By guest author Elisabeth Winkler at Wall Street Journal
Expected bankruptcy filing by storied retailer shows limits of ‘zombie’ retailers’ staying power
On Tuesday October 9, 2018, legendary investor Stanley Druckenmiller predicted a wave of bankruptcies at indebted “zombie” companies. He highlighted one in particular: “Seriously does anyone know why Sears is still in business?” he asked. That prediction proved eerily prescient. As The Wall Street Journal reported Tuesday night, the 125-year-old retailer is preparing a bankruptcy filing, proving that even the living dead cannot hang on forever.
Sears hasn’t been profitable since 2010, yet Chief Executive Officer Eddie Lampert has kept it alive through clever financial maneuvering—shedding assets and even providing financial lifelines for the company via his hedge fund, ESL investments. The need to pay down debt left Sears even less able to reinvest in stores or e-commerce in a tough retail environment than other struggling mall-based stalwarts. Still, lenders have shown themselves willing to prop up retailers even when they are unprofitable, meaning the undead can haunt the landscape for a surprisingly long time.
All of that may come to an end this week. Sears has a USD 134 million debt payment due next Monday, October 15, 2018. Its shares were down 35 % Wednesday morning, October 10, 2018 on the news and have shed nearly all of their value. Though Sears has been in decline for years, it had been expected to linger on a bit longer, at least through the holiday season. The news is a wake-up call for how quickly things can unravel.
Sears’s downfall was preceded by fellow household name Toys ‘R’ Us. Both equity investors and companies in the business of keeping retail zombies in an ambulatory state are asking themselves who might be next. Vulnerable companies that have been serial disappointments recently include J.C. Penney and Bed Bath & Beyond. With interest rates rising and a historic name about to fold, it is little wonder the market is spooked.
Short Comment by TextileFuture: Unbelieveable, that the long-time largest retailer is near bankrupt. It shows that investors without retailing experience seem not to be capable of running such a company, particularly when the retail business in the USA is in a time of undergoing fundamental reconstruction. The company is already suffering for more than eight years. Capital is definitely not the only ingredient to secure success. But for the negative venture the common shareholders will pay for, because some of the Sears’ valuables are already cashed in by the investor.