Wednesday, March 22, 2017

Sears Acknowledges Possibility of Bankruptcy

Many of us have been predicting the demise of Sears for years.  The writing has been on the wall now for quite some time - falling sales, declining customer satisfaction, and many store closings.  Fortune reported this week that Sears is admitting (finally) that bankruptcy is a possibility. Phil Wahba of Fortune writes:

Sears Holdings has recognized for the first time that many people think the retailer is not long for this world.  In its annual report released on Tuesday, the retailer, which owns Sears and Kmart, said that its years-long sales declines, "indicate substantial doubt exists related to the Company's ability to continue as a going concern." In other words, many think Sears will go under.

Amazingly, Sears has lost nearly $10 billion in the last six years.  How long can they continue to sustain such losses?  Could they be headed to liquidation, not simply a restructuring under Chapter 11? Some think that may be the case.  For me, Sears represents what Harvard Business School Professor Jay Lorsch once described as a "gradual crisis."  Lorsch argued that firms struggle mightily when a threat emerges gradually and unfolds over lengthy periods of time.  They can find themselves rationalizing the threat and avoiding the hard truths.  No single event causes them to shake things up and shift direction in a major way.  By the time they begin to truly confront the threat, it's too late. They find themselves far behind the times, or simply unable to transform the organization that is so set in its ways.  

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