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Who will end up Holding the Sears Bankruptcy Bag?

Oct 19, 2018

The Sears bankruptcy was a long time coming before Sears Holdings’ officially filed for Chapter 11 protections on October 15. In this blog we’ll take a look at the remarkable history of Sears, the plans to save the brand, and how a liquidation would affect its 100,000 creditors.

Fall of the Original Retail Giant

Sears, Roebuck & Co. was the undisputed retail giant of the 20th century. Its pioneering mail order catalog, which was the first of its kind, and doorstep delivery anywhere in the country put tens of thousands of small town stores out of business.

Before it was the store that sold everything — the king of department stores — Sears was also a manufacturing giant making everything under the sun. You could even order a house from the Sears catalog. The firm sold 70,000 build-it-yourself home kits in almost 450 different housing styles between 1908 and 1940. At least one remains standing, barely, in New Mexico.

Their enormous manufacturing complex in Chicago, a true city within a city that boasted its own radio station, fire department, and banks, has been gone for decades. The only thing remaining is its 14-story tall office tower — the original Sears tower. At its peak in 2012, there were 4,000 Sears stores across the U.S.

Sears was Amazon before Amazon. Now Amazon is putting them out of business. Everyone but the 100,000 creditors who are still owed money by Sears can appreciate the irony.

A Closer Look at the Sears Bankruptcy

The plan is to close an additional 142 unprofitable stores, reorganize, and operate with a smaller store base. But if other recent bankruptcy cases are any guide, Sears may not be able to avoid liquidation. Both Bon-Ton and Toys ‘R’ Us planned to cut debts and close unprofitable stores, but neither managed to emerge from Chapter 11 bankruptcy.

Most experts agree that liquidation is likely. Sears simply does not have enough remaining collateral ($7 billion in assets) to satisfy its $11.3 billion in liabilities.

How the Sears Bankruptcy will affect Creditors

The banks and lenders that are funding Sears’ operations and secured creditors will be at the top of the list, followed by lenders who loaned to Sears in exchange for inventory or real estate.

After secured creditors are paid, priority creditors (anyone who recently sold Sears goods, anyone owed back wages, and employees who are owed benefits) will fight for the scraps. Next come unsecured creditors — appliance, tool, and electronics vendors; service providers, and shareholders, who will be lucky to receive pennies on the dollar.

Commercial real estate players are also keeping a close eye on the Sears bankruptcy case. If the company liquidates, the market would be flooded with over  1 million sq. ft. of vacant retail space. For many smaller malls, filling the vacancies left by Sears stores will be difficult.

Join AADS in Fighting Breast Cancer in October

One in eight women will be diagnosed with breast cancer in their lifetime. It is the most commonly diagnosed cancer in women.

But breast cancer isn’t a death sentence. There are over 3.3 million breast cancer survivors living in the United States today. That’s thanks largely to the tireless efforts of breast cancer charities that help fund research, spread awareness and eliminate breast cancer-linked chemicals and radiation.

Join us this October in helping to find the cure!

5% of profits from all new-client orders this month will be donated to one of these three organizations: Breast Cancer Research Foundation, National Breast Cancer Coalition Fund, Breast Cancer Prevention Partners.

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