Sears and Kmart stores will remain open with help from $600 million in new loans, but the company will shut 142 unprofitable outlets near the end of the year, on top of 46 unprofitable stores already slated for closure by November.
Eddie Lampert resigned as CEO but will remain as chairman, Sears said.
Buckling under pressure, the bankruptcy announcement comes ahead of a $134 million (£102 million) debt repayment due at the start of this week.
In September, Lampert proposed that Sears restructure its finances without filing bankruptcy. It's unclear which stores will close. For example, he recently offered to buy its Kenmore appliance brand for $400 million.
Many Sears locations are within struggling shopping malls.
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Lampert's hedge fund, ESL Investments, said it had consistently believed that restructuring the company's finances could have been best achieved outside a court-run bankruptcy process. Paula Rosenblum, co-founder of Retail Systems Research, wrote in Forbes that Lampert would emerge from a Sears bankruptcy as the least-sympathetic victim and perhaps the largest beneficiary.
In addition, ESL is also exploring a stalking-horse bid to buy "a large portion" of the company's stores in the bankruptcy process.
It appears that the end is nigh for embattled retailer Sears.
Lampert has been willing to pour additional cash into the company in return for debt backed by real estate or other hard assets. According to the Wall Street Journal, Sears has hired M-III Partners, a boutique advisory firm specializing in seeing companies through bankruptcies and restructuring, The company is also talking to lenders about providing it with debtor-in-possession financing, CNBC reported.
The struggling retailer has been losing market share for years, but its Kmart and Sears chains still generate about $14 billion in annual sales. In the fiscal second quarter ended August 4, net losses in the quarter swelled to $508 million, or $4.68 per share, compared with a loss of $250 million, or $2.33 cents per share in the same quarter a year ago.
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"If they dont value a customer, then they dont need my money", said Roberts, who voiced her complaints on Sears Facebook page.
But many of Sears' problems were self-inflicted. Total revenue dropped 30 percent in the most recent quarter, hurt by continued store closings.
Lampert tried multiple strategies to revive Sears since using the Kmart chain to acquire Sears in 2005, sometimes with his own money.
However, with the rise of Amazon, the advent of discount shopping on the internet and competition from stores like Walmart, Sears' target audience has drifted elsewhere. But plenty of others like, Toys R Us and Bon-Ton Stores Inc., haven't.
As of May, it had fewer than 900 stores, down from a 2012 peak of 4,000.
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"I feel upset because I like Sears", says Mark Vesei, who signed up for a store credit card.