Analysts: Expect to lose Sears

By Jodi Schwan

It’s just a matter of time before Sears goes out of business nationwide, retail analysts predicted.

“It’s a long shot they survive past first quarter of next year,” said Garrick Brown, director of national retail research with the brokerage firm Cushman & Wakefield.

“They need to turn their sales around. In the fourth quarter of last year, they lost three-quarters of a billion dollars. They’ve been averaging $1.2 billion a year in hemorrhaging.”

In its annual report released earlier this year, Sears Holdings, which also owns Kmart, acknowledged its ongoing sales declines “indicate substantial doubt exists related to the company’s ability to continue as a going concern.”

The company has closed stores and sold off many of its assets, including Craftsman and Land’s End.

“If you talk to Sears, almost every one of their spaces is available if you want it,” said Matt Ramsey, lead broker based in the Midwest for the brokerage firm JLL.

“They even came out recently and said, ‘We think it will be challenging to survive.’ Whether it’s a Kmart box or a Sears box, I think they will be very challenged.”

Most Wall Street analysts Brown is tracking “feel it’s a high probability that Sears has 18 months or less,” he said. “But if they go down early next year, which is the scenario I keep hearing, that’s 600 or more department stores coming back on the market.”

Operators of “class A” malls, which include The Empire Mall, might actually welcome it, he added.

“If you are a trophy mall, the top mall in town, you are ecstatic to get that space back,” he said. “The class B and C malls are where Sears going down is not good news. They can chop up the space and try to turn it into in-line space, but they don’t have any takers.”

Who will take the space?

JLL recently published a report detailing what uses have gone into former Sears and Kmart stores nationwide.

It found one real estate investment trust with 266 Sears, Kmart and Sears Automotive properties released space at 4.4 times the previous rental rate.

One-third of the locations became apparel and accessories stores. Fourteen percent became dining and food, and 10 percent became entertainment facilities.

Other uses include home furnishings stores, grocers and sporting goods.

One former Sears in Philadelphia was divided into restaurants Outback Steakhouse and Yard House. A former Kmart in Florida became an Aldi grocery.

“And in some of the boxes, you might have a great mall where Nordstrom or Von Maur wants to come in,” Ramsey said. “But really, Nordstrom is the best performing of the department stores right now, and they’re having trouble. So I think you’re going to see a lot of malls put in small boutique shops, restaurants and entertainment.”

JLL also looked at the portfolio of General Growth Properties, a real estate investment trust that owns 127 retail centers nationwide. It has filled former department stores – including JCPenney and Macy’s – in a similar fashion.

Twenty-three percent of those spaces became dining and food uses, 18 percent became different department stores, and 14 percent took on entertainment uses.

Other concepts that have gone into former department stores include so-called fast-fashion retailers Primark and Zara, discounted concepts Nordstrom Rack and Saks Off 5th, and emerging entertainment businesses including Dave & Busters and Main Event Entertainment, which offer arcade games, dining, bars and laser tag.

“Right now, restaurants make up 11 percent of the real estate in malls, and the prediction is they will get to 25 or 27 percent, so you will see malls go to a much more entertainment-based format — theaters, maybe throw a water park in there,” Ramsey said. “The malls are having a difficult time.”

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Analysts: Expect to lose Sears

It’s just a matter of time before Sears goes out of business nationwide, retail analysts predicted.

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