Nothing is certain in retailing, especially for a retailer with sales and earnings as poor as they have been for Sears Holdings, according to a commentary yesterday in Forbes. Observers suggest the company is heading toward oblivion. Closing about 150 stores including 92 underperforming Kmart stores, shutting down pharmacies, ceasing operations in 50 auto centers and reducing staff everywhere encourages such a conclusion. It certainly looks like Sears' management (a/k/a Eddie Lampert) is monetizing Sears’ assets possibly before it files for bankruptcy. A counterpoint to this sad tale is the fact that Seritage Growth Properties, a REIT set up by Lampert, could benefit handsomely from a Sears Holding bankruptcy. Seritage has 266 of Sears' most attractive locations in its portfolio. Assuming that Sears Holding declares it is insolvent, the properties that now pay an average of $4 per square foot in rent might be reoccupied by new tenants that are ready to pay as much as $18 per square foot for the same space. That would dramatically improve Seritage’s profit profile, transforming it into a very valuable enterprise.
