Sears files for bankruptcy

[master.on]

Sears stock has fallen into the bargain bin.
In the latest indignity for a once-grand retailer, the share price fell below $1 on Friday for the first time in the company's history, dropping as much as 15% to 85 cents in midday trading.

Falling into loose-change territory is more than embarrassing. Nasdaq, the exchange where Sears stock trades, could delist the company. That's a long process and would happen next year at the earliest.

Shares of Sears Holdings (SHLD) had already plunged 88% in the past year. They took another blow Monday, when CEO and primary shareholder Eddie Lampert warned the board that the company was running out of time and cash. He said Sears must restructure and cut its debt "without delay."

Lampert pointed to a $134 million debt payment due on October 15, and said the company must demonstrate to lenders by Monday that it has required levels of cash in reserve, which could itself prove difficult.

Sears' market value has fallen to less than $100 million. Lampert recently offered to buy the Kenmore appliance line through his hedge fund for $400 million, suggesting that the Kenmore brand on its own is worth more than four times as much as the whole company.

All of which is a stunning reversal for a company that was once not only the nation's largest retailer, but also its largest employer.

In its heyday, Sears was both the Walmart (WMT) and Amazon (AMZN) of its time. In the late 19th century and early decades of the 20th century, many Americans bought mass-produced goods for the first time through the Sears catalog. Most lived on farms and in small towns, and had previously made many of the goods they needed, such as clothes and furniture, themselves.

Sears stores helped reshape America itself, drawing shoppers away from traditional Main Street merchants and into malls, contributing to the suburbanization of the country after World War II. And its appliances introduced many American homes to labor-saving devices that changed family dynamics.

But long before the rise of Amazon and online shopping, Sears struggled to keep up with changing shopping habits.

Big box retailers such as Walmart beat it on both price and selection. In 1999, Sears was booted out of the Dow Jones industrial average, where it had been for 75 years. Home Depot (HD) took its place.

In more recent years, Sears has struggled just to stay alive.

It told investors last year that there was "substantial doubt" it could stay in business. Lampert's latest warning to the board raised a similar warning. He said it was in the best interest of creditors and shareholders to restructure the company "as a going concern."

Sears has lost $11.7 billion since 2010, its last profitable year, and sales have plunged 60% in that time. It has fewer than 900 stores, down from a combined 3,500 US stores when Sears and Kmart merged in 2005.

In July, the company closed the last Sears store in Chicago, its former hometown. And the company recently announced that 46 more stores will close just before the holiday shopping season.

CNNMoney (New York)First published September 28, 2018: 12:25 PM ET
Sears is now a penny stock

 

[master.on]

Buy a few grand worth of Sears penny stock waiting for it to recover?
Yes or No?

 

[Xlgx]

Could go private. Not worth the risk to me. Seems like it is and has been toxic for years.

 

[BigNattyDaddy]

"But long before the rise of Amazon and online shopping, Sears struggled to keep up with changing shopping habits."

Don't buy. More and more people are shopping online. Nearly impossible for brick and mortar stores to compete with the big dogs, e.g, AMZN.

 

[master.on]

"But long before the rise of Amazon and online shopping, Sears struggled to keep up with changing shopping habits."

Don't buy. More and more people are shopping online. Nearly impossible for brick and mortar stores to compete with the big dogs, e.g, AMZN.

The irony is that Sears was once the king of the mail-order business
their catalog was once called the 'dream book'.

They coulda have become the first and greatest Amazon. They already had a working mail-order backbone.

 

[BigNattyDaddy]

Retail defaults are at an all-time high — here are all the bankruptcies and liquidations so far in 2018

 

[MindlessWork]

The irony is that Sears was once the king of the mail-order business
their catalog was once called the 'dream book'.

They coulda have become the first and greatest Amazon. They already had a working mail-order backbone.

I remember leafing through the toy section of the catalog when I was a little kid. Good times!

