The closure of three high-profile Sears Canada Inc. (TSX:SCC) department stores in Vancouver, Calgary and Ottawa should not be interpreted as a death knell for the struggling retailer, its president and CEO says.
Sears Canada said Friday that the prime locations will close by the end of October affecting some 670 jobs.
President and CEO Calvin McDonald —who took the lead role last summer to help reverse recent losses — said the retailer hadn’t planned to sell or close stores, but an offer from its landlord, Cadillac Fairview, was attractive.
Under the agreement, Sears will sell back its leases for its Pacific Centre store in Vancouver, the Chinook Centre in Calgary and the Rideau Centre in Ottawa to Cadillac Fairview for about $170 million.
“It’s a different scenario than closing and walking away from stores,” McDonald said in an interview.
But he said the closures shouldn’t be interpreted as the beginning of the end for Sears Canada.
The company is testing out four new concept store formats customized to different markets, with pilot projects slated to be opened later this year.
“These are all indications of a company very excited about its offer very excited about its future growth and we’re working to transform ourselves and deliver a strong business.”
The decision to sell the three locations was made easier because the balance of sales at those stores doesn’t reflect the strengths — hard goods, major appliances, furniture and mattresses — of the rest of the chain, McDonald said.
Sears will sell the space back to the Cadillac Fairview, the real estate arm of the Ontario Teachers’ Pension Plan, by April 20, pending usual closing conditions.
The Vancouver store, a prominent feature of the Pacific Centre, is the biggest of the three that will be shuttered, with eight floors.
That location, as well as the store in Ottawa are former Eaton’s stores that were reopened as Sears in 2000. The Calgary location has been a Sears store since 1965 and is located in the top-performing mall in the city.
About 670 jobs will be affected, but those employees are being encouraged to apply for jobs at other stores in those areas, the company said.
There are about 310 employees at the Vancouver location, 160 at the Calgary store and some 200 in Ottawa.
The move comes as the retailer works to revamp its struggling Canadian operations. Sears Canada has been cutting jobs, decluttering stores and making other transformations.
Over the past few months Sears Canada has laid off about 470 employees in an attempt to cut costs.
Earlier this month, the company announced it is cutting prices on more than 5,000 items as the big department store chain tries to boost sales.
The sale follows a similar strategy made by its U.S. parent company in an attempt to shore up cash reserves.
Closing the three stores will mean forgoing revenues of about $160 million to $200 million, said Desjardins Securities analyst Keith Howlett, who also noted that the move is positive for the chain.
“Sears Canada has a strong balance sheet underpinned by owned real estate and valuable under-market leases,” Howlett said.
“These assets afford the company some additional breathing room, as it seeks to turn the tide of declining sales and profitability.”
Investors also appeared to weigh the move favourably with shares in Sears Canada gaining seven per cent or 84 cents to $13.04 Friday on the Toronto Stock Exchange.
The shuttered locations could be prime targets for U.S. department store chains like Target Corp., which has already announced its entry into Canada, or others that have been eyeing the scene north of the borders.
But Cadillac Fairview did not indicate Friday whether it had been approached by any retailers about the space, saying it doesn’t disclose information about negotiations.
“Cadillac Fairview is always looking for opportunities to update the merchandising mix at our shopping centres, to create a fresh and enticing shopping environment for our customers, and this agreement with Sears is a reflection of that,” it said.
Sears has roughly 30,000 employees across Canada and more than 400 corporate, dealer and home services stores.