Sears Canada flagship lease sale highlights dim future for retailer

First its CEO bails ship midway through the turnaround effort, now the company announces it’s going to dump its most prized location, along with four other prominent stores. According to Sears Canada’s new president and CEO Doug Campbell, it’s all part of plan to unlock the company’s assets and create ‘total value’. For many others, it looks like the last desperate move of business in a death spiral.

Sears Canada announced on Tuesday that it was selling the lease to its marquee store in Toronto’s Eaton Centre, as well as the leases to locations across Ontario and B.C. back to landlord Cadillac Fairview for more than $400-million. The deal follows months of declining market share, the jettisoning of 245 employees earlier this year from its head office, in addition to the sale two other leases in Ontario, which netted the company an additional $191 million.

But there’s a difference between strategic trims and wholesale hari-kari. Your CEO suddenly walking out halfway through a three-year plan, only to join a key competitor, as Calvin McDonald did when he left to take the top job at cosmetics retailer Sephora, is a sign that the future isn’t looking so bright. Abandoning your flagship store, in the centre of the most coveted real estate in the country, suggests there isn’t much of a future at all.

Of course, that’s not how it’s being spun. In Tuesday’s release, Campbell explained that “we must weigh the value of the transaction against the value we will obtain from continuing to operate those stores in their current locations”, going on to add that, “we were presented with an opportunity that gives us a significant financial benefit without changing our plans to improve the business and make Sears more relevant.”

The “significant financial benefit” he speaks of is the $400-million Cadillac Fairview was only too happy to give him for the chance to get their hands back on those properties. They will now quickly flip the leases, with a considerable mark up, to either Nordstrom or Saks or any other U.S. or Canadian retailer seeking prime spots in Canada’s red-hot retail sector. Whether as a packaged deal, or as one-by-one auction, you can be sure those spaces will be in play immediately, if not already quietly ‘assigned’.

The problem, after all, wasn’t the locations.

Campbell’s other line, about improving the business and making Sears more relevant is, unfortunately, just one of those things the CEO has to say. The alternative – ‘we desperately need the cash, and yes, we’re entirely screwed’ – is the kind of candor that can be exchanged with the dog during their nightly walk, but lacks something as a rallying cry to the troops, and more importantly, to the market.

What happens next is unclear. At some point Sears’ senior brass will need to acknowledge that you can’t grow the business buy slashing operations. It’s one thing to lay-off the IT staff in head office, and hope for the best. It’s another to close the doors on your customers.

If this is a passing of the guard in Canadian retail, be sure that this show isn’t even close to over yet.