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Why Struggling Sears is Closing 26 Large-Format Stores, and What it Means for Apparel

A total of 21 Sears doors and five Kmart locations will be shuttered in late October as the re-organized Sears operation shifts to smaller store formats that don’t include apparel offerings.

The new Sears entity operates under the Transform Holdco umbrella, which acquired the operating component of the Sears Holdings Corp. business for $5.2 billion in February. Transform is controlled by Edward S. Lampert, the former chairman and chief executive officer of Sears Holdings. It was Lampert, through his hedge fund ESL Investments, that took the former Kmart Corp. out of bankruptcy and then two years later engineered the merger of Kmart Holdings with the retailer then known as Sears, Roebuck & Co. At the time Transform offered to acquire the bankrupt Sears operation, it was expected that more stores would close over time.

Transform this week said the doors to be shuttered are all “large-format Sears and Kmart stores.” In June, Transform inked a deal to acquire the Sears Hometown and Outlet business, which had been spun off from Sears Holdings when Lampert was chairman.

Regarding the Sears and Kmart business, Transform said: “Over the past several months, we have worked hard to strengthen our vendor relationships, return our inventory levels to normal, and improve customer satisfaction and operations; however, we have faced a number of challenges returning our stores to sustainable levels of productivity, including differences with Sears Holdings over our purchase agreement and a generally weak retail environment. These challenges have unfortunately affected our performance and limited our strategic choices.”

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Transform further noted that as it conducted a more careful review of the retail landscape, it has decided to “accelerate the expansion of our smaller store formats which includes opening additional Home & Life stores.” The business would also see several hundred Sears Hometown locations added to its store mix once the Sears Hometown and Outlet transaction closes.

While Sears Hometown and Outlet stores do include discounted apparel merchandise, as do the original Sears and Kmart doors, the Home & Life concept does not.

Sears opened three Home & Life stores in May–one each in Anchorage, Alaska; Lafayette, Louisiana and Overland Park, Kansas. The concept evolves the four Sears Appliances & Mattresses stores that were tested while under the Sears Holdings umbrella. In the evolved concept, the stores range in size from 10,000 to 15,000 square feet, and offer just products connected to appliances, mattresses, tools, home services and connected home products.

That Sears wants to move forward on the new smaller concept stores that don’t include apparel shouldn’t come as a surprise. When ESL disclosed in February that its $5.2 billion deal closed, it said at the time that the re-organized operation would invest in new, smaller stores to expand the company’s reach in the hardline category. That disclosure raised the probability then that apparel would become a small part of the overall business over time.

Sears said for the store slated to be shuttered, liquidation sales are expected to begin next Thursday.

And as an early warning that more stores might close, Transform said, “Following these steps, we will continue to evaluate our network of Sears and Kmart stores and cannot rule out additional store closures in the near term. Our goal remains to return the company to profitability and preserve as many jobs as possible in the communities we serve.”