3 side effects of a Sears bankruptcy
Once one of the largest retail giants in America, Sears has fallen a long way.
The retailer recently declared bankruptcy, all but confirming the end of Sears stores. The company’s bankruptcy could have some far-reaching effects, including:
A blow to past and current employees
Sears Holdings’ bankruptcy means more than shutting stores. The company currently has an estimated 68,000 employees in 700 stores. As part of the bankruptcy, Sears announced it would be closing 188 of its 700 store locations.
These 188 stores may just be the beginning, as the company faces more store closings as the bankruptcy moves forward.
The shuttering of so many stores will have an immediate impact on current Sears employees, who will be out of jobs. However, another group will be affected by bankruptcy as well: former Sears employees.
The company had been providing pensions and life insurance to retired employees who worked a certain number of years for the company. Filing for bankruptcy absolves the company of providing services for 90,000 retirees.
While pensions are covered by federal guarantees, life insurance plans are not. Thousands of former employees now in their 70’s and 80’s will be stuck without life insurance.
One of the groups that may be more than a little relieved by the Sears announcement is big-market landlords. Sears had stores locked into extremely competitive rental agreements in high-value realty spots all over the country.
By declaring bankruptcy, many companies get out from under these cheap rental agreements. They will then be able to lease these stores’ prime space at a much higher rate.
Some landlords can double or triple their rental income just by signing new customers to take over the spaces Sears held with cheap, long leases.
The end of an era
Sears joins Toys R’ Us, RadioShack, Sports Authority and Payless Shoes in declaring bankruptcy and essentially reshaping America’s retail landscape. With over 125 years of history, Sears was a retail fixture in American life for decades.
The rise of online shopping and companies like Amazon and Walmart means the Sears model is quickly being replaced by online shopping. The fall of Sears Holdings shows what can happen to even the biggest businesses if they do not adapt.
Businesses are forced to evolve
Sears is a great example of how fast a market can change in business. The company went from dominating retail space to over $5 billion in debt. It just shows the importance of flexibility and adaptation in today’s climate.
If you’re considering changes for your business or you have any questions around acquiring or selling a business, a skilled business attorney can help.