PRINT THIS STORY:

CHANGE TEXT SIZE:

SEARS MOVE WILL BOOST CENTER TRAFFIC

BY DONNA MITCHELL

Neighborhood and community center landlords will probably do well if Kmart Holdings successfully converts 400 of its stores to Sears units over three years, as it plans, because Sears is a major traffic draw, says Ryan Dobratz, a retail equity analyst at Chicago-based Morningstar.

Kmart did not specify which stores it will target for the changeover, but it did say in a Securities and Exchange Commission filing that Kmart units in areas more suitable to Sears customers are the most likely candidates, in the interest of accelerating Sears’ growth away from the mall format.

In February Sears announced plans to buy 50 Kmart stores, adding later that it would convert about half of them to Sears units. The company also said it planned to turn three of them into Sears Grand stores.

In the meantime, Kmart managed to boost fourth-quarter profits by cutting its steep discounts and beefing up merchandise, Dobratz says.

Also in February, Sears unveiled its Sears Essentials concept, designed for open-air centers and featuring a layout more akin to that of discounters such as Wal-Mart and Target. Twenty-five Sears Essentials stores will open this spring, says Sears chairman and CEO Alan J. Lacy.

“Sears Essentials will lead the way as we embark on the most aggressive growth initiative in company history,” Lacy said in a press release. “This new store format enables Sears to grow its brand off the mall and better meet the everyday needs of our consumers.”

According to Morningstar, the public REITs with the greatest exposure to Kmart are Kimco Realty Corp., with 36 stores (2.6 percent of total rent), New Plan Excel Realty Trust, with 29 stores (2.6 percent of rent), and Developers Diversified Realty Corp., with 24 stores (1 percent).

Post-merger, Kmart Holdings will become the third-largest retailer in the U.S., operating 3,800 full-line and specialty stores in the U.S. and Canada and pulling in approximately $55 million in annual revenues. Kmart and Sears announced their merger in November.