Late last week, a published report by web-based Business Insider indicates that retail chain Sears is on the brink of financial catastrophe. This report cites both the sudden departures of two of the retail chain’s highest ranking executives along with speculation among internal employees, suppliers and several banks fearing that the retail chain may soon file for bankruptcy.
Sears has consistently and repeatedly dismissed such speculation.
The report notes that a recent SEC filing indicates that Executive Vice President Jeff Balagna departed the company last week, a highly unusual move for any retailer during the absolute peak of the holiday sales period. A further executive departure was Sears President and Chief Member Officer Joelle Maher which Sears confirmed to the online publication, but declined to indicate reason for the departure.
Sears will formally report third-quarter financial results later this week.
Further noted is that the retail chain’s Sears Hometown and Outlet Stores business unit has been experiencing significant inventory availability challenges along with reinforcement that a least six suppliers have “significantly’ reduced inventory shipments to Sears over broadening concerns related to financial health. In October, Supply Chain Matters highlighted reports that toy supplier Jakks Pacific suspended inventory shipments to the Kmart business unit due to concerns for overall financial health. Also in that month, Fitch Ratings identified Sears as one of seven retailers at risk of going bankrupt in the subsequent 12 to 24 month period. In August, Sears indicated that its overall cash balance had fallen to $276 million from $1.8 billion over the last 12 months.
Business Insider notes that Sears CEO Eddie Lampert has many other financial levers yet to be exercised to keep the retailer alive including the sale of additional real estate or major private brands. More news will likely come to light later this week when Sears makes its financial report to investors.
Each of these financial lifeline steps weaken consumer’s and supplier’s confidence in the longer-term financial sustainability of Sears as an influential national retailer.
In our revisit of our 2016 Predictions for Industry and Global Supply Chains, we indicated that the B2C Retail sector with include several financial casualties because of the ongoing compelling effect for consumers opting for online buying. Casualties this far in 2016 have included the bankruptcy and liquidation of Sports Authority along with athletic goods retailer Finish Line having to shutter upwards of 600 retail stores. Candidly, we can also disclose to our readers that when we formulated this prediction at the start of this year, we were of the belief that Sears would also succumb. We suppose some credit should be extended to Sears management for continuing to financially prevail, but any recent visit to a Sears retail outlet is a remainder of a very scaled-back retail operation with far more limited merchandise options. Once more, there are visible signs of degrading inventory management.
How Sears ultimately performs in this critical holiday fulfillment quarter will be crucial, but the current signs of senior executive departures and widening supplier concerns already point to downward spiral.
Bob Ferrari
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