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LANDLORDS MULL KMART-SEARS DEAL

BY BRANNON BOSWELL

Several hundred Kmart stores will convert to the Sears Grand format and “nonstrategic real estate” will be divested under the plan by Kmart Holding Corp. and Sears, Roebuck and Co. to merge into a new entity called Sears Holdings Corp. The new company will be the third-largest U.S. retailer, with $55 billion in annual revenue and 3,450 stores. The companies expect to close the deal in March.

Though Kmart is technically the buyer, the transaction is a chance for Sears to grow by moving into off-mall Kmart stores in dense urban areas, executives said at a press conference. Sears will open 60 Sears Grand stores in 2006, but that is not enough to keep up with Wal-Mart and other rivals, said Sears Chairman and CEO Alan Lacy, who becomes vice chairman and CEO of Sears Holdings.

Kimco Realty Trust and New Plan Excel Realty Trust are the public REITs that will be most affected by the merger. Kimco derives 3.2 percent of average base rent from Kmart, and New Plan Excel gets 2.7 percent.

Right now both retailers are focused on getting through the holiday season. In January executives will begin examining stores and getting the conversion process under way.

Sears Holdings will grow its constituent companies’ profitability by raising the less-productive Kmart square footage to the $80-per-square-foot level that Sears stores average yearly. Management will look at each Kmart unit with an eye toward whether it should be converted to a Sears Grand or simply made into the best Kmart possible, said Kmart Chairman Edward Lampert, who will become the new chairman of Sears Holdings.

“It’s all about planting the right brand with the right demographic,” Lacy said.

Sears Holdings will continue to operate both retailers under their own banners, but merchandise — including Martha Stewart’s popular Kmart wares — and company culture will be the same at all stores, said Lampert. Kmart will not be moving into any Sears stores.

The move surprised many retail observers who had been distracted by Vornado Realty Trust, which revealed in November that it had acquired a 4 percent stake in Sears.

New York City-based Vornado has still not disclosed whether it plans to get involved in Sears’ real estate, but the firm does have six Sears stores in its portfolio of shopping centers.