Sears’$2 133rd holiday season could be its last.
The company plans to emerge from bankruptcy much smaller but profitable and competitive. But that may be wishful thinking. By next year, there’s a very good chance the iconic retailer will be a ghost of Christmas past.
“I’d say the chance of them making it to next year are no better than 50-50, and maybe not even that good,” said Philip Emma, senior analyst with Debtwire, a financial research firm. “They’ve got a pretty tough road ahead.”
The problem for Sears is getting its vendors to provide it with the inventory it needs to attract shoppers to the roughly 400 Sears and Kmart stores it plans to keep open.
Vendors had been reluctant to ship goods without being paid cash up front, worried they wouldn’t be paid at all. Sears’ most recent financial results suggest it would have difficulty securing the products it needs.
“Whether they can get past Christmas depends on what those store shelves look like on Friday morning,” he said.
Sears’ bankruptcy attorneys conceded how important this year’s holiday sales will be for the company.
“The weeks that are coming up are really critical for the company’s ability to reorganize,” said Ray Schrock, its attorney, at a bankruptcy court hearing last week.
Sears’ creditors committee, which represents some of those vendors and various mall landlords, wants the bankruptcy court to pull the plug on Sears and start the process of shutting down the company.
Federal Bankruptcy Court Judge Robert Drain said last week he’ll consider the arguments once again at a hearing just before Christmas. Even if Sears makes it past that hearing, it could find itself forced out of business early next year.
That’s what happened with Toys “R” a year ago: It had a much-worse-than-expected holiday season, and it decided in March to go out of business.
Sears’ chances to avoid Toys “R” Us fate aren’t looking great. A year ago, Sears reported holiday quarter sales plunged 16% at the stores it was keeping open. Customers avoided Sears and Kmart: Rival department store chains such as Macy’s (M) and Kohl’s (KSS) and even troubled JCPenney (JCP) all reported improved holiday season sales last year.
Sears’ turnaround plan projects only a narrow increase in sales at stores open at least a year, Shrock told the bankruptcy hearing. That’s a key measure of retail success known as same-store sales.
“We’re not shooting for the moon,” he said.
But even that modest goal may be out of reach, especially if vendors are reluctant to ship it the products shoppers want.
“The best they can probably hope for is less of a drop than in the past,” said Emma. “It would be the second Christmas miracle for Sears to have positive same-store sales.”