Sears Holdings Corp.’s plan to shutter more stores will hurt struggling lower-tier regional malls most, according to the latest Moody’s report.
Sears SHLDQ, -3.42% said it would close more than 260 stores when it filed for bankruptcy in October, leaving it with about 400 stores if the company moves forward with the latest bid from Chairman Eddie Lampert’s hedge fund ESL Investments.
Sears had about 1,400 stores a couple of years ago, Moody’s says.
See: Gold’s Gym is taking over vacated Sears locations
“With the recent bankruptcy of Sears, store closures in well located or otherwise well performing malls may present the opportunity to replace or reposition a vacant Sears box with tenants that pay higher rents and will enhance the consumer draw to the overall center,” the report says.
Many malls have filled empty anchor space, which can span tens of thousands of square feet, with health clubs, grocers, and other businesses.
But, Moody’s says, repurposing space is a pricey endeavor, and a mall that’s already in trouble may not have the means to take on the expense of bringing on a new tenant.
“The exposure to the defaulted retailer is most concentrated in the portfolios of the regional mall REITs, CBL & Associates and Washington Prime for whom Sears is a common anchor tenant,” Moody’s analysts led by Christina Boni wrote.
Moody’s estimates that the department store sector shrank by about 13% in 2018, due primarily to Sears and Bon-Ton Stores Inc. closures, and forecast a further 3.5% contraction in 2019. That number could increase if other troubled retailers, like J.C. Penney Co. Inc. JCP, +1.32% , close more locations.
Still, there are winners in this situation. Moody’s highlights that the Bon-Ton liquidation generated sales for Macy’s Inc. M, -1.21% and Kohl’s Corp.KSS, +0.84% . Bon-Ton’s 260 stores had $2.5 billion in sales in 2018.
Sears still sells about $2 billion in apparel. Macy’s stands to benefit the most from Sears vacancies with 26% store overlap. J.C. Penney has more stores within range of a Sears, 20% of its 864 fleet, but it also has greater exposure to weak malls.
Dilliard’s Inc. DDS, -4.24% is also well-positioned to reap rewards.
Sears stock has shed 80% over the past year while Macy’s is down 8%, J.C. Penney has taken a 66.4% nose dive, and Dillard’s has lost 8.2%. The S&P 500 index SPX, +0.69% is down 6.5% for the last 12 months.
By: Tonya Garcia (Market Watch)
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The department store sector shrank by about 13% in 2018 and is poised to shrink further
