Sears is considering selling part or all of its Canadian operations after struggling to restructure the business for the past several years.
Shares in Sears Canada rose almost five per cent on Wednesday with news that Sears Holdings Corp. intends "to explore strategic alternatives including the potential divestiture of its remaining shares in Sears Canada and/or the sale of Sears Canada as a whole," the company said in a statement.
The holding company controls its namesake stores, but also operates numerous Kmart locations. It owns a controlling stake of 51 per cent of the Canadian operations of Sears.
A spokesman for the Canadian operations, Vincent Power, said the U.S. parent's announcement doesn't affect the running of Sears stores in Canada.
"It's business as usual for us, and we are continuing to serve Canadian families coast to coast through our stores and our direct channels," Power said in an email.
"This morning's announcement is an ownership matter, not an operational matter, and our focus is on meeting the needs of Canadians for themselves and their homes," he said.
Mark Satov, founder of Satov Consultants Inc. in Toronto, said he’s been expecting this announcement.
“They’ve been underinvesting in their brand for a very long time and they can only do that for so long before it’s not relevant,” Satov said in an interview with CBC’s Lang & O’Leary Exchange.
Years of sales declines
For consumers, Satov said, Sears is the “same old stale brand” it’s been for years and there’s been no attempt to woo consumers with new or exciting offerings, he said.
“Their sales have been dropping consistently for the last five years and yet they’ve managed to turn a profit. The only way they could do that ... is by cutting expenses to the point where you don’t have anything left anymore,” Satov said.
Sears Holdings previously sold some store leases in Canada, including its Canadian flagship location in the Eaton Centre in downtown Toronto.
Billionaire hedge fund manager and Sears chairman Eddie Lampert, who took over as CEO in February 2013, has been under intense pressure to adapt to a changing retail landscape in which luxury and discount brands do well, but broad, general interest retailers in the middle get squeezed from either end.
"I'm not sure that we're going to have the Sears brand in Canada because I'm not sure that anybody wants to buy the operating business," Satov said.
He believes that Lampert, a billionaire investor in Sears, may have gotten enough cash out of the combined U.S. and Canadian companies to be satisfied.
"Lampert said, 'I’m going to take as much cash out as I can while it is operating and then, at the end, whatever I get is really a bonus,'” Satov said.
In 2012, the company began a cost-cutting plan that saw the company raise $1.8 billion by selling assets like Hometown and Sears Outlet stores and its Orchard Supply Hardware Stores, and reduce its total debt load by $400 million.
Sears also has been building a loyalty program called Shop Your Way, which accounts for a majority of its sales and has tens of millions of active customers. The company also recently spun off clothing business Lands' End as a separate public company after not having much success with it.