BUSINESS

Sears Holdings plans to close 100 to 120 Kmart, Sears stores as sales disappoint

12/27/2011 07:12 EST | Updated 02/26/2012 05:12 EST
NEW YORK, N.Y. - Sears Holdings Corp. plans to close between 100 and 120 Sears and Kmart stores after poor sales during the holidays, the most crucial time of year for retailers.

The closings are the latest and most visible in a long series of moves to try to fix a retailer that has struggled with falling sales and shabby stores.

In an internal memo Tuesday to employees, CEO and President Lou D'Ambrosio said that the retailer had not "generated the results we were seeking during the holiday."

Sears Holdings Corp. said it has yet to determine which stores will close but said it will post on http://www.searsmedia.com when a final list is compiled. Sears would not discuss how many, if any, jobs would be cut.

The company has more than 4,000 stores in the U.S. and Canada. Its stock fell $7.88, or 17 per cent, to US$37.97 in Tuesday trading.

The store closures do not apply to Sears Canada Inc. (TSX:SCC), the U.S. retailer's Toronto-based subsidiary which has been streamlining and making other moves under a new leadership team to help reverse recent losses.

Last month, Sears Canada laid off about 70 employees at its head office in downtown Toronto as the retailer works to overcome a loss of nearly $47 million in its latest quarter.

In the U.S., Sears Holdings' revenue at stores open at least a year fell 5.2 per cent to date for the quarter at both Sears and Kmart, the company said Tuesday. That includes the critical holiday shopping period.

Sears Holdings said the declining sales, ongoing pressure on profit margins and rising expenses pulled its adjusted earnings lower. The company predicts fourth-quarter adjusted earnings will be less than half the $933 million it reporter for the same quarter last year.

Sears Holdings also anticipates a non-cash charge of $1.6 billion to $1.8 billion in the quarter to write off the value of carried-over tax deductions it now doesn't expect to be profitable enough to use.

Sears said it will no longer prop up "marginally performing" stores in hopes of improving their performance and will now concentrate on cash-generating stores.

"These actions will better enable us to focus our investments on serving our customers," D'Ambrosio said.

The weaker-than-expected performance reflect what analysts say is a deteriorating outlook for the retailer.

The results point to "deepening problems at this struggling chain and renewed worries about Sears survivability," said Gary Balter, an analyst at Credit Suisse. "The extent of the weakness may be larger than expected but the reasons behind it are not. It begins and some would argue ends with Sears' reluctance to invest in stores and service."

The company has seen rival department stores like Macy's Inc. and discounters like Target Corp. continue to steal customers. It's also contending with a stronger Wal-Mart Stores Inc., the world's largest retailer, which has hammered hard its low-price message and brought back services like layaway, which allows financially stressed shoppers to finance their holiday purchases by paying a little at a time.

The tough economy hasn't helped, either. Middle-income shoppers, the company's core customers, have seen their wages fail to keep up with higher costs for household basics like food.

But the big problem, analysts say, is Sears hasn't invested in remodeling, leaving its stores uninviting.

"There's no reason to go to Sears," said New York-based independent retail analyst Brian Sozzi, "It offers a depressing shopping experience and uncompetitive prices."

Sears Holdings Corp., based in Hoffman Estates, Ill., said that the store closings will generate $140 to $170 million in cash from inventory sales. The retailer expects the sale or sublease of real estate holdings to add more cash.

Sears Holdings appeared to stumble early in the holiday season, as it opened its Sears, Roebuck and Co. stores at 4 a.m. on Black Friday, the day after Thanksgiving. Rivals including Best Buy Co., Wal-Mart Stores Inc. and Toys R Us opened as early as Thanksgiving night. Sears stores had opened on Thanksgiving Day in 2010. Kmart has been opening on Thanksgiving for years.

A hint that trouble might be brewing came in mid-December when Sears Holdings unexpectedly announced that 260 of its Sears, Roebuck and Co. locations would stay open until midnight through Dec. 23.

Kmart's 4.4 per cent decline in revenue at stores open at least a year was blamed on diminished layaways and a drop in clothing and consumer electronics sales. Part of Kmart's layaway softness likely stemmed from competitive pressure. Wal-Mart had said that its holiday layaway business had been popular. Toys R Us expanded its layaway services to include more items. Kmart's grocery sales climbed during the period.

Sears cited lacklustre consumer electronics and home appliance sales for its 6 per cent dropoff. Sears' clothing sales were flat. Sales of Lands' End products at Sears stores rose in the mid-single digits.

Sears Holdings said it also plans to lower its fixed costs by $100 million to $200 million and trim its 2012 peak domestic inventory by $300 million from 2011's $10.2 billion at the third quarter's end.

D'Ambrosio acknowledged in his internal memo that criticism over Sears Holdings' performance was likely to come, but that the company was prepared for the days ahead.

"We will bounce back and become stronger than ever," he said.

At Sears Canada, the company said its recent job losses affected some middle and senior management. In total, the company has more than 30,000 employees, of which about a third are full-time staff.

The Canadian retailer has made major changes to its executive team in an effort to overcome lagging sales in recent quarters as more consumers opt to spend their money elsewhere, and retailers ramp up competition ahead of the entry of newcomer Target Corp. into the Canadian marketplace.

In July, the company brought in Calvin McDonald, a former executive at Loblaw Companies (TSX:L), to take the reins as chief executive.

Sears Canada also hired Steven Goldsmith, who worked as executive vice-president of the online division of Limited Brands Inc., to come in as its executive vice-president of merchandising.

Sears Canada posted a net loss of $46.6 million in the three months ended Oct. 30, down from a profit of $20.8 million a year ago. On a per share basis, losses were 44 cents compared to a profit of 19 cents. Same-store sales fell 7.8 per cent over the same period last year.

The company, which is 92 per cent owned by Sears Holdings, has 196 corporate stores, 280 hometown dealer stores and 1,700 catalogue merchandise pick-up locations across Canada.

It also operates 108 Sears Travel offices and a country-wide home maintenance, repair, and installation network.

With files from The Canadian Press