I don't get it why fix something that was not broken. If someone got a clue when the Internet first came on the scene, the catalog would been online and beating the nascent Amazon to the punch.

 

[Wunderpus]

Avoid these stocks like the plague... Let the dinosaurs die.

 

[MindlessWork]

Avoid these stocks like the plague... Let the dinosaurs die.

JC Penney is not too far behind as well. Beware.

 

[Demondosage]

There comes a point when Americans look at how much cheaper than can get something for in an efficient timeframe and fuck supporting good ol' America when their wallets and families come first. Yes, Wal-Mart sucks, I hate Wal-Mart and Amazon also, but when a can of fucking almonds is 2$ cheaper at Wal-Mart than a grocery store I'd rather have that 2$ left in the bank.

 

[Demondosage]

Also, what does It really matter when everything comes from China anyways? We are supposed to be worried about letting Sears down. Shit, Sears let Sears down!!

 

[flenser]

It was planned destruction, and nothing at all to do with poor management.

As far as being the "first Amazon", very little of the existing infrastructure would have been useful for that kind of operation. It would have required new infrastructure and new investment, and remember that Amazon was not profitable for more than a decade and only survived via the greater fool theory of investment. In the early days of Amazon Bill Bonner (the author of the article below) dubbed them the "River of No Returns".

In any case, for Sears owners it was more profitable to sell off the assets, buy back stocks and fool careless investors into seeing health where there was none.

How Trump’s “Right-Hand Man” Drove Sears Into the Ground
October 17, 2018
Bill Bonner

...

Heaven Hypothesis
The heaven hypothesis was spreading all over Wall Street and Washington yesterday, too.

Wall Street commentators were out in force explaining why last week’s sell-off was a buying opportunity. “Buy the dip,” they said. And investors did as they were urged to do. The Dow popped up more than 500 points.

In Washington, too, people believe we live in a kind of Eden, with ultra-low joblessness… ever-rising stock prices… and an economy guided by the greatest financial geniuses who ever lived – Donald J. Trump and his right-hand man at the Treasury, Steven Mnuchin.

The Donald’s genius is on display every day. Explaining Sears’ bankruptcy, for example, he hit the nail squarely on the head… that is, the head of his own Treasury secretary:

Sears has been dying for many years. It’s been obviously improperly run for many years and it’s a shame.​

Yes, it was Mnuchin and his college pal, Eddie Lampert, who ran Sears into the ground. Mnuchin was on the board from 2005 until late 2016, when he took his current job.

But that doesn’t mean they did anything improper… or dumb.

They’re smart guys. They must have realized that the old retailer was doomed.

Warren Buffett thought so 10 years ago. Buffett had some experience with retail as an owner of the old Hochschild Kohn’s department store in Baltimore, where we used to shop as a child. Once a retailer starts going down, he said, it’s almost impossible to stop it.

And Sears couldn’t compete with the likes of Walmart, Home Depot, and Target… to say nothing of Amazon.

Naturally, the two hustlers didn’t want to put money into a dying business. They wanted to get money out – as much as possible – before the old girl went down.

Then, they would leave the husk to the retail public… and lenders.

Rather than invest in new ways of doing business, for example, Sears took its earnings and distributed it to shareholders and managers – in the form of stock buybacks.

From our colleague, and budget chief for the Reagan administration, David Stockman:

Thus, during the seven-year span of 2006-2012 [Sears] spent $6 billion on stock buybacks – even though the company generated only $1.8 billion of operating free cash flow during the same period.​

In fact, during the last three years of that period (2010-2012), it actually generated cumulative free cash flow of negative $1.7 billion, but still kept repurchasing stock to the tune of $1.2 billion by borrowing.​

This worked like magic in the early stages. The stock went to $126 in 2007. Obviously, that was Heaven… and the best time to get out.

