Sears exit from Toronto stores may signal broader retreat

Sears Canada Inc. is closing up shop at two marquee Toronto locations and may exit a third as the iconic and once-dominant department store fights to remain relevant in an era of heightened competition on all sides.

Company watchers said Friday Sears may end up making additional exits across the country as it looks to cut losses and finance a turnaround plan.

The sale of leases to locations at Yorkdale and Square One shopping centres – two major retail hubs in Canada’s largest city – follows similar deals struck last year to exit locations in Calgary, Vancouver and Ottawa.

“Those are prime properties, they’re at the top of the totem pole in terms of shopping malls,” said independent retail analyst Ed Strapagiel. “The fact that Sears is letting them go doesn’t imply they’re doing well.”

Though still a giant of Canadian retail, supplying everything from appliances to linens in homes across the country, Sears Canada has fallen victim to shifting shopping habits and demographics, experts say — and it’s far from certain whether the company can pull out of a years-long decline.

“They’re divesting and cutting real-estate deals just to continue to fund this malaise,” Doug Stephens, principal at Retail Prophet, said.

For decades, Sears, which was launched in Canada in 1953 by the U.S. department store chain, prospered within the country’s relatively cozy retail market, dividing it among a handful of other large players such as Simpsons, Hudson’s Bay Co. and Canadian Tire.

The introduction of Wal-Mart Canada in 1994 and the gradual yet inexorable rise in online shopping signaled tougher times ahead. Target Corp.’s entrance into the market earlier this year has stacked on additional pressure for Sears, which has adapted poorly to both the increase in bricks-and-mortar competition and growth in e-commerce, company watchers suggest.

Before current chief Calvin McDonald was brought in in July 2011 to boost the store’s fortunes, Sears hadn’t meaningfully revamped its brand or product mix to counter the challenges. Instead, the department chain has relied on a constant grinding down of prices to get customers in the door. Even now, in the second year of a three-year transformation plan, a decline in sales hasn’t been arrested.

Stephens said Sears’ traditional customer base, middle-class Canadian households, is being squeezed more now than at any point in the company’s history, a development equally hampering the Canadian department store’s U.S. parent, he said.

“This isn’t new, this has been happening over the last 25 years, and Sears hasn’t addressed that. Their customers are getting older, they’re under siege economically, and Sears just hasn’t moved,” Stephens said.

McDonald, a former Loblaw Cos. Ltd. executive, said in a release Friday that the company’s transformation plan remains on course.

“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 turnaround plan hinges on updating stores and focusing in on key categories like women’s apparel and kitchenware.

“Over the past year we have undertaken numerous actions to get the basics right, and have worked to transform Sears Canada into a retailer that can run effectively, efficiently and sustainably,” the executive said.

But so far, selling leases – which netted the company $191-million Friday – appears to be McDonald’s most promising source of revenue.

Sears still holds a massive presence across the country, with 118 department stores, 48 Sears Home stores and 269 dealer locations. Sales last year totaled $4.3 billion, down 5.6 per cent from 2011.

Retail analyst Stephens said he expects more lease sales, and suggested a U.S. operator like Macy’s may look to buy out locations from Sears to gain a foothold in Canada.

“It wouldn’t surprise me to see somebody come to the table in a year or so.”

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