If malls wither, where does that leave the Sears land play?

Apparently not

Apparently not

“Tsunami” of retail store closings expected. Sears stock has been strong based, from what I understand, on its control of so much valuable mall space. If malls are due for a sharp contraction and stores will be much smaller, as this analysts (and others) predict, then that unrealized potential would seem to be set to continue to be unrealized, to the bitter end.

I know nothing about bricks and mortar retail – I’m pretty much an online shopper and shun malls – but I’m always interested in what’s happening with Eddy Lampert, even if he has fled Greenwich for Florida. As go malls, goes Eddie, no?

On Tuesday, Sears said that it will shutter its flagship store in downtown Chicago in April. It’s the latest of about 300 store closures in the U.S. that Sears has made since 2010. The news follows announcements earlier this month of multiple store closings from major department stores J.C. Penney and Macy’s.

Further signs of cuts in the industry came Wednesday, when Target said that it will eliminate 475 jobs worldwide, including some at its Minnesota headquarters, and not fill 700 empty positions.

Experts said these headlines are only the tip of the iceberg for the industry, which is set to undergo a multiyear period of shuttering stores and trimming square footage.

Shoppers will likely see an average decrease in overall retail square footage of between one-third and one-half within the next five to 10 years, as a shift to e-commerce brings with it fewer mall visits and a lesser need to keep inventory stocked in-store, said Michael Burden, a principal with Excess Space Retail Services.

11 Comments

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11 responses to “If malls wither, where does that leave the Sears land play?

  1. Fenian

    This is probably the normal January retail blood-letting after the holiday period.
    Discussing retail on this blog may be a waste of time – most of the old farts on here sound like they haven’t opened their wallets in a retail store since the 60s.

  2. Cos Cobber

    This isn’t really a surprise. Of course the footprint of traditional retail is set to decline, what did anyone think would happen as we all migrate to internet based commerce? Frankly, the internet has been a big reason we haven’t seen significant new mall construction over the past 15 years.

    Locally, what will replace Saks at the Stamford Town Center when it departs sometime this year? The results will be interesting.

    Furthermore, just look around….if a retail space isn’t filled by either a bank or a food joint, the odds of filling it are very low.

    • Riverside Chick

      Is Saks really closing in the Mall?

    • anonymouse

      I haven’t willingly stepped foot in a mall in more than five years. I am a shopper but I patronize small mom and pop stores, along the Avenue and beyond. I use Amazon religiously for the DVDs and oddball stuff (like a great LED desk lamp that I’d have to go to a dozen stores to find).
      There’s zero appeal to me to be shopping inside a six story concrete maze of generic shops. Sears even less. I’d like to see the demise of malls completely and go back to strolling down a Main Street for everything one needs.

  3. Publius

    CF,

    Sears has been completely mismanaged and that is not an original observation by me. (See story today about Sears closing it’s State Street store in Chicago). This is a classic example of a great brand run into the ground because ownership did not stick the the knitting of the business mainly because ownership had no clue had to run a retail behemoth. History is good guide in that the largest retailers tend to come up against the law of large numbers in terms of growth, diversify (or de-worsify) and then collapse. At the moment Walmart has seemingly bucked this historical trend and has remained atop the pile for some time. WT Grant, Woolworths, Kresges (K-Mart which Sears bought out of bankruptcy) and a withering JC Penny are testament to this trend.

    Over the past decade there has been this love affair with investors towards retailers with large real estate holdings, Sears, JC Penny, Cracker Barrel, Toys R Us. What got the attention of investors was the conversion of Alexanders (remember them) Department Stores into a real estate bonanza ( Steve Roth of Vornado). The department store on 3rd and 58th street across from Bloomingdale’s is now the site of high end mixed use (Bloomberg LLP HQ and $$$$$ condos). VNO made a killing on this.

    The lure was always that the value of the real estate was worth more than the publicly traded value of the company. The arbitrage possibilities were to either buy a large stake in the company and push for better use of R/E or take the company private (Sears) and slowly un-bundle the company to make a bundle. This trade rested on 2 assumptions, the first being that the real estate was actually in locations that were/are desirable and the second being that you could not let the actual business of retailing wipe out the projected profits from real estate optimization. Sears failed on both counts. As most everyone knows Eddie is not a retailer and the endless revolving door of merchandising honchos has made the situation worse.

