The future of iconic Canadian retailer Sears Canada is in doubt and the ramifications of its current restructuring could have an effect – good and bad - on a score of shopping centres across Western Canada.
It could also throw a wrench into a $100 million joint venture development deal at Burnaby’s Metropolis at Metrotown, B.C.’s largest shopping centre, where Sears holds 140,000 square feet of space.
But, as Sears teeters, owners of some major shopping centres may quietly be cheering the potential exit of their largest tenant, according to insiders.
In a statement issued June 13, Sears Canada said it was struggling in the face of mounting losses and expressed doubts it could continue “as a going concern.”
“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,” the statement reads in part.
Sears stock nosedived with the announcement, plunging to penny-stock status at 0.84 cents in trading as of June 14.
A week later, Sears announced it had applied for bankrupcy protection while attempting to restructure operations. It would also be closing 22 Sears stores across Western Canada, including outlets in Kamloops and Abbotsford.
Sears has 42 outlets in B.C., where it anchors Capilano Mall in North Vancouver, 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.
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 its intention 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 did not return calls regarding the future of this deal as of press time. Its agreement with Sears, however, has led to court action by Ivanhoe Cambridge, owner of Metropolis at Metrotown, which claims the agreement violates an existing understanding with Concord .
But some big mall owners may 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 Edmonton-based Ryan Zacharuk, senior director and general manager of appraisal firm Altus Group. He noted that some owners of “first-tier” malls may cheer a Sears exit, because the company pays “substantially lower lease rates” than could be obtained in today’s retail market.
Some Sears anchor leases can run, with extensions, for up to 50 years, he noted.
But second-tier shopping centres, and their existing retailers, could suffer if Sears does indeed pull out, he added.
In Edmonton, Sears holds a prominent positions at West Edmonton Mall, Kingsway Mall and Southgate Centre. It also anchors or co-anchors Calgary’s North Hill Centre, Southcentre mall and the Brentwood Village Shopping Centre.
Sears also has two department stores in Regina and three in Winnipeg.
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. 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.”