Written by David Castellon
Sears and Kmart stores across California aren’t among 68 stores that Sears Holding Co. announced last week it plans to close after the holiday season.
But more stores here and across the country could face closure as early as next year, as the financially-troubled department store chain has announced a deal with the federal government that would allow it to sell up to 140 stores to financially shore up its employee pension plan.
Those sales or loans obtained with some of those properties used as security could raise up to $407 million that could be injected into the pension plan, according to a press release issued Wednesday by the company.
The action stems from Sears Holdings entering into a five-year pension plan protection and forbearance agreement with the Pension Benefit Guaranty Corporation announced last year.
The amendment to that agreement announced Wednesday has the federal agency depositing $407 million into the pension fund in exchange for releasing the 140 properties from a “ring fence” arrangement that essentially set them aside from other company assets, allowing for their sales.
Sears Holdings will have to make a $37 million quarterly payment into its pension plan in December, but it would be relieved of further payments after that, while over the next two years it would repay the $407 million to the PPA through the property sales or loans obtained on them, the press release states.
Company officials haven’t released a list of those properties.
Sears Holdings had fallen earlier this year nearly $1.6 billion short of its pension obligation, according to news reports.
“This agreement with the PBGC is another positive step forward which, upon closing, will provide our company with financial flexibility while supporting our commitment to honor our obligations to the associates and retirees covered by the pension plans,” Edward S. Lampert, Sears Holding’s chairman and CEO, said in a written statement. “While the lower interest rate environment has had a significant, unfavorable impact on the pension plans’ funding, Sears Holding has demonstrated its commitment to honoring this obligation.”
Faced with growing competition from online sellers, Sears Holdings has been trying to stay afloat after years of losses in the hundreds and millions of dollars.
Part of the company’s response has been to close hundreds of its least-profitable stores. And in January, Sears Holding generated some much-needed income by selling off its popular Craftsman tool line to Stanley Black & Decker for a reported $900 million paid out over several years.
Sears Holding reported revenues of $4.4 billion in the second quarter of this year, down about $1.3 billion compared to the same quarter of 2016. Officials attributed that decline largely to the store closures cutting revenues by about $770 million, along with a reduction in the number of pharmacies in the stores still open and a reduction in its consumer electronics assortment, according to another press release.
Sears Holding’s announcement comes on the heels of reports by some media outlets that another of the nation’s largest department store chains, Target, plans to close a dozen of its underperforming stores after the holidays, though the company is opening stores in other locales.
Target Corp. posted no information about the closures on its website, but no California stores were on the list posted online with a USA Today article.