Sears hires consultancy M-III for potential bankruptcy filing

11 October 2018

Embattled US retailer Sears Holdings Corp has hired New York-based corporate advisory M-III to prepare for a possible Chapter 11 bankruptcy filing in advance of a $134 million debt payment due Monday.

Sears has had a rough go in the last decade, crushed by the stiff competition from discount retailers WalMart and Target, as well as the rising popularity of Amazon and online shopping. A firm that pioneered catalog shopping hasn’t been able to able to weather the storm of essentially digitized catalog shopping, a customer shift from ‘middle-class’ department stores, and the competition of discounters.

Following its merger with Kmart in 2004, Sears Holdings Corp’s profits peaked at $1.5 billion in 2006. By 2010, profits had dwindled to nearly nothing, and from 2011 to 2016, the retailer lost $10.4 billion. From 3,500 physical stores in 2010, the number of Sears stores in the US fell to 695 in 2017. In a bid to become profitable again, the company has been closing stores, selling off brands and taking on debt.

Earlier this year, Sears Canada closed its doors for good, while Sears’ divisions in Mexico had been sold off in years previous. Today, there are 506 Sears stores and 360 Kmart stores in operation in the US as of August 4, but their future remains uncertain. In May, the firm said that it plans to shutter a further 72 locations by the end of the third quarter. In the meantime, Sears continues to lose money.Sears hires consultancy M-III for potential bankruptcy filingNow, the embattled retailer has hired boutique advisory firm M-III Partners to work on a possible bankruptcy filing, according to a report from The Wall Street Journal. The move comes in advance of a looming $134 million debt repayment on Monday that the money-hemorrhaging firm may fail to make.

New York-based M-III is headed by Managing Partner Mohsin Y. Meghji, and offers advisory support in the areas of operational improvement, turnaround and restructuring, and interim management, among others.

Relatedly, Sears announced earlier this week that it had added restructuring expert Alan Carr to its board. Carr is the CEO of Drivetrain LLC, an NYC-based turnaround and restructuring consultancy.

Though M-III is said to have been working on a filing for the past few weeks, Sears could still avoid an in-court restructuring. A bankruptcy filing is something that CEO and major shareholder Eddie Lampert, would like to avoid. Lampert recently put in an offer worth up to $480 million for the retailer’s Kenmore appliance brand, as well as its home services business.

The CEO and ESL Investments hedge fund leader would prefer to restructure Sears’ debt without filing for bankruptcy, since retail bankruptcies often lead to liquidations. Previously, Toys R Us went into Chapter 11 in 2017, but ended up liquidating in 2018 after it failed to reach a deal with creditors.

Lampert said Sears should take steps to reduce its current debt load of $5.6 billion to a more manageable $1.2 billion. He believes the retailer can get more value for its assets by selling them off as an operational company, rather than as one in bankruptcy protection. Lampert hopes a greater streamlining of the once-giant company – including further sale of real estate and assets – could make it profitable again.

The rumbling around a bankruptcy filing, meanwhile, sent investors scrambling for the exits, as Sears shares dipped almost 30% to 18 cents in pre-market trading.

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PwC: Macroeconomic, labor force, and environmental challenges ahead

15 April 2019

The world is facing risks from a host of factors: climate change is set to create long-term issues if not dealt with in a timely manner, while aging populations will impact 40 of the world’s larger economies going forward, resulting in economic and social strains. Trade disputes between the US and other economies continue, while the US also continues to borrow heavily.  

The mini-boom noted between 2016 and 2018 has ended, with 2019 set for slower global growth as the world’s second largest economy scales back expectations. US fiscal stimulus is set to fade, with a resultant decrease in growth rate, while higher interest rates – even with the Fed slowing increases – are likely to impact consumer spending.

Economic projections are routinely made by the big consulting firms, supplementing insights from government agencies and university researchers. The latest PwC "Global Economy Watch" report considers key possible changes to the global economy on the basis of projections for the year ahead.

While Trump has held off on new tariffs in the US's spat with China, he may still deploy them if nothing can be agreed upon between the world’s largest economies. PwC expects businesses to remain in a cloud of uncertainty for 2019 in regards to tariffs, with China only one battleground for future protectionism.Large global shifts as critical issues surfaceWhile the US is seeking to lower its global trade imbalance, the government continues to spend considerably more than it takes in through tax receipts. Analysis shows that the large tax cut is likely to see US government debt surpass $1 trillion annually this year, a figure last seen post-crisis in 2012. The figure will continue to grow as the deficit runs more than 5% of GDP over the coming three years. The figure is well above that of the EU28, whose deficit is around a fifth of that of the US. 

Global issues

The US is likely to face a variety of long-term threats to prosperity, according to the report. Climate change is a key area of concern, cited as one of the world’s biggest risks that could lead to profound social instability, according a recent World Economic Forum report. Devastating wildfires in California caused $400 billion in damages last year – a significant percentage of the state's GDP. 2018 was one of the world’s four hottest on record since records began in 1880, with temperatures close to 1C above long-term trends.

While a warming world is set to create considerable burdens for young people today, the older generation continues to age, with their dependence on the young set to rise significantly over the coming decade in terms of accelerated healthcare and social security spending. The firm’s analysis shows that 40 of the world’s economies will see their workforce shrink. Former Soviet bloc countries are set to have the most significant decreases in working age populations: Ukraine tops the list, followed by Bulgaria, Romania, and Lithuania. The Netherlands and Belgium however, could begin to see their workforces contract going into 2019. A declining workforce can be problematic, particularly if the workforce is also aging, as it requires that lower output is filled by higher productivity to keep economic parity.

The firm notes that the UK is set to lose it status as the fifth-largest global economy in 2019, as India – with the world’s highest population, one of the highest GDP growth figures, and one of the youngest working age populations – surpasses the UK economy. France, too, is likely to pass the UK this year, as Brexit uncertainties and a strong euro push the French economy slightly above that of Britain's.