Sears Gets Creative – A Guest Post from Llenrock Group
Dec 1, 2014
This post from Eric Hawthorn is part of our Llenrock Group guest post series and originally appeared on the Llenrock Group blog.
I suppose one of the most essential traits of any business leader – whether s/he is involved in an entrepreneurial venture or simply trying to keep a corporation afloat – is creativity. Sure, you have to be good with numbers, you have to be pragmatic, and you certainly need to understand your industry, market, customer base, and competitors, but if you want to be especially successful, creativity is essential.
I know the term “thought leader” is thrown around a lot these days – bestowed on just about everyone with a blog post or white paper on LinkedIn – but to me, this title is reserved for those whose creativity leads to workplace policies and strategies that redefine (or at least re-contextualize) a company or industry. And creativity isn’t simply the province of current or former tech gurus like Jobs and Bezos and Gates (whose innovations, we know, weren’t completely original to them anyway). Creativity is applicable to every field, commercial real estate very much included.
I want to talk about retail today, focusing especially on beleaguered retail giant Sears(NASDAQ: SHLD).
The nearly 130-year-old department store chain was once the king of retail–whether we’re talking about traditional brick-and-mortar retail or mail order (you probably remember those doorstop-like catalogs mailed out every year).The Chicago-area multinational was the largest retailer in the U.S. until 1989, when it was overtaken by Walmart (NYSE: WMT), and even today ranks as one of the largest department store chains in the U.S. by revenue, beating out Macy’s (NYSE: M). Of course, discount retailers like Walmart and Target, and even more significantly, online retailers like Amazon.com (NASDAQ: AMZN) have severely cut into Sears’ and fellow Sears Holdings brand Kmart’s ability to keep their expansive portfolios afloat (not to mention profitable). Have you been to a Sears or Kmart lately? They’re depressing, dark, under-stocked, and poorly managed. The once great American retailer is now in very dire straits.
What is Sears doing to make up lost ground? A lot of things. In a bid to free up some cash, the company spun off its popular Lands’ End (NASDAQ: LE) clothing and apparel brand; is actively closing underperforming stores; attempting to consolidate its diverse advertising accounts (advertising is crucial but expensive after all); and perhaps most significantly, it is attempting to unlock enormous value in its myriad real estate holdings by forming/spinning off its own REIT comprising 200-300 store properties as part of a sale-leaseback strategy. When news of the SEC REIT filing broke earlier this week, the value of Sears’ stock soared.
But the company’s real estate strategy, which is crucial to the company’s survival/revival, is far more detailed than simply a broad sale-leaseback capital injection. What will Sears do with this freed-up money? It seems the company is on the verge of one of its greatest strategic shifts since its Sears-Roebuck heyday: in addition to boosting its e-commerce platform, the retailer plans to reinvent its traditional store blueprint to better fit in with the urbanist live/work/play mixed-use real estate model. This entails far more than simply reducing its store footprint by 80% or more. Consider the example of the planned Sears complex announced for the successful Aventura Mall in South Florida (the quote below comes from CoStar):
Sears Holdings Corp. submitted plans to the city of Aventura, FL. for the redevelopment of the Sears property at Aventura Mall into an open-air village that will feature retail, restaurants, offices and a hotel.
Esplanade at Aventura will be a complete redevelopment of the 12.3 acres owned by Sears Holdings that currently features a Sears full-line store, Sears Auto Center and adjacent surface parking areas.
The proposed new development will include approximately 250,000 square feet of quality retail and restaurants, 45,000 square feet of office space, a hotel, and both subgrade and above-grade parking structures. Sears will retain a presence in a 20,000-square-foot smaller-format store.
What’s creative about this strategy, which we will likely see in other high-profile areas in the future, is not the very small format of the Sears store anchoring the complex. Sure, 20,000 SF is puny, but there are other typically large-format department stores that have already debuted “express” locations in CBDs. No, what’s interesting about this strategy is Sears’ announcement of non-affiliated retail, hospitality/restaurant, and office tenants for the development.
Sears has realized that it is no longer an “anchor,” a core real estate driver – at least, not as much as it used to be. But customers will be more likely to visit a Sears for their socks or tires or whatever if they’re already in the area. Apparently, Sears plans to develop a non-Sears tenant mix that will bring customers to their actual Sears store – they’ve figured out how to anchor an anchor store, so to speak.
Posted by: Raymond T. Cirz