Hellish 43 Cents
But Sears is a big company… and there was a lot of value to be sucked out. Brands could be sold – Kenmore and Craftsman – and retail space could be salvaged. Sears even sold billions’ worth of real estate once occupied by its stores. Some of the derelict buildings were converted into trendy apartments.

Eddie Lampert and Steve Mnuchin kept stripping off the copper flashing and recycling the hardwood floors for the next 11 years. (Mnuchin resigned from the board when he became Secretary of the Treasury.)

Now, the company is little more than a derelict shell, and its stock trades at a hellish 43 cents.

Here at the Diary, we assume Lampert and Mnuchin did the best they could. We doubt we could have done better.

But our job is to connect the dots. And you’d have to be blind not to see the connection between Sears’ demise and the Fed’s EZ-money policies.

When you can borrow money for less than the inflation rate… it won’t take sharp minds long to figure out how to get the money and put it into their own pockets.

In business, you borrow against the company… and pay out in the form of special dividends, bonuses, mergers and acquisitions, fees, stock buybacks… and other assorted hocus-pocus.

Bloomberg looked at the 50 biggest corporate acquisitions over the last five years:

The vast majority of the 50 deals – valued at $1.9 trillion collectively – were financed with debt.​

This M&A-fueled leveraging of corporate balance sheets contributed to a surge in debt rated in the bottom investment-grade tier and now represents almost half of the outstanding market, Bloomberg Barclays index data show.​

It also contributed to big paydays for the insiders, who watched their stocks go up two-and-a-half times faster than GDP over the last 30 years.

Government, too, got in on the action, using tax cuts and spending increases to do the same trick. Reuters is on the case:

The U.S. federal government closed the 2018 fiscal year $779 billion in the red as tax cuts hit revenues and the government paid more to service a growing national debt, according to Treasury Department data released on Monday.​

The deficit for the fiscal year – or the 12 months through September – was the largest since 2012. […]​

The deficit in the 12 months through September was $113 billion – or 17 percent – bigger than in the same period a year earlier.​

Let’s see, you borrow money… and you spend it. We see how that worked out for Sears.

But how will it turn out for the rest of corporate America… and the nation itself?

 

[flenser]

I got a kick out of this Washington Post article. It goes along well with my belief that capitalism is a greater force for equal rights than social engineering.

https://www.washingtonpost.com/news/morning-mix/wp/2018/10/16/searss-radical-past-how-mail-order-catalogues-subverted-the-racial-hierarchy-of-jim-crow/?utm_term=.c4e9e18978d0 (Sears’s ‘radical’ past: How mail-order catalogues subverted the racial hierarchy of Jim Crow)

By https://www.washingtonpost.com/people/antonia-noori-farzan/ (Antonia Noori Farzan)
October 16, 2018

[can't get the images to display]

Monday’s announcement that Sears would https://www.washingtonpost.com/blogs/post-partisan/wp/2018/10/15/the-best-sears-product-was-its-gift-for-reinvention-with-a-126-year-warranty/?utm_term=.fd52b78458a0 (file for bankruptcy) and close 142 stores came as little surprise to anyone who has followed the retail giant’s collapse in recent years. Still, the news inspired a wave of nostalgia for a company that https://www.washingtonpost.com/blogs/post-partisan/wp/2018/10/15/the-best-sears-product-was-its-gift-for-reinvention-with-a-126-year-warranty/?utm_term=.fd52b78458a0 (sold an ideal) of middle-class life to generations of Americans.

A lesser-known aspect of Sears’s 125-year history, however, is how the company revolutionized rural black Southerners’ shopping patterns in the late 19th century, subverting racial hierarchies by allowing them to make purchases by mail or over the phone and avoid the blatant racism that they faced at small country stores.

“What most people don’t know is just how radical the catalogue was in the era of Jim Crow,” Louis Hyman, an associate professor of history at Cornell University, wrote in a Twitter thread that was shared more than 7,000 times Monday in the wake of the news of Sears’s demise. By allowing African Americans in Southern states to avoid price gouging and condescending treatment at their local stores, he wrote, the catalogue “undermined white supremacy in the rural South.”

