See Ya, Sears – Amazon and the Uncertain Future of Retail Real Estate

In a continuation of the far-reaching Amazon Effect, retail giant Sears has announced Thursday that it will be closing 72 stores across the United States. The locations of these stores, which have been deemed to be unprofitable, are set to be released Thursday. This announcement is casting a shadow of the future of retail real estate.

The announcement comes in the wake of some troubling times for Sears. Over the past year, Sears has closed some 400 stores. The company recently disclosed its 26th quarter in a row of declining sales. Sears last reported an increase in revenue in 2011 and has since lost over 11.2 billion U.S. dollars. The company has also reported that it is considering divestment from Kenmore, its appliance brand.

Last Ditch Attempts to Adapt
There are other measures being considered by the Chief Executive of Sears, Edward Lampert. He is talking about submitting offers on some of Sears’ real estate property. This real estate is currently securing a large chunk of the company’s debt. Lampert is also the principal shareholder of Sears and the largest lender to the company.

Last quarter, Sears reported a fall in revenue of 31%. This is in part due the previous closures of stores, leading to a reduction in sales. At the stores that remained open, revenue drops were closer to 12%. All in all, this represented a loss of 424 million US dollars for the already embattled company. The overall reduction in profit due to store closures seems to beg the question of how this new announcement of store closure will affect earnings in the next quarter and beyond.

This move marks yet another stage in the precipitous decline of the in-store retail market, which has been losing out to online stores like Amazon. Various dominant retailers like JC Penny, Macy’s, and Toys “R” Us have felt the effects of the consumers’ shift towards online shopping. Some, like Toys “R” Us, have tried to mediate this by maintaining a web presence while closing physical stores.

Sears has attempted to follow this trend by expanding their online sales. In fact, Sears recently cut a deal with Amazon in order to sell Kenmore products on the Amazon website. This did help Sears products to reach a bigger audience, but not enough to balance the losses the company has suffered. It seems as if it might be too late for Sears to recover from the immense financial hit it has taken recently. The new store closings may be a step towards the fall of the Sears company.

Future Uncertainty
As physical store locations have become increasingly unnecessary for profit in retail, uncertainty is falling over the future retail real estate. Retail spaces like the 72 stores Sears will be closing were once very valuable, but will now stand empty. Ground floor properties that were at one point an incredible asset to landlords for their potential as retail spaces will suffer from the devaluation of in-store shopping.

How the Sears stores will be filled or whether these spaces will be valuable in the future remains unclear. This kind of uncertainty especially affects the landlords who own retail properties. As the Amazon Effect continues to defeat their primary clientele, these landlords must find a way to adapt. The marketing and usage of their properties must change in order to satisfy the needs of a rapidly changing consumer base.

If the spaces cannot be filled, then the properties on the land may have to be reworked entirely. This could represent a massive burden to landlords in retail real estate.

It is clear that this announcement adds to the question of how virtual and physical spaces will interact going forwards.

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