Tears for Sears

Closing the Sears store at Ala Moana Center next year will come at a big price — $250 million, to be exact.

That is what mall operator General Growth Properties Inc. will pay to buy Sears Holding Corp.’s lease on the 340,000-square-foot anchor site at one of the top-grossing shopping centers in the country, said Alexander Goldfarb, managing director for New York investment banking and equity research firm Sandler O’Neill & Partners LP.

Chicago-based General Growth will spend another $250 million to redevelop the Sears space and add another 270,000 square feet at Ala Moana for smaller retailers, according to Sandler O’Neill.

News of the departure of Sears, an Ala Moana anchor tenant since the 1959 opening of the mall, was met with a mixture of anxiety, nostalgia and anticipation. Employees were worried about their jobs, kamaaina were sad to lose a place infused with memories and younger shoppers were looking forward to the possibility of bringing some of their favorite mainland retailers to Hawaii for the first time.

For Sears, which reported a fourth-quarter loss of $2.4 billion on Thursday, the sale will bring some much-needed cash.

The company said it is selling 11 stores in nine states to General Growth for $270 million. The most valuable by far is the Ala Moana store. General Growth has valued the Ala Moana location at $250 million, and the other 10 locations at $20 million, or $2 million each, said Goldfarb, based on information from General Growth.

Ala Moana is General Growth’s "most productive mall," generating more than $1 billion in annual sales, and the company wants to increase the revenue it gets from the Sears space.

"The real jewel (in the 11-store deal) was getting that Sears box at Ala Moana," Goldfarb said. "Clearly it’s a major investment. They’re going to replace the Sears with another user, whether it’s one user for all that space or a few big users."

General Growth spokesman David Keating said the firm is in talks with retailers ranging from national department stores to big-box chains to fill the prime shopping real estate.

"We could replace them with another department store anchor, big-box store or there is an option we could replace them with a boutique of shops," he said. "There’s a lot of opportunities we’re looking at right now. We haven’t settled on anything. With Ala Moana being the gem of our portfolio, certainly it’s something we’ve committed a lot of time and resources and talent to because it’s important to us."

General Growth said its purchase of the Sears stores will close in the second quarter of this year, but Sears will continue to operate its stores until sometime in 2013. Sears said final closing dates will be determined and announced later this year.

Sears spokeswoman Kimberly Freely said closing the Ala Moana store "made good business sense for both companies" and was "not necessarily tied to any type of performance."

She wouldn’t disclose the number of employees or sales figures at the Ala Moana location.

"When the store eventually does close, our policy is to notify employees of open positions at nearby Sears and Kmart locations," she added. "These are always difficult decisions for the company whenever we close any of the stores."

There are seven Sears stores and seven Kmarts in Hawaii. Only the Ala Moana store is affected by Thursday’s announcement.

Another casualty of the Sears closing may be the roughly 20 subtenants at the store, including Zippy’s, Ba-Le Sandwich Shop, Dave’s Ice Cream, Starbucks, Jamba Juice, H&R Block, AT&T and Celebrity Tuxedos.

But while some jobs could be lost, others will be generated with the redevelopment and expansion of that end of the mall.

"A lot of jobs will be created through the construction and renovation and occupying of other retailers," Goldfarb said.

General Growth is willing to invest in Ala Moana because of the high sales and rents.

Ala Moana stores earn more than $1,200 per square foot per year, which is triple the earnings for the average U.S. mall. Ala Moana commands rents of $200 per square foot per year, Sandler O’Neill said in a report Thursday.

The last major department store anchor, J.C. Penney, to close at Ala Moana was in 2003.

While Sears has been a household name for generations of island shoppers, the dated department store chain has gradually lost much of its appeal among younger shoppers.

General merchandise stores like Sears have faced stiff competition since big-box giants like Costco and Walmart entered the Hawaii market.

Sears Holdings Corp. said in December it would close as many as 120 of its stores nationwide to raise up to $170 million in cash from inventory and lease sales after a weak holiday shopping season, but the Ala Moana store was not on the original list of 79 stores being shuttered.

The retailer, which operated more than 2,000 stores nationwide as of January, has struggled with declining sales and deteriorating stores as rivals, such as Target Corp., spruced up their spaces.

"The department store category has been suffering over the last couple years. It’s been hit hard by big-box discount warehouses, and on the other side are being stretched by boutique firms that sell specialty apparel," said Mike Hamasu, director of consulting and research at Colliers International in Hawaii.

"You see them suffering because people no longer go to one store to buy everything. You have these category killers saying we can give you a deeper, better, wider selection and a cheaper price than if you go to Sears. That’s just the general trend; people are looking for value now."

In its earnings report Thursday, Sears said revenue fell 4 percent in the fourth quarter to $12.5 billion from $13 billion. News of the closings and other changes, announced before the market opened Thursday, sent Sears’ shares soaring $9.72, or 18.7 percent, to close at $61.80 on the Nasdaq.

HawaiiNewsNow Video: Sears selling Ala Moana store, closing next year