In a widely publicized note to investors, Gary Balter of Credit Suisse said that it is best that Sears Holdings Corp. (NASDAQ: SHLD) close its Sears and Kmart locations while they, and the inventory they sell, still have value. Sears Holdings operates about 2,350 stories.

In a note, the analyst wrote:

Let’s face facts. Sears is generating negative operating cash flow of between $1 billion and $2 billion [closer to upper end, it looks like] in 2014. Unless it sells off real assets while somehow maintaining the cash flow from those assets, this story is not likely to have a happy ending, and that ending continues to depend on suppliers.

Experts on retail and cash flow wonder how long Sears and Kmart suppliers will ship products to the stores, due to fear they will not be paid. Sears chief Eddie Lampert, who is also a hedge fund manager, set a $400 million loan to the retailer. That is expected to be paid back soon, which is not practical, and it may not be enough to solve Sears’s problems as losses increase.

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Closing up to 2,300 stores and laying off what eventually could be 250,000 people would be immensely complex. Some stores operate under long-term leases. Others are owned by the company. Management would have to break these arrangements and sell property in places like malls, which have little value. Sears merchandise inventory at the end of last quarter was $6.4 billion, which given the company’s size is very little.

The cost of severance could rise into hundreds of millions of dollars. Without a Chapter 11 filing, Sears would have no chance of cutting this cost. And a bankruptcy judge may insist the retailer cover these expenses ahead of those due to creditors.

Sears Holdings eventually may liquidate itself, but it would involve one of the most complex set of maneuvers in the history of retail, all likely done with a judge looking over management’s shoulder.

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