For years, Sears (OTCMKTS: SHLDQ) has been a mall and shopping center mainstay, drawing in customers and serving as a key tenant and revenue source for commercial landlords. But the storied retailer's days may be numbered. And actually, that's a good thing.
A dying brand
2020 was a year when many big-name department stores filed for bankruptcy. Surprisingly, Sears wasn't one of them. (To be clear, it filed previously but has since emerged.) But that doesn't mean Sears is in good shape. Quite the contrary -- Sears is now down to just 74 stores, compared to nearly 1,000 locations as of three years ago.
In fact, at this stage of the game, Sears doesn't even stand to benefit from a bankruptcy filing. Chapter 11 gives struggling companies a chance to reorganize their debts and start fresh with a clean slate. But Sears doesn't need a clean slate -- it needs someone to gently take it off life support.
Of course, there was a time when Sears was thriving and doing well. But in 2004, it was purchased by hedge fund manager and CEO Eddie Lampert, who bought Kmart, another struggling chain, a year later. The two brands were merged to form a larger home goods conglomerate, but that didn't do either one any favors. It's been years since Sears has invested in renewing its brand, strengthening partnerships, or pretty much doing anything to make the idea of entering its stores more enticing.
In fact, right now, Sears is running on fumes -- that, and perhaps a degree of nostalgia for old-timers who take comfort in brand recognition. And so the only thing to do with Sears at this point is sell off its remaining inventory and put those large, vacant storefronts to good use.
Here, there may be some options. One Sears location in Iowa is already being repurposed as a coronavirus vaccine distribution center, and in the coming months, more stores could be utilized for that same purpose. Once the mass vaccine rollout is complete, those stores have potential -- they could become health clinics, distribution centers, or even small office buildings.
Real estate investors shouldn't give up hope
Losing Sears may not be a blow to consumers (many have already written it off), but losing those remaining stores could still hurt commercial landlords who rely on it as an anchor tenant. Converting Sears stores into something other than Sears, however, is a way to salvage that space and avoid having it sit vacant. And that's a better scenario for real estate investors.
The Millionacres bottom line
Unlike J.C. Penney (OTC: JCPNQ), which recently got a major bailout following its bankruptcy filing from two major mall operators, Sears is no longer a store worth saving. But it is a store known for its generous square footage, and that alone makes it an asset. Closing down the brand's remaining 74 stores could actually spell opportunity for landlords from a rental income perspective, and while most shopping center operators would rather slow the closing of stores, this is one situation where the opposite is apt to be way more beneficial.