Credit crunch may cripple Sears holiday sales

Sears Holding Corp. (NASDAQ: SHLD) may have enough capital to get the inventory it needs for its stores during holiday season, but the chain now needs to worry about whether its potential customers will have access to credit.

According to Bloomberg News, Home Depot (NYSE: HD), Sears, "and other retailers may lose as much as 8 percent of their holiday sales this year because lenders and stores are clamping down on financing."

For a company struggle as much as Sears, that much damage to sales could cause the company to close hundreds of stores and put tens of thousand of people out of work. Along with all of its brands, Sears has 3,800 stores and 337,000 employees. If its average store loses close to 10% of sales, weaker ones in the states hardest hit by the recession could lose 15% or 20%.

Sears might offer more credit to customers, but it risks that a large part of them will default or delay payments as the economy gets worse.

The Sears problem is an especially good example of what happens when a large economy goes into a flat spin. As revenue at companies drops due to falling consumer spending, those firms have to layoff workers to make ends meet. Those workers, in turn, are no longer consumers and their loss of spending power hurts GDP even more.

Sears is a weaker retailer then some, and the chances that it will have to downsize to survive are very high.

Douglas A. McIntyre is an editor at 247wallst.com.