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Sears Canada: One step closer to extinction

If struggling retailer Sears Canada fails to recover, Canadian shoppers will barely shrug as they head to newer, sexier competitors like Target.
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Carmi Levy, October 29, 2013 12:00:12 PM

Canadian shoppers could have one less retailer to choose from if Sears Canada doesn’t find some way to successfully turn its business around.

News today that the company is closing five stores, including its flagship Eaton Centre location in Toronto, confirms the seriousness of the embattled retailer’s situation.

The $400 million deal – the company’s largest lease sale in a string of asset sales and job cuts that were supposed to stop the bleeding the set the stage for a turnaround – will see Sears sell the leases for locations in Toronto (Sherway Gardens), Markham (Markville Shopping Centre), London (Masonville Place), and Richmond. B.C. (Richmond Centre) back to mall operator Cadillac Fairview.

Last year, the company sold choice locations in Vancouver, Calgary and Ottawa, then leased them back in an attempt to raise cash and buy time. While these three locations remained open, the five stores in today’s announcement will close once the transaction is complete. All five stores will be vacated by February 28, 2014, with the Markham and Richmond outlets scheduled to close before that date. The company will maintain its headquarters in the top four floors of the Eaton Centre building.

Sears says the move will affect 965 positions across the country, and confirms that laid off employees will be allowed to apply for other jobs elsewhere within the company. After lease sales close – expected by November 12th – 111 Sears locations will remain in Canada.

Sears Canada has been in trouble for years, ever since Walmart crossed the border and rewrote the rules for large-scale retailing. Revenue and sales have been shrinking since 2006, with performance worsening over the past two years as the company accelerated a transformation plan it hopes will keep it alive.

Its traditional reliance on mall locations has also left it vulnerable to newer competitors in big box developments, and not even anchoring Canada’s most visible downtown mall was enough. In a statement, Sears Canada president and CEO Doug Campbell said the company needed to plan for the long-term.

“Unlocking the value of assets is one of the three levers we have said we will use as a way to create total value for the company. [...] When proposals such as this one are presented to us, we must weigh the value of the transaction against the value we will obtain from continuing to operate those stores in their current locations. In this case, we were presented with an opportunity that gives us a significant financial benefit without changing our plans to improve the business and make Sears more relevant to Canadians.”

The move comes amid worsening news from its U.S. parent, Sears Holdings, which continues to close stores south of the border as it investigates spinning off key assets like its Lands’ End catalog retailer and conducts a strategic review of its Sears Auto Center locations. Sears Holdings, formed in 2005 by the merger of Sears and Kmart, has approximately 2,500 stores in Canada and the U.S., and is scheduled to report its quarterly financial results November 21st. Its third quarter sales in stores that have been open at least a year fell by a troubling 3.7 per cent, with Sears locations down by 4.8 per cent and Kmart stores off by 2.6 per cent.

To stop the bleeding, the company has invested heavily in renovating key locations and shaking up its product mix – including a shift away from electronics and toward more fashion-forward offerings – but the needle still isn’t budging. As speculation grows around whether Sears Canada can turn things around, the question remains: will Canadians care? Or will they simply take their credit cards elsewhere?

The retail space has always been brutally competitive, of course, but new entrants into the Canadian market have been raising the stakes for legacy players like Sears Canada. Target, Marshall’s, and J Crew have already launched here, while Bloomingdale’s is working with The Bay on its store-within-a-store format. Nordstrom’s is on track to open its first five stores in 2014, and Sears Canada’s traditional mall locations are under attack from big box vendors like Tanger Outlets, which opened its first Canadian site in Cookstown, Ontario, just north of Toronto, last year.

If consumer indifference is a retailer’s worst nightmare, then my admittedly unscientific poll involving friends and family members should be an ominous foreshadowing for Sears Canada. Without exception, they’re all counting the days until Target opens in their neighbourhood. They all shrugged when asked whether they care about who ultimately owns the store. Without exception they said the Sears brand simply didn’t excite them, and they didn’t see the stores as worthy of a special trip to the mall. I live within walking distance of Masonville Place in London, one of the stores now targeted for closure, but I don’t remember the last time we actually went to the mall with the express intent of shopping at Sears.

The message is unfortunately all too clear: the company may proudly self-identify as Canadian – it’s actually 51% owned by U.S.-based Sears Holdings – but none of that matters to shoppers who simply want a good deal on a desirable product, who want to feel good about being in the store, and who want to share in the experience with like-minded friends and family members. As Sears Canada’s downward spiral has accelerated, outdated locations with indifferent inventory fell even further behind the more agile arrivals like Marshall’s and J Crew. These stores represent what today’s consumers look for when they head out to shop, while Sears increasingly reflects what their parents may have wanted a couple of decades back.

In the good old days of retail, when brand loyalty meant a bit more than it does today, that was often enough to keep Sears Canada atop the Canadian retail pile. Today’s fickle buyers mean it’s anyone’s game, and short of an even more radical rebranding – along with as-yet-unseen, deep-pocketed investors willing to take a chance on a floundering, once-proud chain – Sears Canada could very well be the next retailer to vanish from the Canadian market. Shoppers will hardly skip a beat as they wait for someone else to move into the soon-to-be-vacated Sears locations.

Image credit: Canadian Press Images/Stephen C. Host

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