Sears filed for Chapter 11 bankruptcy today. This has been a long time in the making and periodically predicted since at least 2014. The stock, pre-market on Monday, is at $0.35 per share. Third-quarter revenue was a $508 million loss with revenue down almost 26 percent year over year.

The company did reach a deal with lenders over the weekend that will allow it to keep stores open through the holidays, as the Wall Street Journal reported. Thousands of jobs are in jeopardy as 150 stores are expected to close immediately, with another 250 potentially on the chopping block. (As my Inc.com colleague Bill Murphy noted in his take on the doom of Sears and lack of innovation, the company had plans to lay off some retail workers two days before Christmas. What heart.)

In other words, the company is a complete mess. Chairman and now-former CEO Eddie Lampert is about as bad a CEO as you can get. In addition, the company has long lost its way, ignoring the need for innovation in the face of smart competitors.

Such a pity, because Julius Rosenwald, the man behind the explosive success of Sears, making it the combination of Walmart and Amazon in its day with stores and catalogs, understood opportunity -- and responsibility. (He worked with Booker T. Washington to establish 5,000 schools for African American children in the South.)

He also knew how having money didn't necessarily mean someone was smart. Here's a Rosenwald quote from an old newsreel:

Most people are of the opinion that because a man has made a fortune, that his opinions on any subject are valuable. Don't be fooled by believing that because a man is rich that he is necessarily smart. There is amble proof to the contrary. Most large fortunes are made by men of mediocre ability who tumbled into a lucky opportunity and couldn't help but get rich.

Lampert is a case in point. He made a lot of money and then decided that he had the skills to run Sears and Kmart as properties of Sears Holding. But he didn't understand the business. Even more, he didn't know how to manage people and was more interested in what he could take from the company than what he could bring, as Hayley Peterson well reported in Business Insider early in 2017.

The piece is long, detailed, and worth reading as a warning of what not to do when you run a company. Between driving constant fear, berating managers, and creating an atmosphere that put divisions in conflict with one another, Lampert has been a terror. He allegedly rarely even showed up in person at company headquarters, instead staying on an island off the coast of Miami. (Sears is headquartered in Illinois.)

His financial engineering around the company makes someone like Elon Musk look like a rank amateur. Lampert lends money to the company through his hedge fund, takes in millions on regular payments, and apparently stands as a secured creditor. In a bankruptcy, his potential losses would be in the class treated with priority.

For an example of the unsecured variety, the Sears Holdings bankruptcy filing must list the top 20 unsecured creditors. They include BNY Midwest Trust, Black & Decker, Samsung Electronics, Frigidaire, Whirlpool, and Cardinal Health which, collectively, are owed almost $3.4 billion. That total doesn't include the as-yet-unreported amount owed to the Pension Benefit Guaranty Corporation, the federally-chartered non-profit organization that pays pension benefits to retired workers when their pension plans run out of money.

The filing shows Sears Holdings as having between $1 billion and $10 billion in assets and between $10 billion and $50 billion in liabilities. This is a mess.

Worst of all has been the lack of innovation. Amazon came around and Sears didn't see the danger. Hell, Walmart came around long after Sears had been a massive force in retailing and the company didn't adapt. From the early powerhouse of direct marketing through catalogs and the developer of such brands as Craftsman and Kenmore came ... barely a squeak. The problem has built for a long time.

Lampert just did more, or less, of the same. Even recently where Sears tried innovation, it was a disaster. He reportedly cut investments in the stores and its brands to, instead, try to turn the business into a tech venture that gathered and sold information on customers through a rewards program and an associated social network. They were caught in Amazon's dust and they wanted to become Facebook.

Such a waste and so many people that will be hurt. At least Lampert will reportedly step down as CEO, although remain as chairman. He can retire to his island and other investments, if necessary. As for all the employees and customers who bought products and warranty programs and vendors that are owed money? Sorry, the island's small and doesn't have room for them all.

Published on: Oct 15, 2018