Sears Canada bets on suburbs

 
Sears Canada chief executive Calvin McDonald says: "We are not going to be the destination for hammers."
 

Sears Canada chief executive Calvin McDonald says: "We are not going to be the destination for hammers."

Photograph by: Aaron Lynett, National Post , Financial Post

Sears Canada Inc. hopes to woo back its customer base in suburban and rural Canada with eye-popping store displays and a sharper assortment of fashion at four refurbished locations, retrofits chief executive Calvin McDonald will roll out to the rest of the company's department stores if the chan-ges click with shoppers.

But within a few dozen feet of the entrance at this reconfigured Sears outlet in Newmarket, Ont., sits a stark reminder of the challenge the company faces - a Zellers store that in 10 months will become one of Target Canada's first 24 locations. Sears' other new-format outlets are in Barrie, Belleville and Hamilton, Ont.

"Suburban and rural com-munities are where we have a real opportunity to become relevant," Mr. McDonald told visitors on a store tour of the location Thursday, noting the business had its roots in rural Canada and only became an urban retailer with the purchase of the insolvent Eatons chain in 2000.

"Instinctively every retail nerve I have says this store is going to perform much better."

Mr. McDonald, a Loblaw executive who took over the top Sears job last summer, is under the gun to improve results at the flagging department store chain, whose profits and sales have slid annually since 2006.

In a recent analysis of retailers with the most to lose when Target opens 125 to 135 stores in Canada next year by retail analytics firm KubasPrimedia, Sears and Wal-Mart Canada Corp. topped the list.

To that end, the updated Sears store has taken a page from what merchandising maven Bonnie Brooks has done at the Bay, which also has a store in this shopping mall about an hour outside of Toronto. The aisles, decluttered of the boxes of merchandise and randomly placed racks that were long a custom at Sears, appear to be wider, and are bookended by "power towers" of popular goods.

Sears has boosted the square footage in categories it sees as strengths, or as Mr. McDonald says, "categories we can win at" - kids and baby clothing and gear is up 30% and there has been a 20% to 30% square footage expansion in footwear and accessories. Long a strength, mattresses and appliances suffered double-digit same-store sales declines last year up until September, but focusing on improving the merchandising has led to growth in the single digits, he said.

Sears has cut floor space for the categories it is weakest in, such as electronics - reduced by 30% to 40% in square footage due to lack of profit and stiff competition - and smaller hardware items.

"We are not going to be the destination for hammers," Mr. McDonald said.

Focusing on the suburbs is part of what Mr. McDonald envisions as playing to the company's roots, but it also may be a sign of the company's future real estate footprint.

Sears Canada has already sold leases for three valuable city locations back to mall landlords. Meantime, U.S. retailers such as Nordstrom and Saks are reportedly keenly eyeing space at urban department store locations in Canada, such as Toronto's Eaton Centre.

Once a decision has been made about the suburban format, it should take about 18 months to similarly reconfigure the remaining stores in the chain, said Mr. McDonald, who expects another four to six refurbished outlets should be completed in the fall before the critical holiday shopping period begins.

The new stores are making their debut a week after parent company Sears Holdings Corp., said it will slash its share holdings in Sears Canada to 51% from a current level of 95% in the form of a share spinoff to its own investors later this year.

Noting the company will have more shareholders over the next two to three months - Sears Holdings has not given an exact date for the spinoff - Mr. McDonald did not rule out a newly liquid Sears Canada would return to the practice of holding quarterly conference calls with analysts, the bulk of whom dropped coverage on the company's illiquid stock in the past five years.

"By the fall I think our investor relations strategy will be different and more open," he said.

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