Sears Canada Inc. will continue to consider selling off non-strategic assets as it races to bolster its struggling business amid tougher competition.
While the department-store retailer is determined to follow through on its turnaround efforts and operate as a retailer, it will look at opportunities as they arise to sell operations and even stores, chief executive officer Calvin McDonald said on Thursday morning.
In a $170-million deal last year, Sears sold leases of three its stores, including the one in downtown Vancouver, back to their landlord, Cadillac Fairview Corp. It turned around and sold the leases to U.S. upscale rival Nordstrom Inc., which will open its first outlet in Canada next year, putting more pressure on incumbents.
Retailers such as Sears also feel the heat from U.S. Target Corp. which launched its first stores here last month and plans to operate 124 by the end of 2013.
At Sears’ annual meeting on Thursday morning, Mr. McDonald said he doesn’t intend to exit more store locations but said he would do the “due diligence” if opportunities came up to “create value.”
“We’re here to remain in Canada to trade and become a relevant retailer,” Mr. McDonald, a former Loblaw Cos. Ltd. executive said in reply to a shareholder’s question. “In that there are non-strategic assets that we own today, if the opportunity is right to create value through those, we will explore those opportunities.”
Some of those opportunities don’t directly relate to retailing although support it in some way “but we can look at other ways to do it,” he said, suggesting outsourcing some operations is a possibility.
“There are a variety of those that we’re looking at. But nothing to disclose at this point in time. But it is something that we’re willing to consider.”
Mr. McDonald has rushed to implement a three-year revival plan, now in its second year, lowering prices, dropping or reducing low-profit categories such as electronics, focusing on promising “hero” shops such as ladies dresses and men’s suits while sprucing up stores.
He told shareholders that in areas that he has focused on, he’s starting to see sales gains. For example, in the second half of last year, same-store sales at outlets open a year or more rose in “hero” categories of appliances, mattresses, dresses, suits, kids products and kitchen ware.
Items that Sears touted in its new Look Report promotional magazine generated three times higher checkout rates than typically advertised items, he said. And, critically, 40 per cent of customers who shopped items in the latest Look Report were under the age of 44, compared with just 16 per cent in February prior to the publication being released, his research found.
He’s determined to lure back younger, style-savvy shoppers to Sears with new offerings, he said. “We lost our rhythm and we lost our confidence,” he said. “We need to think differently. We need to act differently and we need to change our behaviour ...
“Although we still have work to do on getting the basics, we made good gains last year. This business has a pulse.”
He told reporters later that he’s looking to eliminate a further $100-million to $200-million of costs from the business in the next few years after having already removed about $100 million of expenses in the past couple of years. He said “right-sizing” and outsourcing are two strategies on his to-do list. In January, the company let go 700 employees.
And on a bright note, he said Target’s entry so far in Ontario -- it launched its first 24 stores last month -- has had a positive effect on Sears’ sales at the 19 locations where the two retailers are close by to one another.
Target has helped bring more traffic to the area, with some of those shoppers heading to Sears, he said. It helped that it ran “Sears Days” promotions when Target’s stores started to open, he said.
In its fourth quarter, which includes the critical holiday shopping season, Sears revenue fell 5 per cent to $1.29-billion. Sales at established stores fell 3.8 per cent on lower sales of home electronics and snow blowers. It was its 16th straight quarter of revenue drops.
Fourth-quarter profit fell about 3 per cent to $39.9-million or 39 cents a share. The number included a pretax gain of $29.7-million from a voluntary buyout program and the sale of a joint venture interest.
Mr. McDonald said on Thursday the retailer is re-balancing its mix of sales to focus more on growing categories. However its current balance includes more than 50 per cent of its sales that are tied to categories that are declining because they’re linked to external factors such as the weak economy and the unpredictable weather. (Those categories are largely big-ticket items such as lawn mowers, barbecues and appliances.)
Unseasonably cool and rainy weather this spring has put a damper on retailers’ sales in general.
“With some luck, total sales can be strong,” he said. “Without luck, total sales will be challenged.”
Still, even with the unco-operative weather, Sears this spring has been able to sell more than 25 per cent of its stock of a $499 gas barbecue at full price -- one of the products that it is betting heavily on, he said. In the winter, it sold 96 per cent of a $179 men’s bomber jacket at full price -- another product that Sears touted heavily.