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Sears survived bankruptcy. Can it survive in the long term?



The retailer is about to go bankrupt a smaller and economically healthier company. But it is not clear whether Sears will enjoy another life or if another bankruptcy and permanent closure weaves in its future.
The Retail Cemetery is full of companies such as RadioShack and Gymboree that arose from bankruptcy and then filed for the second time in relatively short order.

Many companies have emerged from bankruptcy and continued with financial success. For the past 20 years, General Motors, Chrysler and most of the country's largest airlines have used the bankruptcy process to transform their operations and report record profits.

  Why does Eddie Lampert want to keep Sears alive?

The new Sears will only have a fraction of the debt burden that the old company fought for. Most of the 425 stores that are part of the sale were profitable right up to bankruptcy. The other stores produced staggering losses.

Most of the remaining stores are in California, Northeast, Middle Atlantic, Florida and Texas areas in the country where land prices are higher. These real estate prices can weigh competition from big box competitors, such as Walmart. And Sears can sell some of its stores to raise money and pay off more debt.

The company said in the bankruptcy court expects to raise at least $ 650 million from the sale of real estate for the next three years.

The company also expects to make some business strategic changes. It will place greater emphasis on its "Shop Your Way" customer loyalty program, which allows its customers to accumulate points. Customers can use these points at restaurants, merchants, and other retailers. Sears claims the program increased sales last year.

Sears also intends to switch to smaller stores – about 12,500 square feet each, instead of the 160,000 square feet of a typical store anchoring a shopping mall. It is not clear whether the company will reduce existing locations or move into smaller spaces.

This is another way to reduce costs: Fewer stores and more small stores mean less inventory, so Sears can fill stores with desirable products. One of the most important customer customers that Sears lacked.

If Sears earns profits in the future, it will not be necessary to worry about paying taxes in the coming years. The previous losses – more than $ 12 billion since the last profitable year in 2010 – will protect future earnings from tax. That's one of the reasons General Motors, a decade removed from bankruptcy, still pays some federal taxes, although it has since made billions of dollars and posted record profits.

Why Sears might still fail

[19659009] Sears & # 39; problems go back for decades and they are not washed away with a healthier balance and a smaller footprint of stores. ” class=”media__image” src=”http://cdn.cnn.com/cnnnext/dam/assets/181206104751-01-lampert-sears-file-large-169.jpg”/>

] ] ) ] ( TGT ) and Home Depot ( HD ) . These competitors offer a wider range of goods and lower prices. This disadvantage does not disappear with Sears & # 39; emergence from bankruptcy. The growth of online shopping and the dominance of Amazon ( AMZN ) only increases its competition problems.

The business plans that project profitability provide some very aggressive assumptions about cost savings, especially on administration costs. Its ability to earn a profit depends on hitting those goals.

Sears has a story of predicting profitability and then sending massive losses. This track record was mocked by lawyers representing his creditors during this week's bankruptcy hearing.

Sears is also leaderless. This week, the company revealed that Lampert, who had served as CEO from 2013 through the day of bankruptcy filing, would not return to the helm. An archive from Lampert's hedge fund said it wanted to hire a CEO "with a proven track record to conduct large-scale dynamic transformations."

But Lampert will still be the majority shareholder in a privately owned company and the one who calls the shots. Bankruptcy judge Robert Drain quoted this criticism on Thursday and noted some consider Lampert a cross between a 19th-century robber baron and a bumbling sitcom character.

"He has the opportunity now not to be a cartoon character to act" Drain said.

Finding a top CEO who is willing to work for him will be a challenge in itself. And then the CEO must turn Sears.


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