Money will be the means for Sears to carry out its “transformation” and the retailer will get it by all means necessary.
This year, Sears Holdings has shuttered more than 200 stores, sold its retail space, leased it in some cases, issued a $625 million rights offering of unsecured notes to drum up cash, sold its stake in Sears Canada for $380 million, and borrowed $400 million from its CEO.
In blog post on Sears Holdings website, Sears chairman and chief executive officer Edward Lampert addressed the company’s decisions over the past year and said Sears is taking heed of its lessons learned and “adapting for the future.”
Lambert said he was proud of Sears’ past decisions to keep poor performing stores open because it kept people employed and served the retailers’ members, but the current state of business called for reevaluating that notion.
In its third quarter report released earlier this month, Sears Holdings said net loss was $548 million, or $5.15 per diluted share and adjusted earnings before interest, tax, depreciation and amortization (EBITDA) loss was $296 million.
“We have experimented with different formats, different levels of investment and different processes to bring about a better result,” Lambert said. “Given changing circumstances, both in the retail industry and in our company, we can no longer afford, nor justify keeping these stores open.”
Going into 2015, Sears will have roughly 1,700 Sears and Kmart big box stores in operation, representing about 200 million square feet of retail space.
Lampert touched on the trend toward mobile and multi-platform purchases and said Sears has put “an enormous amount of work” into changing the way it does business, and that includes not just technological shifts but considerations about the number and size of its stores.
“How much retail floor space do we need to deliver great experiences that meet or exceed our members’ expectations? Are our locations where they need to be? With more and more of our sales and member engagement happening online or via mobile and shipping straight to home, do we need the same kinds of stock rooms and warehouses?” Lampert posed rhetorically in the post.
Closing the under-performing stores is expected to result in reduced expenses, improved cash flow and enhanced productivity, which is ultimately expected to bring the business back to profitability sooner.
“We have a very flexible real estate portfolio which gives us time to try to turn around underperforming locations, without the potential burden of long-term losses that would otherwise prevent us from taking these risks,” Lampert said.
But its not just Sears that is struggling. Lampert said, for example, “in virtually every city across the country, real estate owners and communities are trying to figure out what to do with large, windowless buildings that once held essential – now useless – telephone equipment to make landlines work.” Some are converting the facilities into residences or offices, some are turning them into data centers. But, “None of these transformations are simple,” Lampert said.
Given that populations are shifting and new retail areas are constantly opening, Lampert said some Sears stores are simply too large for the company’s needs, but their prime locations are have been a boon for the retailer in making deals.
“Though we expect most of them to stay open for the foreseeable future, in some places mall owners and developers have approached us with the opportunity to reposition our stores for other uses and are willing to compensate us,” Lampert said. “When they’ve offered us more money to take over a location than our store there could earn over many, many years, we’ve accepted offers.” Sears has used that funding to invest further in its transformation.
Leasing store space to retailers like Whole Foods, DICK’s Sporting Goods, Forever 21 and Primark, was also part of the effort to right size its stores. “In these cases, we continue to operate in the same location, in a smaller (but still large) space, leasing out the rest to retailers who will drive traffic and who compensate us for that space,” Lampert said.
Now that Sears has more information than ever, according to Lampert, about how, where and when its members want to shop, the retailer can use that data and insight to adapt to a future where integrated retail and member experience will be paramount.
“We’re not only thinking several steps ahead to the future,” Lampert said, “we’re moving to get there with the right kind of stores, space and experiences for our members’ needs.”