The Fall of an Icon — Sears and the Evolution of the Great American Shopping Mall


In a largely unsurprising move, Sears Holdings Corporation (Sears) filed for bankruptcy on October 15, 2018. Soon thereafter, the notoriously troubled franchise — which had already announced that 150 stores would close in 2018 — announced an additional two rounds of closures. The latest closures include an initial round of 142 locations, with liquidation sales expected to be completed by the end of the year, as well as a second round of 40 stores early next year, bringing total additional closures to 182 Sears and Kmart locations. Once these stores are shuttered, there will be under 700 Sears and Kmart stores remaining, down from approximately 3,900 locations combined in 2005, according to Forbes.

These closures typically represent large spaces property owners will be challenged to fill in a tumultuous retail environment that many have salaciously dubbed a “retail apocalypse.” This report will look at that environment and the related sales decline of Sears locations that have been on retail analysts’ radars for quite some time. DBRS has identified exposure to the Sears bankruptcy filing and closures within its rated commercial mortgage-backed securities (CMBS) portfolio and, in this report, will discuss prospects for the confirmed closures based on recent anchor repositions with other CMBS properties.

CMBS Exposure to Sears

Based on the DBRS Viewpoint database, there are approximately 220 properties in the United States that secure 282 non-portfolio CMBS loans and loan pieces with exposure to Sears and Kmart, either as a collateral tenant or a non-collateral shadow anchor within a regional mall or shopping center. This list includes a handful of properties exposed to Sears Outlet or Sears Hometown stores, which are owned by a separate entity that is not included in Sears’ bankruptcy filing; to date, no store closures for those divisions have been announced. Also, in some cases, the Sears or Kmart location at the properties backing these loans has already been closed or announced for closure in the near term. The largest ten CMBS loans exposed to Sears are listed in Exhibit 1 below.

Source: Viewpoint

E-Commerce on the Rise

The meteoric growth of e-commerce has left many traditional brick-and-mortar retailers reeling, particularly those that have been slow to adapt to the changing tastes of today’s consumer and properly integrate the online experience with trips to physical stores. The fast-growing inclination to buy things from our tablets and phones has meant that even retailers previously assumed to be somewhat immune to the online boom, such as grocers and personal services providers, have had to acclimatize quickly. Many retailers have embraced the hybrid model of e-commerce on their store websites with delivery or pickup options that bring the consumer to physical locations. Sears attempted this strategy, but simply waited too long to establish any real effort in making the physical locations attractive to modern shopper tastes. Efforts felt half-hearted and did not inspire confidence in the company’s ability to right the ship amid mounting debt as well as sharp and steady sales declines.

Replacement Trends

The company has completed several rounds of store closures over the last few years, halving its total store count since 2013, according to Business Insider. As such, affected property owners, particularly institutional players like Brookfield Properties, Inc. and Simon Property Group, Inc., have a high level of experience in tackling these vacancies and those left by other department store chains, including JCPenney, which has closed approximately 150 stores over the last few years, and Bon-Ton, which filed for bankruptcy and ultimately liquidated over 250 stores earlier this year. There has been much talk around boosting “experience” tenancy at malls and power centers, a trend borne out as Dave & Buster’s, Topgolf and Round 1 Entertainment Inc. were named replacements for Sears properties across the country.

But entertainment options aren’t the only choices — DBRS also sees retailers such as Dick’s Sporting Goods (Dick’s), Ashley Furniture HomeStore (Ashley Furniture) and Marshalls/HomeGoods popping up in former department store boxes. In the CMBS space, for example, Alderwood Mall in Lynwood, Washington, has reportedly re-leased its former Sears space to Dave & Buster’s, Dick’s and the Cheesecake Factory Inc. In addition, a Sears at Bellis Fair Mall in Bellingham, Washington, which closed before the CMBS loan was made was ultimately replaced by Dick’s and Ashley Furniture.

Dick’s has been expanding rapidly with an eye on increasing the appeal of its brick-and-mortar locations as well as integrating its stores with its online component. Although online furniture sales have been increasing with the rise of “cheap chic” options on sites such as and, Ashley Furniture remains a popular furniture retailer focused primarily on physical locations where furniture is displayed showroom-style and customers can try it before they buy it. Marshalls/HomeGoods does not currently offer a way to purchase goods online, but displays merchandise available in stores on their websites; this promotes a “find” focus for shoppers with a wide range of items across all departments and inventory varying by store, encouraging shoppers to frequently visit their favorite locations for the most recent additions.

DBRS Exposure to Sears Closures

Of the 182 closures announced since Sears filed for bankruptcy, DBRS found that 47 non-portfolio CMBS loans and loan pieces were exposed to confirmed closures, affecting approximately 35 properties. Including these closures, over the last 12 months, DBRS has identified 18 properties securing performing CMBS loans in DBRS-rated transactions with closing stores (see Exhibit 2). In most of these cases, the tenant in question is not collateral for the loan, but represents a healthy chunk of the overall property NRA with an average footprint of 148,416 square feet (sf ). When collateral tenants leave, the lost occupancy represents lost revenue for the property owner and, important for both collateral and non-collateral vacancies, a diminished property profile with the empty anchor space. Inline tenants may also have co-tenancy clauses that allow them to terminate or pay reduced rent when one or more anchors are closed.

Source: Viewpoint
Source: Viewpoint

Sales for the vacating tenants were available for ten of these properties with reported sales generally below the company averages of approximately $101 per sf (psf ) for Kmart and $87 psf for Sears in 2017. In-line sales for these stores were generally healthy, averaging $384 psf across the 13 properties reporting. These trends suggest the low sales for Sears and Kmart at these properties were largely a factor of the retailers’ diminished appeal within the market, and suggestive of opportunity for the respective operators to backfill the empty space with a more desirable retailer or entertainment option. The declining favor with American shoppers is evident in overall sales trends for the company, which have fallen precipitously over the last few years as shown in Exhibit 3.


Proactive Preparation is Key

Sears’ situation was a long time coming and, as such, property owners have had ample time to develop strategies for repositioning affected properties. In fact, news reports following the bankruptcy announcement have referenced statements by major mall operators, suggesting those parties are eager for the opportunity to acquire and repurpose the Sears spaces that are currently doing very little to draw traffic to their centers. DBRS has observed proactive measures in cases such as the West Town Mall in Knoxville, Tennessee, and the Apache Mall in Rochester, Minnesota, where Sears-owned boxes were purchased by the sponsors who have re-leased them to desirable replacement tenants or planned for renovations designed to accommodate multi-tenant leasing efforts. As sales trends suggest, most Sears locations targeted for closure were not the property’s primary draw; therefore, losing the store is unlikely to affect traffic significantly in and of itself. The malls most exposed to performance declines are those that already have vacant anchor space as most in-line co-tenancy clauses trigger when two or more anchors are closed and area shoppers have already developed a negative opinion of the center.

Operators who act quickly on repositioning these Sears spaces to meet the needs of today’s consumer and new generation of mall shoppers are more likely to transition smoothly in this environment. Many are already employing creative solutions that might have raised eyebrows ten years ago, such as panic rooms, bounce houses and fitness centers, which are now fair game as entertainment and lifestyle options are gaining popularity thanks to shoppers’ evolving tastes and trends. The great American shopping mall may ultimately lose one of its most iconic partners in Sears, but this opens the opportunity for change and modernization — a necessary process for retail survival that operators and retailers alike must embrace.

A copy of this research is available from, the DBRS website and on the Viewpoint blog.

Follow Stephanie Hughes on Twitter @StephHughes95.

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