Real Estate Assets Offer Opportunity for Sears

 | Sep 14, 2018 | 1:58 PM EDT
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Sears Holdings Corporation  (SHLD)  should look to its strong presence in big-box stores as a lifeline.

As Sears Holdings Corporation shares fall back to earth, rising  over 20% leap up this morning, experts are wondering if the company might be able to utilize its strong real estate footprint to make a more sustainable share recovery. Sears jumped 3.3% as of 1:57 p.m. in New York.

"The one thing Sears does have is space," Mary Epner, principal at Mary Epner Retail Analysis told Real Money in an interview.

She explained that CEO Eddie Lampert would be wise to utilize his extra space which is often wasted or covered up with fake walls so as not to make the stores look barren.

"Why not take some of that space and rent it out?" she wondered. "I think that's right up Eddie Lampert's alley."

Lampert took the step of spinning Seritage Growth Properties off of Sears three years ago in order to better manage the company's many properties and dip his toes in this type of endeavor.

The spin-off has taken charge of trying to monetize some of Sears' more popular properties.

While more rural are on sale for under $100,000, Epner thinks the Seritage initiative could go further and take advantage of these lesser-valued properties in more creative ways.

The value of the Seritage properties stands at $2.7 billion as of a 2017 annual report. The report adds that the Seritage properties are projected to generate an additional $300 to $500 million in development opportunities per annum.

 The total value of the core properties is unknown, though the company did disclose in a public agreement with the Pension Benefit Guaranty Corporation that 138 properties in the Sears Holdings portfolio have an aggregate appraised value of approximately $985 million.

Yesterday's earnings release outlines that Sears operates 866 total locations, including Kmart stores. The figure reflects a reduction from 1250 stores in operation in 2017.

E-commerce Engagement

Epner advised that the company take a page from Kohl's Corporation's (KSS) book and engage online retailers like Amazon in order to drive foot traffic.

"They could become a destination for a pickup or return point," she said. "Online retailers like, Inc. (AMZN) need space and space and ease of visiting stores are two of the major positives for Sears."

She drew a parallel to Kohl's, which has drawn praise for its own partnership program with Amazon.

"We view a meaningful expansion of the partnership as a potential catalyst for KSS because the ability to return Amazon-purchased goods at Kohl's stores is an incremental driver of foot traffic," D.A. Davidson & Co. senior research analyst Tom Forte told Real Money in an interview on the subject last month.

Epner wondered why Sears could not do the same.

"I think a lot of big box retailers will have to partner with online retailers in the future," she said. "I think that could help Sears."

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