Sears Bankruptcy caused by Lack of Cash - Market Mad House
The obvious conclusion is that these retailers, like Sears, become overextended and one quarter away from the Death Spiral. To clarify, the retail Death Spiral occurs when a company cannot generate enough cash to pay its debts. In today’s environment, however, credit is so cheap retailers can avoid the death spiral by borrowing. When the loans come due, the retailers borrow more. Under those circumstances, there is no incentive for retailers to modernize, close money-losing locations, or change their inventories. Instead, they keep operating like it is still 1988 until they can longer pay their debts. A classic example of that was The Bon-Ton Stores (OTC: BONTQ) a department store operator that died earlier in 2018. Markedly, Bon-Ton was hiring extra staff for Christmas season 2017, a few months before they liquidated it. Astoundingly, Bon-Ton is “poised for a comeback” under the direction of delusional management, USA Today claims.
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