contractual credit risk from Sears relative to the transaction.”
Shortly after the deal closed, Stanley launched a ground-up remake of the tool line, hoping to revitalize a name that had languished alongside the struggling department store. In August, Stanley unveiled a new line of 1,200 Craftsman products, which are being sold at Lowe’s, Ace hardware stores and on Amazon. Stanley plans to expand the now Towson-based Craftsman into a $1 billion business.
Shortly after Sears filed for bankruptcy Monday, the company said it arranged $300 million in debtor-in-possession financing, which will allow it to continue operating the business and paying employees while it tries to restructure. The filing in U.S. Bankruptcy Court for the Southern District of New York lists total assets as $6.937 billion and total debts as $11.339 billion as of Aug. 4.
The company has 68,000 employees, 32,000 of whom are full time. That’s down from 178,000 employees in January 2016.
The company said it will ask for the court’s approval to honor gift cards valued at $460 million that already have been purchased but not redeemed.
Sears' path to bankruptcy follows some of the same missteps as rivals like Montgomery Ward and Bon-Ton Stores whose names are long gone from storefronts.
After decades of adapting to the way consumers shopped, shifting from mail-order catalogs to city department stores to suburban malls, changes in shopping habits ultimately overwhelmed Sears and other traditional department stores.
The 1960s and ’70s saw the launch and growth of discount chains like Walmart, Target and Kmart that would bring shoppers out of the mall and into big-box stores. Sears failed to react quickly.
Schrager blames a shortage of strategic leadership. Executives make their way up the ranks of a major company on the strength of their ability to manage a business, but good managers don’t always make good strategic thinkers, he said.
“They had good managers running the business as it was, but they couldn’t say, ‘The world is changing,’ ” he said.
Instead, the company shifted its focus away from its roots, branching into financial services in the 1980s by acquiring the Dean Witter Reynolds Organization and Coldwell Banker & Co. real estate and introducing its Discover credit card.
As Sears’ financial businesses grew, its retail business struggled. In the early 1990s, it reversed course, spinning off Dean Witter and Allstate Insurance, and selling its stakes in Coldwell Banker and the Sears Mortgage Banking Group.
The company traded its towering downtown Chicago headquarters for suburban Hoffman Estates; cut its iconic but unprofitable general catalog; and rolled out the $40 million “Softer side of Sears” ad campaign, designed to win over female shoppers and boost apparel sales. Business rebounded, but missteps followed, and shoppers continued leaving for lower-priced, trendier discounters outside the mall.
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In 2005, Sears merged with another struggling retailer, Kmart, in an $11 billion deal engineered by Edward Lampert, who bought the discount chain after it filed for bankruptcy in 2002. Lampert had made his name in finance, not retail, as the founder of hedge fund ESL Investments. Industry watchers accused him of focusing on cost-cutting at the expense of investing in stores.
Lampert is stepping down as Sears’ CEO but will remain its chairman.
Sales shrank, and so did Sears itself. The company spun off Sears Hometown and Outlet Stores in 2012 and Lands’ End two years later, and then sold the Craftsman tool brand last year. Lampert himself made a bid to buy the Kenmore appliance brand earlier this year.
Struggling to stay afloat, Sears also slashed its vast real estate holdings, raising about $2.7 billion in 2015 through the sale of 235 stores and its stake in joint ventures involving 31 more to real estate investment trust spinoff Seritage Growth Properties. Lampert is both a stakeholder in Seritage and its chairman.
The retailer has closed hundreds of stores in recent years as it worked to cut costs while property owners sought new, higher-paying tenants.
But as it continued to find ways to stay in business by slowly shrinking, it never committed to the kind of major change that would allow it to reinvent itself again, said Greg Portell, partner at consulting firm A.T. Kearney.
“They continue to keep the business alive through various financial engineering moves,” he said. “That’s a sign they don’t have a solution for the fundamental business itself.”