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Shoppers outside of Sears Canada at Toronto's Eaton Centre.Deborah Baic/The Globe and Mail

In a surprise move, Sears Canada Inc. chief executive officer Calvin McDonald is leaving more than two years after having spearheaded a transformation of the struggling retailer, raising questions about its revival in the industry's increasingly tough landscape.

On Tuesday, Sears announced that Mr. McDonald will leave for a new opportunity, taking a top position at another company.

Sources familiar with the situation said the departure was sparked over differing views with parent Sears Holdings Corp., whose controlling shareholder is Edward Lampert. The disagreement was tied to "the pace at which capital was being deployed to keep the momentum of the transformation going," according to a source.

Douglas C. Campbell, former chief operating officer at Sears who joined the retailer in March, 2011, replaces Mr. McDonald as CEO, effective on Tuesday.

Mr. McDonald's resignation comes at a time of heated retail competition following the arrival in March of U.S. discounter Target Corp. in Canada and the expansion of arch-rival Wal-Mart Canada Corp.

At the same time, other new players are preparing to set up shop here while major merchants are rapidly consolidating to gain an edge: giant Loblaw Cos. Ltd. announced this summer a $12.4-billion deal to buy Shoppers Drug Mart Corp. About a month earlier, grocer Sobeys Inc. unveiled it was buying rival Safeway Canada for $5.8-billion.

Now Sears, which has been losing market share for years to rivals, faces the hurdle of having to pick up its revival initiatives under a new leader just when the efforts were starting to see signs of taking hold in some key areas.

Sears Canada spokesman Vincent Power would not comment. A spokesman for Sears Holdings could not be reached.

Mr. McDonald, who could not be reached, has overseen a revival strategy that entailed focusing on "hero" categories in which the retailer could shine, including women's dresses, swim wear and coats as well as baby goods, appliances and mattresses. It ditched electronics and toys, two areas of decline, although it has continued to stock those goods online.

He also applied lessons from the turnaround initiatives at Loblaw Cos. Ltd., where he was previously an executive. He focused more on private labels, which can generate higher profit margins, and launched a chatty promotional magazine called the Look Report, similar to Loblaw's Insider's Report.

As Sears' chief operating officer, Mr. Campbell was responsible for retail store operations, logistics, replenishment, information technology, corporate procurement, and international sourcing.  Before joining Sears, Mr. Campbell was a principal with Boston Consulting Group, where he led turnaround projects and worked across a broad sector of industries, including retail, manufacturing, packaged foods, chemicals, and pharmaceuticals.

At a retail conference last week, Mr. McDonald said Sears' apparel sales have grown in the past three quarters "and it's going to be four quarters in a row."

Despite falling market share in apparel over past years, Sears Canada increased its share in that sector in each of April, May and June, he said. Those sales picked up 0.5 per cent, 4.5 per cent and 3.6 per cent in each of the past three quarters. In the year-to-date period, expenses dropped 7 per cent while apparel sales rose 4 per cent, he said.

"We're winning – the strategy is working," he told the conference.

Industry observers have applauded Mr. McDonald's work at Sears, although they have yet to pronounce it completed.

Keith Howlett, retail analyst at Desjardins Capital Markets, said recently that the gains in Sears' apparel and accessories businesses were good news in a market in which Target is adding more stores in Canada (it will have 124 by the end of the year).

"We continue to be of the view that while Sears Canada owns a base of solid assets, a turn in operating results is not yet in evidence," Mr. Howlett said.

On Tuesday, Mr. Howlett said Mr. McDonald's departure reduces the probability of an operating turnaround at Sears Canada.

He said Mr. McDonald "was a talented, energetic retail executive and might have been able to accomplish a turnaround against what we perceive as long odds."

He thinks Mr. McDonald may have disagreed with parent Sears on "the appropriate level of capital spending for store renovations, on the sale of under-market leases back to landlords … and with respect to the outsourcing of head office positions to other countries …

"Many of Sears Canada's department  store locations would presently be more productively deployed if operated by other retailers," Mr. Howlett said in a note. "We expect additional selective sales of leases back to landlords. At this time, there does not , however, appear to be a 'bulk buyer' (such as, for example , Macy's) for 60-90 Sears department store leases (similar to Target's purchase of the bulk of Zellers' leases.)"

To strengthen its position, Sears said in June it would sell two leases worth $191-million back to its landlords, and sold an option on a third location for $1-million, which could see it close a third store within five years, netting an additional $53-million.

The selloff comes as other U.S. retail heavyweights are looking to expand here but grappling with a dearth of attractive store locations. That has put pressure on Sears to improve its performance or divest more of its lucrative assets, following in the footsteps of its U.S. parent.

Last year, Mr. McDonald moved to divest three other key stores – one of them a flagship at Vancouver's Pacific Centre – for $170-million to landlord Cadillac Fairview Corp. Cadillac then sold the leases to Nordstrom Inc., the upscale Seattle-based department-store retailer, to help it launch in Canada, with its first store set to open in the fall of 2014 – raising the stakes for Sears and others.

Sears's store in the Toronto Eaton Centre is the jewel in the crown, sought by retailers such as Nordstrom, for one. But Mr. McDonald has said he's not selling that lease back to Cadillac, which is believed to have tried to buy it back.

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