8.25.16: Sears/Kmart Continue to Falter

Sears and Kmart continue to struggle in a retail environment in which only “best in class” retailers are able to grow sales and profits. Sales have declined for the last ten quarters, including a 7.1% decline in the fourth quarter of 2015 and an 8% decline in the first quarter of 2016.

sears-salesSears stores “now seem to be in a perpetual state of decline,” Neil Saunders, CEO at retail consulting firm Conlumino, wrote in a note to clients Thursday. “The underinvestment clearly shows, and as such, they are caught in a vicious cycle of seeing lower and lower customer traffic, which further weakens the case for investment and reinvigoration.”

Once one of America’s leading discount retailers, Kmart raked in $37 billion in sales in its 2000 fiscal year. Last fiscal year Kmart registered only $12.1 billion in sales. That’s a dramatic 67% sales plunge in a little more than a decade. Americans have likely noticed the decline in their towns. Kmart had 2,165 stores in 2000. Now it has only 979.

Both chains have reported years of losses and are continuing to survive through loans from its owner, Eddie Lampert, who bought Kmart when it was in bankruptcy in 2003 and quickly married it with Sears to form Sears Holdings. Today Lampert is the combined company’s chairman, CEO and leading shareholder.

CMBS pros are concerned about the health of Sears Holdings because Sears and Kmart anchor many CMBS conduit loans, particularly Class B/C malls, which are struggling with other poor performing retailers. A potential bankruptcy and liquidation of Sears/Kmart would put addition pressure on property owners with Sears/Kmart tenants, likely resulting in higher CMBS conduit loan defaults.

 

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This entry was posted in CMBS, CMBS Conduit Loans, Commercial Lending, Commercial Real Estate Loans, Michael D. Sneden, News & Recent Closings, The Banker's Mortgage Conduit, Valuexpress and tagged , , , . Bookmark the permalink.

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