Less than a week after announcing it would close 60+ more Sears and Kmart stores in January 2018, Sears Holdings revealed it would sell approximately 140 properties as part of an amendment to its employee pension plan protection agreement.
Sears will need to find as many ways as possible to gain liquidity, and property sales are a start. Hudson’s Bay and Macy’s have both recently sold off flagship store properties as a way to escape serious debt, so there’s precedent here. At a time when many department stores and traditional retailers have unprofitable physical space, every dollar that can be recovered is a win.
While Sears has received hundreds of millions of dollars in cash infusions from CEO Eddie Lampert and his hedge fund, and has sold its Craftsman brand for $900 million, the retailer still continues to incur massive cumulative losses — more than $10 billion in the past six years. The company has long-term debt obligations of $3.3 billion as of October 28, 2018.
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In Q3, Sears anticipates seeing a net loss within a range of $525 million to $595 million, which would actually be a big improvement from the $748 million loss of a year earlier. But same-store sales are even less promising, with Sears projecting them to fall a whopping 15.3% (a 17% drop for Sears locations and a 13% decline for Kmart stores).
Sears entered into an agreement with the Pension Benefit Guaranty Corp. (PBGC) to relieve the retailer from having to pay for pension plans for the next two years, and give it the flexibility to sell the 140 properties. In exchange, Sears said it will pay the PBGC $407 million. It is unknown when the property sales will take place.
The PBGC is a federal government oversight organization that guarantees individuals’ pensions, acting as a parachute if a company goes bankrupt. Sears has contributed roughly $4.5 billion to pension plans since the merger of Sears and Kmart in 2005, but the retailer has had tremendous difficulty in funding the plans amid its sustained losses. Sears has reduced the number of participants in its pension plans from roughly 400,000 to 100,000.
