Sears, Kmart to close 100-120 underperforming stores

CNN Wire Service

NEW YORK — Sears Holdings on Tuesday reported a sharp drop in holiday sales compared to a year ago, and said the results will force it to close 100 to 120 Sears and Kmart stores.

The company said the stores to be closed have yet to be identified, but would be posted at The company is the nation’s No. 4 broadline retailer with more than 4,000 full-line and specialty retail stores in the United States and Canada.

Kmart has one store in Ames at 1405 Buckeye Ave. Sears closed its North Grand Mall store in 2007.

Sears Holdings said sales at stores open at least a year, a closely watched retail measure known as same-store sales, tumbled 5.2 percent in the eight weeks that ended on Christmas Day. That came from a 4.4 percent drop in sales at Kmart stores and a 6 percent slide in sales at domestic Sears stores.

“Given our performance and the difficult economic environment, especially for big-ticket items, we intend to implement a series of actions to reduce on-going expenses,” said Lou D’Ambrosio, CEO of the company.

Shares of Sears Holdings plunged $8.29, or nearly 19 percent to $37.56 in early trading following the announcement. Shares are now down almost 50 percent year-to-date.

The Sears and Kmart sales results were in contrast to the broader industry. The National Retail Federation forecast before the start of the year that holiday sales would be up 2.3 percent this year, a target that was helped by record Black Friday sales following Thanksgiving. Final sales figures are not yet available.

But Burt Flickinger III, managing director of Strategic Resource Group, said that while he thinks the final holiday sales gain will be a bit better — up 2.5 percent to 2.6 percent — that will represent flat to slightly lower profits for retailers when taking into account the higher prices they paid this past year for the goods they are selling, such as clothing.

He said the continued weakness in the economy, which has depressed wages, coupled with the increased competition from online competitors, has made it difficult for brick-and-mortar retailers such as Sears and Kmart.

“There’s been a significant shift online because of the sales tax savings,” he said. “Consumers see it as instant discount and most online retailers are delivering for free. That puts Sears and other land-based retailers at a significant disadvantage for the foreseeable future.”

He said that he believes most of the company’s closings will be Kmart stores outside of its home base in the Northeast and Great Lakes region. He said Kmart has been caught in the crossfire of a price war between stronger discount retailers Target and Walmart.

Flickinger said that Sears has made some progress in fixing past problems in recent years. He said its Lands End store-within-a-store concept is working well and its customer satisfaction with Sears now rivals top retailers such as Apple and Amazon.

The company has closed 39 stores in 2011. It has also converted 14 Sears Grand/Essentials locations to Kmart stores.

But even with the improvement, he said some Sears stores could close because of problems in some of the malls they anchor.

“Shopping malls across America have record vacancy rates of 11 percent,” he said. “Shopping mall owners have not done a good job keeping malls up to date and getting the tenants needed to support anchor tenants.”

Sears Holdings signaled that additional store closings may lay ahead for poor performing stores.

“While our past practice has been to keep marginally performing stores open while we worked to improve their performance, we no longer believe that to be the appropriate action in this environment,” said D’Ambrosio.

Flickinger said additional closings may amount to 5 percent to 10 percent of the nearly 4,000 stores it still has open.

The company will also cut its inventory in the stores that will remain open by $300 million as a cost-cutting measure. The company estimates the closings will generate between $140 million to $170 million in cash as the inventory of the closed stores is sold off, and additional cash from the sale or sublease of the real estate.

Sears said it has set a target of another $100 million to $200 million in fixed cost cuts.

The company said due to the weak sales, it expects to take a non-cash charge on certain deferred tax assets of between $1.6 to $1.8 billion.

— Daily Staff contributed to this report.