Wednesday, December 22, 2010

Sears was even a lousy dirt play?

The New York Times had a good piece on the five year anniversary of Kmart buying Sears and becoming Sears Holdings.  At the time, I said that Edward Lampert's acquisition of the retailing icon was as much a real estate acquisition as it was a retail deal.

Unfortunately on the retail side, the attitude of many people is, as the last sentence of the piece states succinctly, “Honestly, I’d rather go to Target.”  Sears and Kmart are still doing poorly, and many think the future -- if there is one -- lies in the Sears strategy of trying to become an style retailer.  (Go it its website with all the amalgamation of other sellers there and you will see what I mean.)  Apparently Sears Canada is the company's saving grace.

The fallback point?  Dump the dirt at some point. But given the current market even that isn't so attractive according to some analysts, and that makes sense.  For every hot Sears or K-Mart location, according to analyst cited in the Times, there are three other locations that have four legs and bark. And that does not include the specialty stores such as Sears Hardware, outlets and the like.  Perhaps the big buck stores can make enough money, but don't be surprised if there is ever a big liquidation of locations, you see a lot of empty or re-purposed stores.  Given the co-tenancy clauses you see in many leases with national retailers, this can have a domino effect on shopping centers.

But that all puts the cart way before the horse. (Nor am I convinced this analysis is correct.) Many people had Sears Holdings dead a while ago, and they've hung on this far. One or two hit brands or lines (such as apparel, which I thought they figured out by buying Land's End some years ago, but I was wrong) can revive sales -- which are needed given a decline in its traditional dominance in appliances -- in a hurry, and that Chicago-based lady can be humming a happy tune again.


PJ Smith said...

Well, the CEO (and now top management team) certainly has a reputation for carving off the valuable assets for sale and leaving the worthless husk of his clients, so no surprise that this would be the presumption. Sears went outside to a law firm to pick the CEO; as a result he has no long term personal investment in the company as other than a vehicle for earnings.

Sears never was known as a good, thoughtful employer as far as their real estate legal team was concerned, and having met the lot of them out in Hoffman Estates, I can tell you that they certainly are not pursuing the type of lawyer who knows how to keep the ship righted, much less on course and making headway. Don't know if that's a corporate policy decision, or a function of the managing attorney's need for submissives.

Either way, the company's valuation is largely based on the real estate, and they don't have a need for most of it. Nor is there a market for buying most of it. Store sites are shuttering at an alarming rate and being re-tenanted with a host of discount locals and regionals. I think it's a cashflow decision at this point (really, who thinks putting in a Halloween Outlet or a Big Lots is doing much for center value?) that will ultimately drive down the value of the excess property holdings to the point that a fire sale is necessary. Just my $.03