Is 2018 the end of the road for Sears or Toys R Us?

Is 2018 the end of the road for Sears or Toys R Us?

With debt piling up and stores bleeding cash, two iconic American retailers chose sharply divergent survival strategies in 2017.

Sears Holdings opted for a host of complex financial maneuvers, store closures and asset sales designed to stave off what many analysts say is now inevitable — a date with bankruptcy court.

But Toys R Us acknowledged it was unable to pay its bills without protection from its creditors and filed for Chapter 11 bankruptcy in September.

Their separate paths may yield different outcomes in 2018.

More from USA Today:
Sears deal: Retailer can sell another 140 stores to fund pensions as losses mount
Sears posts loss of $558 million ahead of crucial holiday shopping season
Toys R Us has a plan to save itself and it’s unreal

The future at Sears is more doubtful than ever as sales continue to plunge despite the company’s attempts to stabilize the business. Toys R Us is heading for a fresh start after likely closing unprofitable stores, shedding debt and thus freeing up cash to reinvest in digital infrastructure and re-establish trust with jittery suppliers.

“It may be that bankruptcy was always meant to sort out which businesses should continue and which we don’t need anymore,” said Melissa Jacoby, a bankruptcy law professor at the University of North Carolina. “So it is not necessarily a bad sign that some retailers don’t survive the bankruptcy process. That may well be the right economic result.”

For now, Sears continues shrinking. When Sears and Kmart merged in March 2005, they had a combined 2,350 stores. In 2017, the company announced several rounds of closures totaling more than 400 locations, leaving it with about 1,000 after the holiday shopping season.

The company sold off its prized Craftsman tool brand to Stanley Black & Decker to raise cash and engineered several debt maneuvers to tie additional assets to its loans, which could eventually lead to secured creditors collecting key Sears property in a bankruptcy.

When talking to analysts and others who closely follow Sears, there’s a common thread: The company has avoided bankruptcy largely because of one person: CEO and shareholder Eddie Lampert. He has invested several rounds of capital in the retailer to help keep it afloat.

But that’s not necessarily a good thing. Believers in the power of bankruptcy to provide a fresh start say the company must come to terms with its reality.

“I’m amazed that Sears is still around,” said Lauren Beitelspacher, a marketing professor at Babson College and expert on retail management and buyer-supplier relationships. “Right now it feels more like a property firm than an actual retailer.”

Lampert’s financial moves and investments have temporarily propped up Sears, said Stephen Opper, a distressed debt analyst at Reorg Research, which tracks ailing companies. But eventually, he’ll have to decide whether to extend unsecured credit to Sears, which is much riskier than secured loans that come with collateral.

One of Sears’ biggest challenges, analysts say, is that its brand has faded, and there is a perception that other retailers offer similar services or products, but with higher efficiency, lower prices or better quality.

“People that want the value buy are going to go to Walmart,” said Greg Luken, president of Franklin, Tenn.-based Luken Investment Analytics. “If they want the value buy with a little higher quality, they’re going to Target, and if they thought ahead, they ordered everything from Amazon. … What is it that I can get at Sears that I can’t get somewhere else with a better experience, more convenience or (that’s) less expensive?”

Many shoppers also report poorly stocked shelves, limited product selection and insufficient help in the stores.

Ken Wyatt, 55, of Manchester, N.H., said he recently went to Sears shopping for an electric blanket and was disappointed at the condition of the store. He said it contrasted sharply with the flourishing Sears store his father took him to in White Plains, N.Y., as a child.

“There was no staff, the shelves were a mess, you could see they hadn’t been stocked properly,” he said. “I had a memory of what Sears looked like in the ’70s, and I was just shocked at what it looks like today.”

Sears declined an interview request but issued a statement for this story reiterating Lampert’s May 10 assertion that “we are fighting like hell” to reinvent the company. Sears has bet heavily on a customer loyalty program, dubbed Shop Your Way, and various cost-cutting initiatives. The company also encouraged investors with a deal to sell its DieHard brand on Amazon.

“We will continue to sharpen our focus on our best Sears and Kmart stores, best categories, and best members, as we will build on the momentum of our actions to date and be better equipped to support our continued transformation,” Sears said in the statement.

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