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Sears Closes Flagship Chicago Store; Preparing for Big Shift to Online Retail

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In a move many are already calling historically significant, Sears Holding Corp is shuttering its flagship store in Chicago this April, as part of a strategy to to shift from brick-and-mortar sales to click-and-order online retail.

Sears is based in suburban Hoffman Estates, Illinois and continues to maintain three other stores in Chicago. Once it closes its flagship, though, it will no longer have a presence in downtown Chicago. Speaking to the press January 21, a spokesperson said the store lost “millions of dollars.”

Unable to reinvigorate languishing sales, Sears has relied upon the value of its realty as a centerpiece of its turnaround strategy. In 2012, Sears earned more than $47 million in revenue from multiple leasing arrangements. Since 2011, Sears had leased major commercial space to other marquee retailers: Whole Foods, Forever 21, Bay Club and Northgate Gonzalez Markets have all moved into space operated and formerly occupied by Sears.

Some industry experts have speculated that Eddie Lampert was originally attracted to Sears precisely because of the value of its real estate. One of Sears’ investors, Baker Street Capital, issued a report recently that the retailer’s 350 remaining locations were collectively worth $7.3 billion. Consider that Sears’ total market capitalization is approximately $600 million. Since 2010, Sears has closed more than 300 stores.

Sears also reported last week that it will be leasing out the space in a store located in the sprawling King of Prussia Mall in Pennsylvania. Sears controls the massive 215,000 square-foot retail space under a contract with the Simon Property Group. Under the new arrangement, Dick’s will take over the second floor, while Sears will maintain exclusive use of the first floor entrances.

This has been a historically challenging year for Sears: it just reported that it expects an adjusted loss between $213 million and $316 million for the fourth quarter, which amounts to as much as $2.98 per share. In response to the grim news, Sears’ shares dropped 13 percent to $36.98 from $42.57 after hours.

Sears Holdings’ comparable store sales dipped 7.4% for the quarter to date in the U.S. and 4.4% in Canada. Comparable sales for Sears stores in the U.S. are down 9.2% in the nine weeks that ended January 6, and down 5.7% for Kmart. ShopperTrak reported that U.S. retail sales for the industry at large have risen 2.7% for the same period.

For the fiscal year, Sears expects a loss as large as $914 million, potentially amounting to $8.61 per share. This is considerably worse than the loss of $6.20 per share most analysts have been predicting.

Eddie Lampert, Sears’ President and CEO, as well as its top shareholder, explained that the store closings are necessary in response to the rise of online shopping. In  a blog post Tuesday, he wrote, “The consensus about decreased store traffic also highlights another decision that has steered our work: we very often need less space to serve our members better and we may need fewer locations as well. As difficult as these changes are, we believe the alternative of failing to plan for or even see where the retail industry is heading would be far, far worse.”

 

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