Sears Holdings hopes to continue living after the bankruptcy. Here's why it's not right – Motley's Fool

The bankruptcy that everyone saw coming had finally arrived. Sears Holdings (NASDAQ: SHLD) Monday morning announced that she was seeking protection under Chapter 11 and had put in place funding allowing her to continue operating, at least until Christmas. The goal is to reorganize about a few hundred profitable stores that, he hopes, will allow him to realize the recovery that has eluded the largest company in nearly 10 years.

While other companies have reorganized and emerged successfully under the protection of bankruptcy courts, retailers like Payless ShoeSource, True Religion and Gymboree are not expecting the same from Sears. The main difference between her and those others who survived their death is that they still retain some brand value. Customers always want to shop in their stores and their brands are a lasting magnet for consumers.

Not so with Sears. Under the tutelage of Chief Executive Officer Eddie Lampert, whatever value it once had, Sears was completely dismantled because it was sold or sold to almost all monetized assets. Orchard supply, Sears Hometown and Outlet, End of the landsand the Craftsman tools have all disappeared. What remains is a shell of the old titan.

Slow descending decomposition

Many call Sears the Amazon.com of its time, the place where consumers could buy almost anything they needed, including floods, clothing, appliances, furniture and even homes. Like today 's big – box stores, Sears sought to bypass the local general store with its catalogs that offered farmers and others a way to get around. buy directly everything they needed.

But the change in consumer buying habits, caused initially by the rise of discounters as Walmart and Target, which made price competition a strategy of choice, then Amazon, which facilitated home shopping, was too much for a retailer who did not want or could not answer.

It was only because Sears had its extensive real estate holdings – about 3,500 stores around the time the Lampert Kmart chain acquired Sears in 2004 – that it was able to anticipate what happened this week. Instead of investing in his stores, Lampert chose financial maneuvers to support the business, which often gave the appearance of health, but allowed the fundamentals – the sale of goods – to erode. As a result, Sears was an idle train wreck that had survived longer than many suspected.

Although Lampert is willing to rebuild the facade of a viable retailer while protecting itself from bankruptcy, it will likely collapse again.

Sears smaller and thinner

In the end, Sears had $ 11.3 billion in liabilities and assets of only $ 6.9 billion. It has secured $ 300 million from its existing lenders at Lampert's ESL Investments hedge fund, in negotiation with the retailer, to provide an additional $ 300 million. Lampert is Sears' largest investor, but also his main creditor.

Lampert was both president and chief executive officer, but will now hand over the latter position to a three-person committee. Mohsin Meghji, managing director of M-III Partners, the Sears corporate advisory firm hired to advise him on bankruptcy, will assume the role of director of restructuring.

As part of the restructuring, Sears will sell approximately 150 of its remaining 700 stores by the end of the year, with plans to remove an additional 250 stores, leaving a core of 300 stores to survive, which ESL could end to buy. He also made an offer to purchase the Kenmore brand of appliances earlier this year.

New boss identical to the old

Sears' creditors originally claimed liquidation, which may still happen, but much will depend on the company's ability to weather the holidays. Lampert told his employees that the company needed to make "significant progress over the next few months" if it wanted to avoid liquidation, but unfortunately that will not likely happen.

Customers have fled the retailer, this one does not offer attractive merchandise and its stores suffer from negligence. It has not made a profit since 2010 and sales have dropped. Even worse, Lampert still controls the business and, according to billionaire investor and former board member Bruce Berkowitz, he has too much control over the bankruptcy process.

This means that it is unlikely that the way things work actually works. Sears will still be bombarded by forces swirling around the retailer prior to Chapter 11 filing, and there is no reason to believe that consumers will suddenly decide that the time has come to start shopping at its stores. Any resurrection of this retailer that may occur will not last very long.

John Mackey, CEO of Whole Foods Market, an affiliate of Amazon, is a board member of The Motley Fool. Rich Duprey has no position in the mentioned actions. The Motley Fool owns shares and recommends Amazon. Motley Fool has a disclosure policy.