The situation indeed looks troubling when your landlord is paying you to go.
“That’s what’s happening here,” Ed Strapagiel, an independent Toronto-based retail analyst said Tuesday about Sears Canada’s announcement it will be leaving a handful of department store locations.
Once a leading player in Canada’s retail landscape, demographic and competitive shifts have passed the company by, analysts and experts say – evidenced vividly again Tuesday when Sears said it plans to abandon five more locations through lease sales.
The sales include perhaps the most prominent Sears location in the country: Toronto’s Eaton Centre in the heart of the country’s biggest city. The company also happens to be headquartered above the iconic Toronto location, in four floors of office space.
The move will see Sears break long-term leases with its landlords, Cadillac Farview and other partners, who will pay $400 million to the embattled retailer to vacate the locations, freeing them up for tenants who see greater potential and are willing to pay more.
Under the agreements, store leases for Sears locations at Sherway Gardens in Toronto, the Markville Shopping Centre in Markham, Ont., London-Masonville Place in London, Ont. and Richmond Centre in Richmond, B.C. will be sold back, as well.
Read more: Sears exit from Toronto stores may signal broader retreat
Part of the proceeds may go back into a turnaround plan at Sears Canada, but the bulk of the funds are likely being eyed by its U.S. parent to fund a plan to reposition Sears into a more relevant company in that market, experts said.
A lack of support in the Canadian turnaround is believed to be behind a decision by former chief executive Calvin MacDonald to leave last month – the Sears parent wasn’t giving its Canadian unit the financial flexibility it needed to reinvent itself.
Sears Canada has already sold off several key locations since last year as it looks to raise money. But the move has also paved the way for higher-end retailers like Nordstrom Inc. to enter the Canadian market.
At the same time, discount retailers like Walmart and Target have moved to take greater share in Sears’ traditional categories like apparel and small appliances, while the mid-tier market the retailer has historically occupied continues to feel pressure.
Costco, another U.S. retailer expanding square footage this year, has effectively also won a slice of the family budget once controlled by Sears, experts say.
“Right now, the middle is being squeezed,” Strapagiel said.
The analyst and others say both the Canadian and U.S. operations have failed to adapt to a split in the market place where many retailers have moved to cater to either the high or low-end consumer segment.
“Sears hasn’t really done anything in the last 20 years,” Strapagiel said.
Despite the mounting pressure, Sears Canada still has considerable sales, booking $960 million in revenue in the latest quarter – down 9.6 per cent compared to the same three-month stretch a year earlier.
After the latest round of lease sales, which are expected to close Nov. 12, Sears will have 111 department stores across the country.
“We still have a ways to go,” Strapagiel said. “There’s still plenty of Sears stores out there.”
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