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Low employee valuations can lead to bad bankruptcies

Data: FactSet; Chart: Andrew Witherspoon/Axios

Sears filed for bankruptcy this week, and its owner, Eddie Lampert, is warning employees that absent "material progress over the next few months," the fate of the company is going to be "a shutdown and liquidation."

The bottom line: There are good bankruptcies, which discharge legacy debts and allow the company to continue anew. And then there are bad bankruptcies, which cut off supply chains and result in outright liquidation. Bad bankruptcies inevitably result in thousands of job losses — and Sears is looking like it's going to be one of them.

The big picture: Sears hasn't made any visible "material progress" since Lampert took control of the company in 2005. The chances of it doing so now are slim.

  • Lampert is a master of financial engineering, but the way that this bankruptcy plays out is now largely out of his control.
  • Sears could easily go the way of Toys "R" Us: An outright liquidation, with tens of thousands of employees losing their jobs.

Worryingly, there are many other companies which are worth very little on the stock market but which have thousands of employees relying on them to make payroll every month.

  • JC Penney, another troubled retailer, has 98,000 employees and a market value of just $5,600 per employee. Pier 1 is worth only $7,000 per employee.
  • Netflix, by contrast, has a market capitalization of some $27 million per employee, with a workforce of 5,500.

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