European fashion retailer Primark will expand its entry into the northeastern U.S. market via retail space in seven Sears stores.
The lease agreements were inked between Sears Holdings Corp. and Associated British Foods, the parent of Primark. Six of those sites include a Sears presence utilizing a streamlined store format of up to 100,000 square feet of selling space. One of those locations will be at the Staten Island Mall. The King of Prussia, Pa., store, which currently houses a Dick’s Sporting Goods and a Sears store, will be the only one of the seven sites in which Sears will move out, leaving the site to be occupied by Primark and Dick’s.
The Weston family controls ABF. It also owns Loblaws in Canada and Selfridges in the U.K. Primark had already revealed plans to expand the low-cost fashion chain to the U.S. Primark plans to open a 70,000-square-foot store in Boston in late 2015 on the site of a former Filene’s Basement unit.
John Bason, chief financial officer of ABF, said the first couple of stores would open before Christmas 2015, and the King of Prussia location would be one of them. The others will open before Christmas 2016. Although he declined to reveal all the specifics regarding locations, he said the company is targeting areas of “high footfall in a corridor that runs from metropolitan Boston to metropolitan Baltimore, including New York, New Jersey, Connecticut, wider Philadelphia and Washington, D.C.”
The gross area of the stores will range from 70,000 to 100,000 square feet, while net selling space will range from 55,000 to 80,000 square feet. The King of Prussia store will have a gross area of 100,000 square feet. “King of Prussia is a real ‘wow’ — all of the retailers are there, and what a way for Primark to get known,” Bason said. He stressed that the retail model for Primark was very much the “standalone store” and said the units would look completely different from the Sears stores.
Bason said the deal with Sears was a major opportunity for Primark, “allowing us to go from one to eight stores in one fell swoop, with our choice of locations. We have made it very clear this is an important evolutionary step for Primark. The northeast of the U.S. is very fashionable and very Europe-facing. It’s a very good way for us to go.” He said the company would “consider” further expansion in the U.S. if these stores are successful, but added it was “way too early to say.”
Craig R. Johnson, president of Customer Growth Partners, said Primark is setting up a “distribution center in New England,” adding that “Primark is both fast fashion and mainstream softlines; Wal-Mart prices in a department store setting doing massive volumes with huge checkout lines. Quality is not exactly Selfridges, but is perfectly fine for the entire family.”
Sears Holdings has from time to time leased out space at its sites to third parties. A Kmart store in San Diego also houses a Northgate Market, while a Sears in Greensboro, N.C., operates with an adjacent Whole Foods occupying some of the original Sears space.
Sears said the move provides “additional revenue stream, drives efficiency in store operations and increases customer traffic.”
Investors reacted positively to the news, sending shares of Sears up 23.1 percent to $34.96 in Nasdaq trading Monday.
Sears has been the subject of speculation over its perceived liquidity issues. Some market observers believe it’s not a question of will Sears file for bankruptcy, but when. Sears has disputed the speculation over its demise, noting that it has sufficient liquidity via assets such as its real estate to fund operations.
Edward S. Lampert, Sears’ chief executive officer, has been moving assets around. The latest is a rights offering for senior unsecured notes and warrants to give existing shareholders the right to purchase additional shares of Sears Holdings’ common stock. The move, if subscribed, would generate up to $625 million in proceeds and is projected to close Dec. 1. Lampert also is chairman and chief executive of ESL Investments, the hedge fund that is the largest Sears stakeholder with a 48.5 percent equity stake.
Sears chief financial officer Rob Schriesheim noted on Sears’ blog that companies such as GE and Goldman Sachs have raised money through a similar structure while navigating “through changes in their business environment.”
Schriesheim added that the leasing arrangement in some cases has allowed Sears to turn “unprofitable or unproductive space into profitable space.” He also emphasized what Lampert has said in previous earnings conference calls: “Changes in consumer behavior are driving our vision and our actions.”
The latest rights offering is on top of the one recently revealed for Sears Canada that is expected to generate up to $380 million in proceeds.
With the new Sears Holdings offering, after including all financial moves this year such as Sears Canada currently in progress and the spin-off of Lands’ End, the retailer that operates the Sears and Kmart nameplates will have generated $2.07 billion in liquidity.