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Sears Canada to close Eaton Centre store and 4 others in $400M lease sale

TORONTO – Sears Canada is closing its flagship location in Toronto’s Eaton Centre, as well as four other stores, in a move that will affect almost 1,000 employees and raises questions about the retailer’s turnaround.

Sears said it was selling the leases on five department stores, in a $400 million deal that amounts to the largest sale of leases since the company began shedding assets and cutting jobs in an effort to turn around its struggling operations.

The sale is especially notable because the Eaton Centre is one of the company’s most visible Canadian stores, located in a central tourist area.

About 965 employees across the company’s operations will affected by the move, although Sears Canada said employees who are laid off from closing stores can apply for other jobs within the company.

Under the agreements, store leases for Sears locations at Sherway Gardens in Toronto, the Markville Shopping Centre in Markham, Ont., London-Masonville Place in London, Ont. and Richmond Centre in Richmond, B.C. will be sold back to mall operator Cadillac Fairview and its partners.

Some of Sears’ previously-divested locations have already been picked up by U.S. high-end retailer Nordstrom, which used them to launch its first stores in Canada. That has prompted speculation that Nordstrom may also be eyeing the Eaton Centre or Sherway stores, which are seen as prime real estate for retailers.

The selloff has also prompted questions about the viability of Sears’ attempted turnaround, especially after Calvin McDonald, the retailer’s former CEO, abruptly resigned last month for a job at North American beauty giant Sephora.

McDonald, who had been the one who start the lease sales, was replaced by Doug Campbell, who served at chief operating officer at the company since last November.

Evan Mann, senior analyst at New York-based Gimme Credit, said his firm remained “skeptical” regarding Sears Holdings’ longer term prospects after the latest round of lease sales.

“This mornings’ announcement strikes us as a ‘sugar coated’ continuation of the struggling retailer’s orderly liquidation,” he said in a note to clients, noting that Sears Holdings Corp. in the U.S. also said Tuesday it was considering separating its Lands’ End and Sears Auto Center businesses from the rest of the company.

Sears Holdings Corp. said it would likely pursue a spinoff of Lands’ End and not a sale.

In Canada, Sears will leave most of the stores by Feb. 28, 2014, but will continue to operate its headquarters on the top four floors of its space in the Eaton Centre. Sears opened at the Eaton Centre in 2000.

The stores in Markham and Richmond will be vacated before Feb. 28, 2015.

After the latest round of lease sales, which are expected to close Nov. 12, Sears will have 111 department stores across the country.

Campbell said in a release the closures were in line with Sears’ ongoing strategy, since “unlocking the value of assets is one of the three levers we have said we will use as a way to create total value for the company.”

“When proposals such as this one are presented to us, we must weigh the value of the transaction against the value we will obtain from continuing to operate those stores in their current locations,” he said.

“In this case, we were presented with an opportunity that gives us a significant financial benefit without changing our plans to improve the business and make Sears more relevant to Canadians.”

Sears Canada has been closing some of its most prominent locations and reducing the number of employees in hopes that it can lower its expenses and improve its overall business as part of a three-year turnaround plan to respond to intense competition within the retail sector because of new entrants such as Minneapolis-based discount retailer Target (NYSE:TGT), and increased pressure from known rivals Wal-Mart Canada Corp. and Hudson’s Bay (TSX:HBC).

In August, the company announced plans to lay off 245 employees primarily at its head office in Toronto, with most of them in technical support and finance.

Sears Canada also recently sold leases for several prominent stores, including Toronto’s Yorkdale Shopping Centre and Square One Shopping Centre in Mississauga, Ont. Those were in addition to leases sold last year, including one at Vancouver’s Pacific Centre.

In its most recent quarter ended Aug. 3, Sears Canada reported that revenue fell 9.6 per cent for a year earlier, while it would have reported an $11 million loss when factoring out benefits from recent lease sales.

At the time, the company noted it was gaining traction in sales of apparel, but that big ticket items were weaker.