Shares of Sears Holdings Corp. (NASDAQ:SHLDF) dropped 12.3% before the closing bell Wednesday as questions mounted about whether the retailer could stay in business after it questioned whether it could continue as a going concern.
Big losses, store closings and divested segments have all chipped away at the company. So has a changing retail landscape that hasn’t been kind to brick-and-mortar retailers who have failed to compete with e-commerce giants like Amazon.com Inc. (NASDAQ:AMZNC).
First In E-commerce
The irony is that in many ways Sears was one of the first – if not the first major company – to sell products without a physical store. The original company, Sears, Roebuck and Co. began as a catalog retailer in 1886. It was not until 1925 that Sears opened its first retail store as an experiment.
Over the years competitors have built nimbler e-commerce operations, malls have closed and with them the thousands of customers that used to walk in and the wide variety of merchandise Sears had on its shelves.
The Vendor Problem
Those shelves, by the way, are starting to empty at a time when they should be filling up in anticipation of the important holiday season to come in 2017. That’s because vendors are more and more cautious about shipping merchandise to a cash-strapped company like Sears.
Already suppliers are reducing shipments, asking for advance payment and, in some cases, outright refusing to sell to the company. Some vendors have cut back production that normally would be headed to Sears and redirected it to other customers on more solid footing.
The net result is that as former CEO of Sears Canada Mark Cohen noted, "Sears stores are pathetically badly inventoried today and they will become worse."
Chances Of Bankruptcy
Recent talk has led to speculation about how it might end and the most likely scenario involves, of course, bankruptcy. In fact, some observers put the probability of bankruptcy in 2017 near 100%. This is based on the fact the company has admitted it’s in trouble, something companies don’t tell investors unless there is no other message to share.
The combination of competition at a high level, inventory and vendor issues, pension fund payments due with no cash to make them and total lack of liquidity – the company has had no cash flow from operations since 2006 – means Sears is backed into a corner with few options. Things do not look good.