Sears is Filing for Bankruptcy: What’s Bankruptcy, Anyway?

Sears, the iconic retailer that invented the idea of the modern department store, is filing for bankruptcy.

Sears has found it hard to compete in the era of online sales, dominated by Amazon, and in the era of big-box stores, ruled over by Walmart, Target, Home Depot and others, according to industry experts.

The 130-year-old chain is also drowning in debt and needs to repay $134 million in loans early this week, according to reports.

But Sears has been in decline for years. Just ten years ago, the company had 300,000 employees. Today, plagued by falling sales, it has fewer than 70,000 workers, according to reports.

Here are the details:

• The chain will close 186 unprofitable stores, according to its press release.
• Sears’ chief executive officer Eddie Lampert will step down and will be replaced by three other top executives at the company.
• Lampert owns a hedge fund called ESL, which has loaned Sears close to $1 billion.
• Sears also owns Kmart; many of its stores are also set to close.
• Sears has secured at least $600 million in post-bankruptcy financing to help reorganize the company, according to its press release.
• The company’s last profitable year was 2010, and it has reportedly lost $12 billion since then and closed 2,800 stores since 2005.

What is bankruptcy?

Businesses file for bankruptcy to protect themselves from creditors, which are entities or people that have loaned them money. They typically go through a court-mediated process, called Chapter 11, that allows them to reorganize and round up financing to continue operations, as well as discharge some of their debts.

In contrast, consumers can file for something called Chapter 7 or Chapter 13, which are also court-mediate processes that allow them to get rid of debts. With Chapter 13, debts are not liquidated completely, and a repayment plan for some of the debt is drafted.

The story of Sears

Sears was founded in 1893, as Sears, Roebuck &  Co. It started out as a catalog company selling watches and jewelry and opened its first department stores in the 1920s. Its catalog ultimately expanded to include hundreds of pages, selling everything from clothing to kit houses delivered by railroad.

In its heyday, it dominated the 20th-century retail landscape, even launching brands like Craftsman tools and Kenmore appliances. It shipped to nearly every U.S. home, was the first department store to create parking lots outside its stores to accommodate customers, and to stay open seven days a week, according to reports.

Interesting fact: It also launched Allstate Insurance and the Discover credit card.

Tough times for retail

Sears’ bankruptcy comes at a time when other high-profile retail stores are also going out of business.

These include Toys R Us, which closed down in March, and RadioShack, Payless Shoe Source, and The Limited.