By Abha Bhattarai, The Washington Post
More bad news for Sears Holdings: The beleaguered chain on Friday said it will shutter an additional 20 U.S. stores, amounting to more than 260 closures so far this year.
The announcement, which deals yet another blow to the 124-year-old company, comes as retailers across the country struggle to stay relevant in an era of online shopping. Department stores like Sears, J.C. Penney and Macy’s have been particularly hard hit as Americans look beyond the suburban shopping mall for clothing, furniture and appliances.
A day earlier, spin-off Sears Canada filed for bankruptcy protection and said it would close 59 stores and lay off nearly 3,000 workers.
“These are businesses that have badly neglected their customers, forgotten that stores need to be invested in and are running out of ways to raise cash,” Brian Sozzi, a former retail analyst, wrote Friday on TheStreet.com. “This is yet another sign that Sears’ business model no longer works, and efforts to save costs are in no way deep enough.”
Analysts, including those from credit ratings agency Moody’s, have been sounding the alarm that Sears Holdings may be headed for bankruptcy, joining more than 300 U.S. retailers so far this year.
As part of its latest effort to stay afloat, Sears Holdings said it would close 18 Sears stores — including locations in San Diego, Houston and Hagerstown, Maryland — and two Kmart stores, all of which are owned by Seritage Growth Properties, a real estate investment trust that in some cases has effectively become Sears’ landlord.
Hedge-fund billionaire Eddie Lampert is the chairman of both Seritage and Sears, an arrangement that has resulted in at least one shareholder lawsuit.
In 2015, Sears sold 235 properties to Seritage and has been renting the store locations back from the trust, according to a Sears spokesman.
Under its agreement, Sears can cut short the lease on “unprofitable” stores as long as it pays Seritage an extra year’s worth of rent — a total of about $11.2 million in this case for 20 stores — and one year of estimated operating expenses, according to a company filing by Seritage with the Securities and Exchange Commission.
“We have been strategically and aggressively evaluating our store space and productivity, and have accelerated the closing of unprofitable stores,” said Howard Riefs, a spokesman for Sears Holdings, said. Seritage did not respond to a request for comment.
The stores will close in mid-September, and liquidation sales are expected to begin within the next week.
The relationship between Sears and Seritage has raised concerns among Sears shareholders. Earlier this year, Lampert and Sears’ board of directors paid $40 million to settle a lawsuit alleging that Lampert had tried to siphon off the company’s best real estate by selling it to Seritage. Sears shareholders argued that the “highly conflicted transaction” would likely “plunge the company into insolvency.”
Sears, once the country’s largest retailer, dominated the industry for years by building a collection of well-known brands like Kenmore, DieHard and Craftsman (which it sold to Stanley Black & Decker earlier this year for an estimated $900 million). The company, which started as a Chicago-based mail-order business, quickly grew into a one-stop shop for American families.
“Sears was regarded as a national institution, almost like the Post Office,” Gordon Weil, who chronicled the history of Sears in a 1977 book, said earlier this month. “Everybody went there, everybody did business with them. Everybody believed they were a permanent part of the landscape.”
But as the retail industry changed, Sears failed to keep up. The company hasn’t turned a profit since 2010, and last year it reported losses of $2.2 billion. Analysts say many of the company’s stores have fallen into disarray, and its website has yet to attract much of a following. In 2016, online orders made up less than 8 percent of Sears’ total sales, compared with about 18 percent at Nordstrom and Macy’s, according to market research firm eMarketer.
So far this year, the company has announced the closure of more than 260 Kmart and Sears stores. (It has about 1,100 locations left.) In March, Sears executives said they had “substantial doubt” about the company’s financial viability, sending shares of Sears plunging by nearly 13 percent. (The company’s stock has lost nearly 97 percent of its value in the past decade, from a peak of $195.18 a share in 2007, to less than $7 a share, today.)
But there are also signs that the company is trying out new ideas. On Thursday, it opened its first Sears Appliance & Mattresses store, a 20,000-square-foot location in Pharr, Texas, about 12 miles from the Mexico border. In addition to large appliances, the location also lets customers schedule appointments with in-house experts.
“Plans are under way to open additional Sears free-standing stores dedicated to two of its strongest categories,” Leena Munjay, a senior vice president at Sears Holdings, wrote in a blog post.