Sears bargain sell-off could ‘spoil’ Christmas for other retailers
Nationwide sales starting Thursday seen to hit rivals during their busiest season
Sears Canada’s exit from the market in the critical fourth-quarter selling period threatens to cast a pall over the coming holiday retail season as the company prepares for a mass liquidation of goods beginning this Thursday.
Sears Canada will begin selling off products in a broad range of categories at its 130 stores across the country. It will offer bargain prices on merchandise such as clothing and footwear, small and large appliances, home accessories and luggage, just before the busiest time of the year, a move that stands to sap business from rival retailers such as Walmart, Canadian Tire and Hudson’s Bay.
An Ontario judge approved the retailer’s request to liquidate last week after failing to reach a deal with its former executive chairman Brandon Stranzl to buy the business and keep some stores open. On Monday, the retailer confirmed Stranzl’s resignation.
“The liquidation is going to spoil the party for those retailers who are hoping to do what the fourth quarter is intended for, where after a year of hard work, the ink turns from red to black and they can generate margin and pay the shareholders,” said Jim Danahy, CEO of Toronto-based retail advisory firm Customer Lab.
He said many small retailers inside malls where Sears is an anchor tenant also stand to take a hit. “This isn’t good news for anybody operating in categories that Sears sells.”
Nevertheless, Danahy expects that Sears inventory levels are far lower now than they would be if the retailer were in good financial health, given that Sears filed for protection from its creditors in June as it attempted to restructure the business and find a buyer.
“I am going to bet that Sears went light on ordering some of the merchandise,” he said. “This isn’t the juggernaut that (U.S. investor) Eddie Lampert bought in 2005. This is a hollowed-out remnant. But the liquidation will be just enough to ruin the margins of everybody else for the (pre-holiday) period.”
The fourth quarter includes Black Friday, the holiday that offers deep merchandise sales one day after U.S. Thanksgiving in November. The shopping tradition, which began in 1952, marks a period after which retailers are typically “in the black,” turning a profit for the year.
“I’m not sure there is any good time (for a liquidation sale), but it would be better in February than in the last quarter of the year, because for many retailers the most important quarter of the year is the fourth quarter,” said Diane Brisebois, president of the Retail Council of Canada. “A liquidation of this size — we’re not talking $100 million here, we are talking a sizable amount of merchandise. In the short term, it will have an impact.”
Brisebois said she expects most large retailers have already put plans in place anticipating a Sears liquidation. “There will be shortterm pain for some retailers in this but there will also be an opportunity for long-term gain as they have an opportunity to gain some of that market share.”
The market share occupied by Sears had been steadily waning — last year it had $2.6 billion in sales, less than half what they were a decade ago. Target had 133 stores across Canada when it announced in 2015 that it would close down its operations in this country; fortunately for other retailers, that liquidation was in the first quarter of the fiscal year, generally the slowest period of the year for retail.
On Monday, Sears Canada also confirmed that it will not be able to honour its existing extended warranties on big-ticket products once the liquidation sale begins. For decades, the department store retailer has sold warranties that extend beyond the standard manufacturers’ warranties on parts and labour for goods such as refrigerators and dishwashers.
Sears said it will issue a full refund to any customers who have bought Sears Protection Agreements within the past 30 days.