January 18, 2013 / 4:13 PM / 6 years ago

Sears Canada CEO admits slow progress on turnaround

TORONTO (Reuters) - Sears Canada Inc SCC.TO will stick to its three-year turnaround plan, Chief Executive Calvin McDonald said on Friday although he conceded he was not entirely happy with the company’s progress in the 19 months since he took the top job.

People walk past the main Sears store in downtown Vancouver, British Columbia February 23, 2011. REUTERS/Andy Clark

Last week, the department store chain’s parent, Sears Holdings Corp SHLD.O, said the performance of the Canadian unit would likely hold back its own fourth-quarter results.

“There are areas that I wish were further along in our transformation plan,” McDonald said in an interview. “We still have a lot of work to do.”

Sears Canada’s sales at established stores, a key measure for retailers, fell at least 4 percent each year between 2008 and 2011, with the decline reaching 7.5 percent in 2011. There was no relief through McDonald’s first full year as CEO - in the third quarter to October 27, 2012, same-store sales dropped 5.7 percent.

Sears Holdings trimmed its stake in the Canadian unit from about 95 percent to 51 percent in November, distributing the stock to its own shareholders. The parent company’s top shareholder is Chairman Edward Lampert, also appointed CEO last week.

McDonald said he is not changing his plan for the Canadian company, which calls for boosting service and sprucing up some stores as well as refocusing on several “hero” categories where he believes Sears is strongest, like mattresses and major appliances.

He said there has been growth in major appliances, mattresses and baby goods. The baby section, revamped in June, achieved double-digit sales growth at established stores, and inventory is in better shape.

But apparel lagged until the fourth quarter, and home decor and Craftsman tools have been “challenges.”

McDonald’s latest target is apparel, and the company on Thursday announced new design deals with denim brand Buffalo International Inc and Aldo Group, a Canadian footwear designer and retailer.

Sears Canada will do less design work in-house, McDonald said. It hopes better design will boost sales of private-label clothing, which makes up more than half its apparel business.


Canadian retailers are bracing for the entry of U.S. discount retailer Target Corp (TGT.N), set for this spring, and experts say Sears Canada may be particularly vulnerable.

One early impact has been a tight retail job market, and McDonald said Sears launched new retention programs and a “future leaders” program to hire new store managers and buyers. But he played down the idea that Sears and Target have very similar markets.

“Canadians will shop at Target. They’re going to be new and interesting,” he said. “But they offer a value equation that’s different and unique in the marketplace.”

On December 13, Sears Canada said it would pay a C$1.00-a-share special dividend, and McDonald said the payout was not inconsistent with his turnaround push.

“The business, financially, is still healthy. We have a strong balance sheet, we have no debt,” he said. “We still have access to a lot of means to drive the transformation.”

Sears Canada closed three major downtown stores in Vancouver, Calgary and Ottawa in the fall, in return for a hefty payout from developer Cadillac Fairview. In December it said it had agreed to sell its share of a leasehold interest in an Alberta mall.

McDonald did not rule out closing other stores: “We’re constantly evaluating our portfolio of stores,” he said.

Reporting by Alison Martell; Editing by Frank McGurty, Phil Berlowitz, Janet Guttsman and Steve Orlofsky

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