October 23, 2018

SHLD - Suppliers, Mall Operators Believe Sears' Demise Likely

By Patricia Newman
Sears' bankruptcy filing last week came as no surprise to mall operators or vendors, who had already put Sears on a watch list or required stricter terms.

When Sears Holding Corp. filed for Chapter 11 bankruptcy last week, it didn’t come as a surprise to mall operators or vendors, who had believed for years the retailer was in a free fall. Mall operators said they had already written Sears off and put them on a watch list as they scouted for replacement tenants when it became clear the retailer was declining rapidly. Vendors had already enforced stricter payment terms for Sears or limited the merchandise they sent to stores. “They just didn’t do anything necessary to pull out of their downward spiral. When the announcement came, we had already been long down the road in discussions with other potential tenants,” one mall operator said.

Mall operators and suppliers said they believe the Sears bankruptcy is just the beginning of the end for the large retailer. “I am sure they will keep some stores open through the bankruptcy process, but eventually all of the stores will close,” a large mall operator said. Three mall operators believe total liquidation of Sears and Kmart is just a matter of time. “I don’t think Sears is a viable retailer. We probably won’t work with them if it involves rent reductions or renegotiation of their leases,” one said. Total liquidation likely would be most difficult for B and C malls, which are already struggling to find tenants to replace The Bon-Ton Stores Inc. and Toys R Us Inc. stores, because of the surplus of space on the market. “When you take away a retailer of that size, there's going to be a lot of empty boxes out there. There may be some instances where those spaces will go at fire sale prices and some government entities may step in some marketplaces and try to buy them up for some public use. It’s not going to be pretty,” a mall operator said.

One mall operator with several Sears stores affected by the closure list that came out last week said Sears may have a viable, longer-term option with profitable stores, although chances are small it could be successful. In court documents filed last week, Sears showed 333 stores are still profitable and 211 are marginal stores. “A lot of people think they will ultimately go away. If they decide to just operate the most profitable stores and have a larger online presence, they would have to divert assets with the blessing of the bankruptcy court, upgrade stores, reconfigure them and re-merchandise,” one said.

Suppliers of outdoor equipment and home appliances will likely also feel the pain. “There are a lot of people who will be out of work because of the closures, and it will hurt some suppliers. There are suppliers, especially in certain categories, that only supply to Sears,” a supplier said. 

When all Sears stores may ultimately close or how the company might dismantle is the next big question looming for both mall landlords and suppliers. “Everyone expected them to go out of business years ago, but Eddie Lampert has kept them going. He keeps trying to sell assets and get as much as he can out of the business before just liquidating. No telling how long that might take,” a mall operator said.

Mall Operators

“They have lost a lot of the assets they could use to turn things around. They have a lot less to work with.”

“We have been preparing for this for some time. The A centers are going to be able to find replacements for the boxes, which will be a bigger traffic draw than Sears.”

“It always hurts to have vacant department stores, but I think the feeling in better centers is developers are looking at it as an opportunity to improve.”

“In some markets [Sears stores] are working, but their problems on the national level affected some of their merchandising and the appearance of their stores, so that put them at a disadvantage.”

"With Sears going under, I hope J.C. Penney [Co. Inc.] can turn it around. Otherwise, we are left with even fewer retailers."

Walmart [Inc.] would be the other one who picks up business from the closures.”

Contributors: Sabrina Bullock

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