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File photo of shoppers making their way through the Sears store at the Eaton Centre in downtown Toronto on Monday, January 13, 2014.


Sears Canada Inc. is on the selling block with no obvious buyer in sight, threatening to drag out its string of weak financial results.

U.S. parent Sears Holdings Corp., controlled by hedge fund manager Edward Lampert, said on Wednesday it is contemplating the sale of its 51-per-cent stake in its Canadian division among other "strategic alternatives." Sears Canada said it intends to co-operate with the process.

But the ailing retailer has already sold many of Sears Canada's best assets, including coveted store leases at Toronto Eaton Centre and Vancouver's Pacific Centre, making an acquisition less appealing for a rival. Major landlords have poured hundreds of millions of dollars into buying those and other leases, then selling some of the best ones to U.S. department store Nordstrom Inc. The flurry of activity paved the way for it to launch here, starting this fall, and set the stage for more intense competition for incumbents.

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In this tougher retail landscape, neither landlords nor rivals seem enthusiastic to invest in Sears Canada, industry sources say.

"I would draw the conclusion that the market is cool to this transaction," said David Tawil, president of hedge fund Maglan Capital in New York. "But only time will tell."

Sears' move to put its Canadian business up for sale underlines the continuing weakness of its business. But potential suitors ranging from U.S. Macy's Inc. to landlords are spooked by a soft domestic retail market in which U.S. discounter Target Corp. has struggled since its launch here in 2013.

Besides grappling with Sears' poor financial performance, a would-be buyer also faces potential future pension liabilities and a deal with U.S. financial services player JPMorgan Chase & Co., which runs Sears' lucrative credit card, that will need to be renewed in a couple of years and could create more headaches, industry sources said.

Some landlords may try to buy back a few of their Sears store locations but they generally view a deal as attractive only at a reasonable price and terms, observers said.

Macy's of Cincinnati is a department-store retailer in the mid-market segment close to Sears Canada. But the chief executive officer Terry Lundgren has "not been interested in Canada and has been more interested in China," Macy's chief financial officer Karen Hoguet told analysts on Wednesday.

Other U.S. chains such as J. C Penney and Kohl's have shown interest in Sears in the past but are focused on improving their U.S. operations, with the American retail market generally performing better than its Canadian counterpart.

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Desjardins Securities retail analyst Keith Howlett said he doesn't expect Macy's or Kohl's to be interested in anything more than acquiring some of Sears' mall store sites to enter Canada. "The process being initiated by Sears Holdings will determine whether or not these two retailers harbour long-term thoughts of entering Canada."

Even so, Sears shareholders have already benefited from generous dividends that the company has issued over the past year or so. "Sears Holdings has been going through a systematic liquidation of its assets for a number of years now," Mr. Tawil said. "Eddie Lampert has been able to orchestrate the largest liquidation of all time outside of court restrictions or mandates."

He said most liquidations involve insolvent companies that are being restructured under a court bankruptcy process, to the benefit of creditors. But the Sears liquidation has benefited the retailer's shareholders, including the large dividends.

Despite uncertainty about potential buyers, some European and Asian retailers are still interested in coming to Canada some time in the future. British cheap-chic chain Primark, which announced recently it plans its first store overseas in the U.S., could consider Sears as a launching pad in Canada, observers said. A company spokesman could not be reached. Primark's owners are part of the wealthy Canadian Weston family, which owns high-end fashion chain Holt Renfrew & Co., so it is familiar with this country. The Galen Weston family also controls Loblaw Cos. Ltd., Canada's largest grocery retailer.

Japanese-owned Uniqlo, which also sells affordable fashions, is now looking for stores in Canada, although it may not find the Sears locations in high-profile enough locations. Uniqlo has space blocked off for it in Toronto's high-performing Yorkdale Shopping Centre, sources have said.

The remaining Sears stores are mainly in the suburbs or smaller centres, and Uniqlo tends to look for high-profile urban locations for its first launches.

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Besides rivals and major landlords and pension funds, other potential Sears suitors include private equity or retail turnaround groups such as Sun Capital and Hilco or a domestic retailer, such as Hudson's Bay Co., wanting to foreclose new entrants, Mr. Howlett said.

Mr. Howlett anticipates that Sears Canada will declare a special dividend in 2014, no matter how its exploration of strategic options progresses.

With files from Bertrand Marotte

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