5 factors that led to Sears filing for bankruptcy

Sears filed for Chapter 11 bankruptcy Monday after years of struggling to become profitable.

The company that hadn’t seen books in the black since 2010 is hoping to restructure under the bankruptcy filing and return to profitability.

Here are five factors that contributed to the company falling into bankruptcy:

1. Online sales

E-commerce is the culprit just about everybody points their fingers too when a brick-and-mortar store closes or files for bankruptcy. The reality is that shopping habits are changing and more sales are happening online than ever.

But online sales aren’t detrimental to stores that are able to adjust, something Sears hasn’t mastered yet.

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2. Variety

Sears sold Craftsman tools, appliances, home decor, clothing, shoes, accessories and the list goes on. The popular one-stop shop concept isn’t so popular anymore with millennials focusing on specialty and niche retailers.

“People have fragmented in terms of that they want specialty stores, they want low-cost stores, they want to shop online and what they don’t want is a three-hour trip to the mall,” said Ball State professor Steve Horwitz.

Stores like Sears will have to either upscale like Nordstrom, downscale like Walmart or scale down to a single product line like appliances to be successful, he said.

3. Pricing

Consumers are also looking for better deals, with discount stores being one of the few thriving retail types. Without low prices, or items like groceries to draw in daily traffic, Sears began to suffer among a value-conscious customer.

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“This is a good thing for American consumers who have found far more value in the various options they now have with respect to price/quality, specialization, and online presence,” Horwitz said. “This sort of dynamic change is a sign of a healthy, competitive economy that is delivering value for consumers.”

4. Identity crisis

At one time Sears was the place for middle class consumers to shop, a stable identity, Horwitz said. Now, it’s not so stable.

“They just couldn’t figure out who they were and consumers didn’t know who they were,” he added. “Sears could never find a distinct way to appeal to younger consumers, who don’t go to the mall for example, as a distinct value proposition.”

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5. Expensive employee pensions

Sears former CEO Eddie Lampert himself blamed expensive pensions for its employees as one of the major contributing factors to the poor state of the company.

Sears Holdings has contributed almost $2 billion on pension plans in the last five years, and $4.5 billion since 2005 when Sears and Kmart merged, Lampert said in a blog post last month.

“Had the company been able to employ those billions of dollars in its operations, we would have been in a better position to compete with other large retail companies, many of which don’t have large pension plans, and thus have not been required to allocate billions of dollars to these liabilities,” Lampert said.


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