The future of iconic Canadian retailer Sears Canada (TSX:SCC) is in doubt, and the ramifications of its potential sale or restructuring would have a significant effect on six major Lower Mainland shopping centres.
It could also throw a wrench into a $100 million joint venture development deal at Metropolis at Metrotown, B.C.’s largest shopping centre, where Sears holds 140,000 square feet of space.
In a June 13 statement, the company said it was struggling in the face of mounting losses and expressed doubts it could continue “as a going concern.”
“The company continues to face a very challenging environment with recurring operating losses and negative cash flows from operating activities in the last five fiscal years, with net losses beginning in 2014,” the statement said. “While the company’s plans have demonstrated early successes, notably in same-store sales, the ability of the company to continue as a going concern is dependent on the company’s ability to obtain additional sources of liquidity in order to implement its business plan.”
Sears stock nosedived with the announcement, plunging to penny-stock status at $0.84 in trading as of June 14.
Sears has 42 outlets in B.C., where it anchors North Vancouver’s Capilano Mall with 125,000 square feet and has similar-sized stores in Brentwood Town Centre, Coquitlam Centre and Guildford Town Centre, as well at its Metropolis at Metrotown site in Burnaby.
Sears also has a large store in Chilliwack’s Cottonwood Mall.
Courtney Lewis, retail leasing specialist with Capilano Mall property manager Bentall Kennedy, appeared nonplussed by the possibility of backfilling the mall’s largest retail space.
“We’ve just started to think about it,” she said.
Lewis implied more attention was being focused on long-term plans for Capilano Mall to be redeveloped into a mixed-use residential and commercial project over the next seven to 15 years.
Sears itself launched a similar plan four years ago in a $100 million joint venture with Concord Kingsway, a subsidiary of Concord Pacific. In 2013, Sears announced plans to turn its Metropolis site into a massive mixed-use development that would include highrise residential and office towers and a new Sears outlet.
Concord Pacific had not returned calls as of press time regarding the future of the deal. Its agreement with Sears, however, has led to court action by Ivanhoé Cambridge, owner of Metropolis at Metrotown, which claims the agreement violates an existing agreement with Concord to work in partnership on future mall development.
But some big mall owners might welcome the loss of Sears, if it comes to that, or even pay Sears to take an early exit.
“The Sears story is not all negative,” said Ryan Zacharuk, senior director and general manager of appraisal firm Altus Group.
He noted that some owners of “first-tier” malls could cheer a Sears exit, because the company pays “substantially lower lease rates” than what could be obtained in today’s retail market.
But he added that second-tier shopping centres and their retailers could suffer if Sears does pull out.
When Sears left Vancouver’s Pacific Centre mall in 2012, the space was soon backfilled by Seattle-based Nordstrom (NYSE:JWN), but Zacharuk said there are fewer foreign white knights on today’s horizon.
James Smerdon, retail consultant at Colliers International, Vancouver, said that if Sears does fail, its vacant space could weigh on some markets for a long time.
“In the best of times, anchor spaces can take years to fill. Not only does this affect the landlords, but it also negatively affects smaller tenants that rely on the anchor’s traffic, as well as the Sears employees,” Smerdon said via email.
“There are some large tenants such as Walmart, Canadian Tire, Simons and Hudson’s Bay that may choose to take over some of the Sears stores, but nobody will take them all.” •
