Sears Canada is not exiting the Canadian market, said president and Chief Executive Officer Calvin McDonald, after announcing that two more stores will be closed next March, at Yorkdale Mall and Square One in Mississauga. The location at Scarborough Town Centre might also be closed.

“This is not Sears giving up and leaving Canada. We’re still the largest department store in the country,” said McDonald.

Readers react to news of the closures

The deal with Oxford Properties Group is worth $191 million. In addition, Oxford Properties paid $1 million for an option to buy out the Sears lease at Scarborough Town Centre for a fixed price of $53-million. It has five years to exercise the option.

The 657 employees at the Yorkdale and Square One locations, full time and part time, will be offered work at other local Sears locations, said McDonald.

The news pushed Sears Canada stock to its biggest gain in more than a year, according to Bloomberg, rising 12 per cent to $10.60 at 11:22 a.m.

Last year, Sears Canada returned three leases to mall owner Cadillac Fairview, giving up prime locations at malls in Ottawa, Vancouver and Calgary for $171-million. It later sold back another lease at the Deerfoot Mall in Calgary.

Seattle-based department store retailer Nordstrom will open stores in those three former Sears spaces, and new locations at Sherway Gardens and at Yorkdale. It hopes to eventually operate as many as ten department stores in Canada and at least 15 Nordstrom Rack discount locations.

The first Nordstrom is schedule to open in Calgary in 2014.

McDonald said there is no plan to exit urban centres, but Sears is seeing a lot of success in suburban stores.

“We grew up in rural Canada, back in 1953. We grew from suburban into urban locations. I’ll trade in any area if it complements our trade model,” he said.

Oxford Property CEO Blake Hutcheson said no decision has yet been made about the future of the spaces at Yorkdale and Square One.

He said they may replace Sears with a single tenant or redevelop the locations for a mix of new tenants. Although tenant anchors are important at malls, in particular smaller malls, properties as successful as Yorkdale and Square One become draws on their own, he said.

The Yorkdale location is 185,000 square feet. Square One is 175,000 square feet. The Scarborough Town Centre location is the largest, at 240,000 square feet

The properties are co-owned by Oxford Properties Group, the real estate arm of the Ontario Municipal Employment Retirement System, and the Alberta Investment Management Corp., also known as AIMCorp.

McDonald said the strategy is another way to leverage the real estate assets of Sears. It has also applied to the City of Burnaby to build on a nine-acre property it owns near the Metropolis at Metrotown, the largest shopping mall in British Columbia. The proposed project includes seven residential and office high-rises, along with ground-level retail space.

“Shutting stores is not a go-forward strategy,” said retail consultant Ed Strapagiel.

“All these stores are in prime retail properties where Sears would have long-term leases with renewal options and likely very favourable rates. It appears that Sears can’t make these locations work in terms of sales and profitability – and that speaks volumes,” said Strapagiel.

Loading... Loading... Loading... Loading... Loading... Loading...

“I think Calvin McDonald well understands where Sears Canada needs to go and he’s moving as fast as he can. But it was always going to be a difficult and perhaps impossible journey.”

Strapagiel pointed out that discount retailer Target is rolling out across Canada, with Walmart and Costco expanding to compete, along with smaller new competitors including Marshalls and Crate & Barrel.

The Yorkdale Sears opened in 1991 and the Square One store in 1973.

Sears operates 116 full-line department stores across Canada and six distribution centres.

McDonald, 41, was brought in by Sears Canada in 2011 to manage a three-year transformation of Sears Canada.

Sears Canada posted a $31.2 million loss as well as lower revenue in its latest quarter announced last month. In January the retailer cut 700 jobs, primarily at its distribution centres.

Sears Canada has had declining revenue for the last seven years.

But McDonald, who is fighting in an increasingly competitive environment at a time when debt-laden consumers are spooked about spending, said Sears is seeing important successes. Accessories and apparel have grown for two quarters in a row compared with the previous years, and stores that have been updated with new fixtures, product mixes and a newly energized staff are trading well.

Retail analyst Keith Howlett of Desjardin Securities rated the sale as positive.

In a note to clients, he said Sears will only monetize a select few of its leased locations, when presented with a financial offer that is substantially higher than what the store would earn if it stayed open. He predicted that Sears will declare dividends of $1 a share before year-end, subject to any change in operating performance.

“We continue to view 2013 and 2014 as pivotal years for Sears Canada as it implements its revival and rejuvenation plan in the context of ongoing expansion of U.S. retailers, such as Target and Bed Bath & Beyond. Our view is that the plan is well constructed and cohesive. Early signs are positive that consumers are receptive and still engaged with the brand. Nonetheless, the challenge is considerable.”