While Sears Canada’s future looks grim, Sears’ American stores are on the brink: analysts

Are Sears' days numbered in Canada?. Lars Hagberg / The Canadian Press Images

Although Sears department stores continue to operate at a loss in the United States, it’s unlikely the American company’s woes will affect Sears Canada’s stores, according to retail analysts. But that doesn’t mean Sears Canada is doing well.

“The American Sears owns a percentage of the Canadian Sears but they do operate separately, as far as they are two separate corporations,” said Craig Patterson, an applied researcher at the University of Alberta’s School of Retailing.

Multiple media reports have recently detailed problems at Sears Holdings, which operates Sears and Kmart department stores in the U.S.: shutting down many Kmart locations, having executives leave the company, and appearing on an analyst’s list of retailers “at high risk of defaulting.”

Sears Holdings did not return requests for comment by deadline.

But even if the U.S. chain were to go under, Patterson doesn’t think it would have a strong effect on the remaining Canadian stores.

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Sears Canada spokesperson Vincent Power said that he did not want to speculate on Sears Holdings’ performance. But, he confirmed that the American chain owns less than 12 per cent of Sears Canada’s shares, and said that the two companies operate independently. “Unlike many other retailers, we have our own company with its own board of directors,” he said.

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Sears Canada makes its own decisions on its stores, hires its own employees and makes its own marketing plans, he said.

Sears Canada’s future

But although Sears Canada is somewhat isolated from the American company, it’s not doing well, said Patterson.

“We expect Sears’ Canadian operations will eventually shutter as well unfortunately, just probably not as fast as the American one.”

Corporate strategy advisor Mark Satov, of Satov Consultants, agrees. “It’s only a matter of time for Sears Canada as well. It’s not like if you proved that there is no relationship between the U.S. and Canada that Canada has a long, bright future ahead.”

The Canadian chain reported a net loss of $63.6 million in the first quarter of 2016, and has closed many of its stores in the middle of larger Canadian cities. Satov said that the chain has not invested in its brand and has become “essentially irrelevant.”

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Power disagrees. Although he said that the financial results “have not been what we would like to see,” he said the chain has taken on a number of new initiatives to reconnect with Canadian families. This includes upgrading their computer systems, revamping their website and opening a number of revamped stores with a “modern look.”

“We’re in a bit of a transformation of the company and these things take time,” he said. “The steps we’ve taken since July-August 2015 that have been put into place I think are positioning us well for the future.”

Sears Canada’s problem, said Patterson, is that the market is changing. Canadian consumers are either spending at discount stores, or looking to pay a little more for something special. They’re not shopping in the middle.

“What we’re seeing is high-end and we’re seeing lower-end and we’re not seeing a lot of middle-priced retailers,” he said.

Satov also isn’t sure that the mid-market department store has a lot of place in Canada’s retail future. “You don’t need a department store,” he said. “You need a pair of pants or you need a blender or you need a lawnmower or you need a tennis racket. I think people, when they want those things, depending on who those people are, don’t necessarily want to go to a department store and go to different departments and get it.”

Both Patterson and Satov point to Hudson’s Bay as an example of a department store that has transformed its operations and expanded into the higher-end market – though it too is still operating at a loss.

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Sears is trying to change, though, said Patterson. “There are attempts to turn this company around to turn it into hopefully a profitable, suburban-focused, mid-price department store chain that’s going to cater to the suburban consumer.”

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