UPDATE: October 11, 2018: After news broke this week that Sears was arranging a possible bankruptcy filing, Reuters reported early on Thursday that the retailer has missed payments to vendors, adding to imminent bankruptcy concerns. Later in the morning, The Wall Street Journal reported that a group of lenders — including Bank of America, Wells Fargo and Citigroup — are pushing for Sears to liquidate in Chapter 7 rather than reorganize in Chapter 11. Unnamed sources cautioned in the Journal story that "the situation is fluid and that Sears could still find another source of capital to prop it up through a restructuring." A Sears spokesperson did not immediately respond to Retail Dive's request for comment. 

Dive Brief:

• After years of speculation and financial losses, Sears is contacting banks to arrange the financing for a possible Chapter 11 filing, which might come as soon as this week, according to reports in The Wall Street Journal, which broke the story, and CNBC, that both cited unnamed sources. Sears did not immediately respond to Retail Dive's request for comment.
• The report comes as Sears faces a $134 million debt payment due Oct. 15 that ESL Investments, the hedge fund controlled by Sears CEO Eddie Lampert, described as among the retailer's "significant near-term liquidity constraints" in a recent proposal that would restructure some debt and transfer Sears assets to ESL. Lampert and ESL together own a controlling share in Sears, and ESL has loaned the retailer hundreds of millions of dollars.
• The Journal reported Tuesday evening that Sears hired boutique advisory firm M-II partners to work on a potential filing, though the retailer, according to unnamed sources, "continues to discuss other options and could still avert an in-court restructuring." 

Dive Insight:

Guessing the month and year of a Sears bankruptcy has become something of a macabre parlor game across retail and the financial world. Few will likely be surprised by the news of any potential filing, though if it comes soon, it would do so after years of false predictions.

Just about any other retailer in the country with Sears' debt load and profit losses would have fallen into Chapter 11 years ago. But not every retailer has the advantage of being controlled by a hedge fund mogul determined to keep it out of bankruptcy by loaning it money out of his own fund.

The loans have been in addition to other frenetic efforts Lampert has made to close stores, cut costs and sell off assets — sometimes to his own fund or ventures he's invested in (namely the REIT Seritage Properties, the spinoff REIT that owns millions in properties previously owned by the retailer).

The financial maneuvers have managed to slow the hemorrhaging of money out of the business — and Sears over the past year has even posted two quarterly profits after years of straight losses — to the point that Lampert had won confidence from some credit analysts in his ability to keep the company out of default. Yet Sears still more often than not loses money.

And then there's the bigger long-term problem: massive declines in sales. Sears has closed hundreds of stores in recent years — and in less than 10 years, it has shrunk its physical footprint by 75% — leading to some, but not all, of its top-line drops. Also driving those losses are declines in comparable sales. Sears has posted double-digit declines in comps during recent quarters when other department stores and mall retailers were on the upswing.

Should Sears file, even with financing behind it to keep operating and reorganize in Chapter 11, its fate would be far from certain. In recent history, Toys R Us and Bon-Ton both filed with hopes of reorganizing and/or finding a buyer. Both failed to win a financial backer to take them out of bankruptcy and were forced to liquidate. According to a Wall Street Journal report last month, Lampert has worried the same could happen to Sears in bankruptcy. News that some lenders are pushing for liquidation highlight that possibility. 

Still, Sears has some brand cachet left in many parts of the country, and potential investors and buyers may see something salvageable. With the retailer's stunning decline over the course of Lampert's tenure as CEO, it's easy to forget Sears still does more than $16 billion in annual sales. Until last year, it was bigger by revenue than Kohl's. It's still bigger than J.C. Penney.

But plenty of observers see a dark fate for the company.

"The problem in Sears case is that it is a poor retailer," GlobalData Retail Managing Director Neil Saunders said in emailed comments. "Put bluntly, it has failed on every facet of retailing from assortment to service to merchandise to basic shopkeeping standards. Under benign conditions, this would be problematic enough but in today's hyper-competitive retail environment it is a recipe for failure on a grand scale."

Saunders added, "It is all well and good to undertake financial engineering, but the company is in the business of retailing and without a clear retail plan, the firm simply has no reason to exist."