The Real Reasons Sears Went Bankrupt

Sears was once the king of American retail until it hit rock bottom and declared bankruptcy in October 2018. This collapse led Sears to announce that it would shut down 142 stores by the end of the year, all in an effort to slash debts and reshape its business strategy. Back in 1892, the brand kicked off as a mail-order catalog company that delivered products right to customers' doorsteps. In the catalog, you could find clothes, tools, furniture, and even kit houses ready to be ordered.

Each product was displayed with vivid pictures and detailed descriptions, including prices, so you could shop without ever leaving your sofa. If something caught your eye, you could simply order it by mail, phone, or eventually in person, and Sears would deliver it straight to your doorstep. This was especially handy for folks living far from any physical stores.

People loved the Sears catalog; it was like the internet before the internet. The company mailed these catalogs for free, reaching millions of homes across the U.S. Everything was fine until Sears couldn't keep up with the fast-changing market. In the end, Sears crumbled. It wasn't just one big mistake; it was a mix of bad decisions, outside pressures, and a lack of new ideas that all piled up to create a perfect storm of trouble.

In the late '90s and early 2000s, online shopping took off and big players like Amazon and Walmart were quick to dive in. Amazon packed iys website with an array of products and made sure deliveries were fast. Walmart wasn't far behind, enhancing its online store and integrating it with their physical locations to smooth out the shopping experience.

Sears, though, just couldn't keep up. The website felt old, online shopping was a hassle, and deliveries were slow. Another critical issue was Sears' failure to invest in its infrastructure. While competitors were pouring resources into technology and distribution networks, making critical investments to stay competitive in the evolving retail market, Sears focused on short-term financial goals. The company cut costs in key areas like technology, supply chain improvements, store upgrades, and customer service.

Without a solid plan for going digital, Sears missed out on giving customers the smooth and speedy shopping experience they wanted. Sears mastered the mail-order catalog long before anyone else, which could have smoothly transitioned into a killer online store. It could have spiced things up earlier to keep in the game. By the time Sears tried to catch up, it was too late — its competitors were too far ahead.

When Sears started losing money, Kmart's boss, Edward Lampert, bought the company in 2004. He then took over as CEO in 2013 after initially serving as chairperson of the combined companies — Kmart, which closed its last full-size store in October 2024, and Sears. The latter was doing okay until around 2007, when the financial situation really went downhill. In 2015, Lampert made a big move by spinning off Sears' real estate into a separate company called Seritage Growth Properties. This helped him raise some cash while still keeping a bit of control.

However, it also meant that Sears lost ownership of valuable properties, which reduced its ability to earn money from them and shrunk its presence in major retail locations. In 2017, Lampert sold Craftsman, a popular tool brand, to Stanley Black & Decker for $900 million. This sale took away a big source of Sears' income. Then, he went ahead and also sold DieHard (automotive batteries), Kenmore (appliances), and two other strong brands.

These sales were meant to bring in cash for Sears, but they only helped in the short term and caused more harm in the long run. Sears ran out of steam when it relied too much on making quick cash from selling real estate and its brand power. The company just became a faint echo of its former self. The big bosses thought they could keep things afloat by selling assets, but this short-sighted plan ended up sinking the ship.

Sears also dropped the ball with inventory management. A lot of Sears stores had empty shelves, not enough products, and messy displays. The company couldn't get its stock right, especially when everyone was out shopping like crazy during the holidays. Customers would show up at Sears looking for something specific and leave empty-handed, feeling let down by the brand. Without a modern system to refill inventory, keeping up with what customers wanted became a real headache.

Sears had big problems with staffing too. The company tried to save money by cutting staff, which left stores understaffed. With too few people on the floor, customers had to wait forever to get help, dulling the sparkle of their shopping trips. Great customer service is king, but Sears couldn't deliver, pushing many loyal customers to look elsewhere.

The issues with the store atmosphere and customer service didn't just disrupt daily operations at Sears; they wrecked its reputation. Sears was once a go-to place for reliable products, but it gained a reputation for neglect and inefficiency. This decline stood out even more as competitors like Target and Walmart improved their stores and online presence, widening the gap between Sears and the rest.

Instead of sticking to what it did best in retail, Sears ventured into financial services, insurance, and real estate, trying to shake up its business mix. These "side hustles" put a lot of financial pressure on the company. While mixing things up can be a smart move, Sears just didn't have the sharp focus or solid game plan needed to pull it off without messing up its main retail business.

Sears poured a lot of money into ventures that just didn't pay off. Take its 1980s moves. For example, when it snapped up financial services company, Dean Witter and real estate bigwig, Coldwell Banker. These were bold bets, but they took focus and money away from the retail side, which was already struggling. The cash used for these deals could have gone into updating stores, getting better at managing stock, or making shopping a better experience.

Adding to its troubles was debt. Sears borrowed heavily to pay for diversification and other business needs, which led to skyrocketing interest payments that ate away at cash. Over time, this debt pile grew too big to handle, stopping Sears from keeping up with industry shifts or jumping into e-commerce. This landed Sears in the group of beloved retail chains that filed for bankruptcy.

For the workers, the impact hit hard and fast. Tens of thousands lost their jobs as stores shut down across the country, leaving many without a clear next step. While other competitive retailers sometimes offer training or transition programs when they downsize, Sears didn't prepare its workforce for the fallout, making the social and economic damage even worse for communities that depended on Sears as a major employer.

The bankruptcy threw Sears' suppliers into chaos too, with many facing late payments or not getting paid at all as Sears tried to get its act together. Smaller suppliers were hit hardest because they didn't have the financial cushion to handle the losses from Sears not paying up. This set off a domino effect in the supply chains, pushing some companies to scale back production or even close down completely.

One big takeaway from Sears' bankruptcy is how crucial it is to keep up with consumer trends. Sears missed the boat on e-commerce and changing shopping habits, showing the dangers of sticking to old ways. Also, its focus on slashing costs and selling off assets, rather than innovating, serves as a stark warning: short-term financial fixes can seriously harm a company's long-term survival. Even with all these in place, a business might not survive if it is in a struggling industry.