As historians of the Jim Crow era have documented, purchasing everyday household goods was often an exercise in humiliation for African Americans in the South. Before the advent of the mail-order catalogue, rural black Southerners typically only had the option of shopping at white-owned general stores — often run by the owner of the same farm where they worked as sharecroppers. Those store owners frequently determined what African Americans could buy by limiting how much credit they would extend.

While country stores were one of the few places where whites and blacks routinely mingled, store owners fiercely defended the white-supremacist order by making black customers wait until every white customer had been served and forcing them to buy lower-quality goods. “A black man who needed clothing received a shirt ‘good enough for a darky to wear’ while a black family low on provisions could have only the lowest grade of flour,” historian Grace Elizabeth Hale wrote in an essay published in “Jumpin’ Jim Crow: Southern Politics from Civil War to Civil Rights.”

In 1894, Sears, Roebuck and Co. began sending out 322-page illustrated catalogues. The year before, Congress had passed the Rural Free Delivery Act, making it possible for the Chicago-based retailer to easily reach communities across the rural South. Notably, the company made an effort to accommodate customers who were barely literate, enacting a policy that the company would fill any order it received regardless of the format.

“So, country folks who were once too daunted to send requests to other purveyors could write in on a scrap of paper, asking humbly for a pair of overalls, size large,” the Bitter Southerner explained this summer. “And even if it was written in broken English or nearly illegible, the overalls would be shipped.”

But even more important, the catalogue format allowed for anonymity, ensuring that black and white customers would be treated the same way.

“This gives African Americans in the Southeast some degree of autonomy, some degree of secrecy,” unofficial Sears historian Jerry Hancock told the Stuff You Missed in History Class podcast in December 2016. “Now they can buy the same thing that anybody else can buy. And all they have to do is order it from this catalogue. They don’t have to deal with racist merchants in town and those types of things.”

Even though white store owners wanted black customers’ business, many were uncomfortable with the idea of blacks having money. Mamie Fields, a black woman who was born in segregated South Carolina in 1888, wrote in her https://www.amazon.com/Lemon-Swamp-Other-Places-Carolina/dp/0029105501 (memoir): “Some of them did think colored people oughtn’t to have a certain nice thing, even if they had enough money to buy it. Our people used to send off for certain items. That way, too, the crackers . . . wouldn’t know what you had in your house.”

The company has even been credited with contributing to the development of a unique genre of black Southern music — the Delta blues. “There was no Delta blues before there were cheap, readily available steel-string guitars,” musician and writer Chris Kjorness wrote in Reason, a libertarian magazine, in 2012. “And those guitars, which transformed American culture, were brought to the boondocks by Sears, Roebuck & Co.” By 1908, anyone could buy a steel-string guitar from the catalogue for $1.89, roughly the equivalent of $50 today. It was the cheapest harmony-generating instrument available on the mass market, Kjorness noted.

There isn’t enough data available to determine exactly how much black customers contributed to Sears’s bottom line during the Jim Crow years. And historians have noted that purchasing from the catalogues was an option only for African Americans who had enough cash on hand to place an order, or, once ordering via telephone began replacing mail order, access to a phone.

Still, Southern merchants clearly felt threatened by the competition from mail-order department stores: As catalogues for Sears and Montgomery Ward made their way into more and more homes, local storekeepers began circulating rumors that the companies were run by black men.“The logic, of course, was that these fellows could not afford to show their faces as retailers,” Gordon Lee Weil wrote in his 1977 history of the company, “https://www.amazon.com/gp/product/0812823141/ref=as_li_qf_asin_il_tl?ie=UTF8&tag=thewaspos09-20&creative=9325&linkCode=as2&creativeASIN=0812823141&linkId=36953581d1bc41bded5ec48e64ec4994 (Sears, Roebuck, U.S.A.: The Great American Catalog Store and How it Grew).”

