Sears and Kmart to close 100 plus stores

Lawmakers ask whether closings were in the works as the company negotiated tax breaks

December 27, 2011

By Jennifer Brandel, Michell Eloy and The Associated Press

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(WBEZ/Susie An)
It was not "the most wonderful time of the year" for sales and profits at Sears and Kmart.

Sears and Kmart will be closing more than 100 stores after disappointing holiday sales revenue, that announcement coming just two weeks after the state of Illinois guaranteed parent company Sears Holding Corp. millions in tax breaks to keep its headquarters in Northwest Suburban Hoffman Estates.

The announcement brought swift reaction from state officials.

At an unrelated press event Tuesday, Illinois Gov. Pat Quinn said the company didn't mention retail store closures during negotiations on the tax break package. He said the closings don't affect the company's agreement to stay in Illinois and that individual stores were not part of the discussion.

"We hope the company does better," said Quinn. "But as far as their headquarters and all that goes at the headquarters, that is what the agreement was about."

But State Sen. Ira Silverstein, a Chicago Democrat, said he feels betrayed by Sears and said company officials should explain if they were aware of the closings while they were negotiating with lawmakers.

"When we give a package and incentive like this and try to keep a corporation here in Illinois, they should at least tell us what they're going to be doing not so much in the far future, but the near future," said Silverstein.

WBEZ asked Sears Holding Corp. whether company officials were aware of the closures as it negotiated with state lawmakers, but the company declined to directly answer that question.

"It’s important to know that under the legislation that was recently passed if we don’t meet our obligations we receive no benefits," a representative for Sears said in a statement.

Sears Holdings Corp. owns both Sears and Kmart. The corporation says same-store revenue fell 5.2 percent to date for the quarter at Sears and K-Mart. The holiday season is the most crucial time of year for retailers to haul in a profit, and this year Kmart and Sears fell way short of their goals.

Both stores blame revenue drops on diminished consumer electronic sales. Kmart also had less inventory on layaway and lackluster clothing sales this year, and Sears saw a decline in home appliances, too.

Sears has more than 4,000 stores in the US and Canada. Closing 100 to 120 stores is expected to generate more than $140 million dollars in cash inventory sales. Sears Holding Corp. anticipates additional proceeds from the sale or sublease of real estate holdings.

Earlier this month Illinois passed a huge corporate tax incentives bill to keep companies like Sears headquartered in Illinois. The company was threatening to leave the state if it wasn't given tax breaks.

According to analysts, the weaker-than-expected performance reflects a deteriorating outlook for the retailer.

The results point to "deepening problems at this struggling chain and renewed worries about Sears survivability," said Gary Balter, an analyst at Credit Suisse. "The extent of the weakness may be larger than expected but the reasons behind it are not. It begins and some would argue ends with Sears' reluctance to invest in stores and service."

Balter also said Sears' weakening performance may lead its vendors to start to worry about their exposure.

The company has seen rival department stores like Macy's Inc. and discounters like Target Corp. continue to steal customers. It's also contending with a stronger Wal-Mart Stores Inc., the world's largest retailer, which has hammered hard its low-price message and brought back services like layaway, which allows financially stressed shoppers to finance their holiday purchases by paying a little at a time.

The tough economy hasn't helped, either. Middle-income shoppers, the company's core customers, have seen their wages fail to keep up with higher costs for household basics such as food.

But the big problem, analysts say, is Sears hasn't invested in remodeling, leaving its stores uninviting.

"There's no reason to go to Sears," said New York-based independent retail analyst Brian Sozzi, "It offers a depressing shopping experience and uncompetitive prices."

Sears Holdings appeared to stumble early in the holiday season, as it opened its Sears, Roebuck and Co. stores at 4 a.m. on Black Friday, the day after Thanksgiving. Rivals including Best Buy Co., Wal-Mart Stores Inc. and Toys R Us opened as early as Thanksgiving night. Sears stores had opened on Thanksgiving Day in 2010. Kmart has been opening on Thanksgiving for years.

A hint that trouble might be brewing came in mid-December when Sears Holdings unexpectedly announced that 260 of its Sears, Roebuck and Co. locations would stay open until midnight through Dec. 23.

Kmart's 4.4 percent decline in revenue at stores open at least a year was blamed on diminished layaways and a drop in clothing and consumer electronics sales. Part of K-Mart's layaway softness likely stemmed from competitive pressure. Wal-Mart had said that its holiday layaway business had been popular. Toys R Us expanded its layaway services to include more items. Kmart's grocery sales climbed during the period.

Sears cited lackluster consumer electronics and home appliance sales for its six percent dropoff. Sears' clothing sales were flat. Sales of Lands' End products at Sears stores rose in the mid-single digits.

D'Ambrosio acknowledged in his internal memo that criticism over Sears Holdings' performance was likely to come, but that the company was prepared for the days ahead.

"We will bounce back and become stronger than ever," he said.