    Sears failed on both assumptions. The retail operation has been a disaster and with the purchase of K-Mart, the combined company owns real estate in many undesirable areas of the country. Wall Street analysts have been arguing over the value of the real estate from day 1, but at the end of the day, it’s not what an analysis on paper says its worth but what it actually sells for and that is why the stock price has been hammered. I believe that Sears real estate is not worth as much as indicated. The US became very over-malled/over retailed before the 2008 crisis and retailers have spent the better part of the last 5 years trying to rationalize their brick and mortar footprint. This trend has accelerated as the likes of Amazon, whom now sell everything on a web site, crush a lot of the traditional retailers. The company would be better served spinning off Lands End and just running an appliance and hard goods (tools etc) business from a limited footprint and with more robust e commerce. Ironically, not mentioned is the fact that Sears basically was the king of non brick and mortar commerce (think the Sears catalog) long before Jeff Bezos’s great- great grandparents were around. Sears was the Amazon of the late 19th and 20th centuries. You could buy a house from Sears!!!! Eddies’ focus on e commerce is laughable at this point. I guess this is what happens when you have an assistant that just handles “computer” issues for you.

    EL has had much more success with his other investments, however Sears was such an iconic retailer for so long that it draws a lot of scrutiny. Bottom line is that Sears real estate is really not that desirable and the rise in e commerce is the nail in the coffin. Markets will value the company on a liquidation basis which mean that potential future gains are being discounted to the current time. Unwinding this company including the real estate will take years and in the mean time it is bleeding resources from the retail business that is why the stock is trading where it is.

    Eddie isn’t the only one to take a beating on this investment angle. The above mentioned Steve Roth of VNO, the wunderkind of R/E has taken quite a beating on JC Penny and Toys R Us

  4. Anonymous

    The real estate can be re-deployed as junkyards, landfills, meth labs, crack houses, or government offices.

  5. AJ

    ‘What Recovery? Sears And J.C. Penney Are DYING’

    “Two of the largest retailers in America are steamrolling toward bankruptcy. Sears and J.C. Penney are both losing hundreds of millions of dollars each quarter, and both of them appear to be caught in the grip of a death spiral from which it will be impossible to escape. Once upon a time, Sears was actually the largest retailer in the United States, and even today Sears and J.C. Penney are “anchor stores” in malls all over the country.
    ….
    Sales have declined at Sears for 27 quarters in a row, and the legendary retailer has been closing hundreds of stores and selling off property in a frantic attempt to turn things around.

    Unfortunately for Sears, it is not working. In fact, Sears has announced that it expects to lose “between $250 million to $360 million” for the quarter that will end on February 1st. …”

    http://theeconomiccollapseblog.com/archives/what-recovery-sears-and-j-c-penney-are-dying

  6. AJ

    ‘Sears is Vanishing from our Minds, the Shocking 18 Photos That Show Why

    Oh my goodness, so disturbing.’

    “How does a general merchandise retailer make money? The simple equation:

    Bring a product to market the customer wants when they want it + display it in a fairly compelling environment + stick a fair price on it.

    There is a little more to it, but that’s the basic secret sauce. Sears is doing none of that. Since I am a busy fella I will not sit here and bash a company that has been bashed for as long as I have walked the Earth. To understand why Sears is in a “sell stores mode” one must look no further than the stores themselves, where the truth is to be found. The bellow pics are left open to your open personal interpretation, naturally. I will share mine.

    Eddie Lampert…this is your investment in real-time.

    6 Facts Before We Get Started
    1.Capex in 2007: $570 million.
    2.Capex in 2012: $378 million.
    3.Capex as a percentage of revenue in 2012: a measly 0.9%, by FAR the lowest of any publicly traded retailer that I know. For perspective, Macy’s had a ratio of 3.4% in 2012. …”

    http://beluscapitaladvisors.com/2013/10/21/sears-vanishing-minds-shocking-14-photos/