By the turn of the century, some merchants were even encouraging people to bring in their catalogues for Saturday night bonfires and offering bounties of up to $50 for people who collected the most “Wish Books,” historians Stuart and Elizabeth Ewen wrote in “https://www.amazon.com/gp/product/0816618909/ref=as_li_qf_asin_il_tl?ie=UTF8&tag=thewaspos09-20&creative=9325&linkCode=as2&creativeASIN=0816618909&linkId=405d1c3185d128b1e621d7cf07758c93 (Channels of Desire: Mass Images and the Shaping of American Consciousness).” In response, Sears published photos of its founders to prove that they were white, while Ward offered a $100 reward in exchange for the name of the person who had started a rumor that he had mixed black and white ancestry.

Meanwhile, in the ensuing decades, Julius Rosenwald, who had become a part owner of the company after Alvah Roebuck sold his share of the business in 1895, became a well-known philanthropist to the black community. He https://www.washingtonpost.com/lifestyle/style/the-enlightening-legacy-of-the-rosenwald-schools/2015/08/30/946b72ca-4cc6-11e5-bfb9-9736d04fc8e4_story.html?utm_term=.963248c768e7 (donated $4.3 million) — the equivalent of more than $75 million today — to open nearly 5,000 “Rosenwald schools” in the rural South between 1912 and 1932, when he died.

“These schools were in very, very rural areas, where many African American kids did not go to school. If they went to school, they went to a very ramshackle building,” writer Stephanie Deutsch, who https://www.amazon.com/gp/product/B00I5GX6DE/ref=as_li_qf_asin_il_tl?ie=UTF8&tag=thewaspos09-20&creative=9325&linkCode=as2&creativeASIN=B00I5GX6DE&linkId=7f2067d846426197a927f7d423381641 (published a book) on the history of the schools, told https://www.washingtonpost.com/lifestyle/style/the-enlightening-legacy-of-the-rosenwald-schools/2015/08/30/946b72ca-4cc6-11e5-bfb9-9736d04fc8e4_story.html?utm_term=.963248c768e7 (The Washington Post) in 2015. “These schools were new and modern, with big tall windows, and lots of light streaming in. They felt special, because they were new and they were theirs.”

Although most Rosenwald schools shut down after Brown v. Board of Education mandated an end to segregation, 1 of every 3 black children in the South attended a Rosenwald school during the 1930s, The Post’s Karen Heller https://www.washingtonpost.com/lifestyle/style/the-enlightening-legacy-of-the-rosenwald-schools/2015/08/30/946b72ca-4cc6-11e5-bfb9-9736d04fc8e4_story.html?utm_term=.963248c768e7 (reported in 2015). Among the schools’ notable alumni were poet Maya Angelou and Rep. John Lewis (D-Ga.).

Rosenwald, the son of Jewish immigrants from Germany, became a friend of Booker T. Washington and served on the board of the Tuskegee Institute. He also https://www.washingtonpost.com/lifestyle/style/the-enlightening-legacy-of-the-rosenwald-schools/2015/08/30/946b72ca-4cc6-11e5-bfb9-9736d04fc8e4_story.html?utm_term=.963248c768e7 (helped fund) black YMCAs and YWCAs and provided financial support to black artists and writers, including opera singer Marian Anderson, poet Langston Hughes, photographer Gordon Parks and writer James Baldwin.

Sears went only so far in subverting racial norms. Up until the middle of the 20th century, the company followed Jim Crow laws in its Atlanta department store, Bitter Southerner noted, meaning that black employees could work only in warehouse, janitorial and food service positions. Still, the company allowed both blacks and whites to shop there, which wasn’t the case for other stores in the area at the time.

And for a significant portion of U.S. history, the Sears catalogue offered black shoppers something that they couldn’t find anywhere else: dignity.