Sears Canada filed for bankruptcy early Thursday, making it the latest casualty of the crisis among traditional brick-and-mortar retailers. It's also another sign of trouble for the iconic retailer.
Sears Canada, which has more than 200 stores and about 17,000 employees, was spun-off as an independent company in 2012. But the filing is still bad news for Sears Holdings, which owns both the Sears and Kmart brands in the United States. Sears Holdings still owns 12% of its shares.
Sears Holdings CEO and principal shareholder Eddie Lampert, who has been struggling to keep the company afloat amid its own mounting losses, owns a total of 45% of Sears Canada both personally and through his hedge fund.
The bankruptcy filing was not a surprise. Sears Canada said a week ago that it was in danger of running out of the cash it needed to fund operations. Thursday's filing said that it expects to remain in business.
Sears Canada said that recent changes to its stores are starting to resonate with consumers, but it had to file for bankruptcy to give it the time it needed to let those changes take hold. In the last quarter alone, Sears Canada burned through about 30% of its cash and maxed out its existing credit lines. It said it had planned to borrow 175 million Canadian dollars to fund operations, but after negotiations with lenders it found it could only secure only C$109 million in additional loans.
Sears Canada said it hoped to be able to restructure and emerge from bankruptcy later this year. It did not give any details about store closing plans or staff cuts it might make as part of its restructuring.
In March, Sears Holdings also issued a warning about there being "substantial doubt" it could stay in business. But that warning, as serious as it was, did not paint the dire picture of a company running out of cash in the near term as did Sears Canada's warning last week.
Sears and Sears Canada are hardly the only struggling retailers. In the United States, retail bankruptcies are up about 30% so far this year, according to BankruptcyData.com. Well known names including RadioShack, Gymboree, Sports Authority and Payless Shoes have all filed for bankruptcy within the last year. Total store closings across the U.S. are likely to reach record levels this year.
By some estimates, 25% of U.S. malls could close within the next five years. Department stores have shed 46% of their workers since 2001, a greater percentage of their jobs than coal mines or factories have lost over the same period.