Sears Canada Inc. is letting go almost 800 employees as the ailing retailer works to improve its operations, raise cash and sell off assets.
The layoffs, which were unveiled on Tuesday, affect 712 employees in Sears’ repair services and parts business and 79 in its head office.
In all, the company has about 25,000 staff – roughly 1,800 at head office – down from about 31,000 two years ago when it had 122 department stores. Today it operates 118 outlets, but by early 2015 that number will drop to 111.
The store closures come as Sears agreed to sell lucrative leases back to landlords for hundreds of millions of dollars. Newcomers such as U.S. rival Nordstrom Inc. are picking up the retail space, adding to the rising pressure on all players. While Sears began the leaseback sales with two of its biggest landlords – Cadillac Fairview Corp. and Oxford Properties Group Inc. – it now is in discussions with other landlords as well, sources said.
The latest staff cuts come under new chief executive officer Douglas Campbell, a turnaround specialist formerly at Boston Consulting Group who took over the top job at Sears in September when Calvin McDonald unexpectedly left. Mr. McDonald, a former Loblaw Cos. Ltd. executive, was in the middle of spearheading a turnaround plan at Sears.
Mr. Campbell vowed he would continue on Mr. McDonald’s path, including cutting costs and selling non-core assets.
Late Tuesday, Sears announced a restructuring of its repair services and parts division, contracting out much of the work and streamlining its remaining teams.
George Minakakis, CEO of strategy firm Inception Retail Group Inc. and author of Last Retailer Standing, said Sears’ struggle is good news for U.S. discounter Target Corp., which is having struggles of its own. Target, which arrived in Canada in March, is poised to steal business from rivals and “the most vulnerable brand right now is Sears,” Mr. Minakakis said. The retail battle will get even fiercer because, “I take it for granted that Target will rebound,” he added.
Last week, Sears announced a special $509-million, or $5-a-share, dividend and hinted at another potential payout next year. The dividend is being financed largely from the $400-million that Sears Canada is receiving from the sale of its leases on five stores in Ontario and British Columbia, including its flagship Eaton Centre location in Toronto.
Another dividend payment could come early next year if the company closes the $315-million sale of its joint-venture interest in eight Quebec properties, expected in January.
The initiatives have helped Sears Canada’s stock, which has outperformed the S&P TSX by 61.87 per cent during the past year.
The shares also got a boost this week after reports that parent Sears Holdings Corp. was looking for a buyer, although the company said its controlling shareholder isn’t in talks with investment bankers about its stake in its Canadian division.
Nevertheless, Sears Canada approached at least one retail rival recently about its interest in buying the business, sources have told The Globe and Mail.
Mr. Campbell said last week that investor interest in Sears reflects not only the asset sales that led to the dividend but also the underlying strength in the company’s third-quarter results.
He pointed to lower costs and a 1.2-per-cent increase in sales at stores open for at least a year, the first such increase since 2008. “I can unlock value by asset sales, but I can’t create value unless I’m building the operations,” he told The Globe and Mail last week.
He said the company isn’t considering any other asset sales at this time, nor is the board looking at paying a regular dividend.
The share jump is good news for Edward Lampert, the U.S. hedge-fund manager who is also CEO and controlling shareholder of U.S.-based Sears Holdings Corp., which owns 51 per cent of Sears Canada.
Sears Canada said it lost $48.8-million or 48 cents a share for the third quarter, compared with $21.9-million or 22 cents in the year-earlier period. The wider loss included severance and restructuring costs. Revenue dropped to $982.3-million from $1-billion.