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Originally published May 14, 2014 at 6:12 AM | Page modified May 14, 2014 at 9:38 AM

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Sears considering selling its Canadian operations

Sears is considering selling its Canadian operations as the retailer looks for ways to prop up its sagging business.


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NEW YORK —

Sears is considering selling its Canadian operations as the retailer looks for ways to prop up its sagging business.

The retailer, which operates its namesake stores and Kmart locations, said that it's looking at strategic options for its 51 percent interest in Sears Canada. The Hoffman Estates, Illinois-based company said this includes the possible sale of its stake or possibly the entire Sears Canada operation.

Sears Canada's board and management plan to cooperate with Sears Holdings as it explores strategic alternatives.

The news comes as Sears Holdings Corp.'s chairman, the billionaire hedge fund manager Eddie Lampert, has been under intense pressure to turn around its business. He took over as CEO in February 2013.

Sears has had trouble adapting as bigger, nimbler rivals such as Wal-Mart and Home Depot have attracted its customers over the years.

Sears is trying to transform itself to into a member-focused business rather than a company that simply runs a store network. Loyal shoppers now receive incentives to buy. But its results have been hurt as it continues traditional promotions while investing in its membership program dubbed Shop Your Way.

Sears previously sold some store leases in Canada. It recently spun off clothing business Lands' End as a separate public company after not having much success with it.

The possible sale of its business north of the border also comes as several U.S. retailers, particularly Target Corp., are having difficulties cracking the Canadian market, about one tenth the size of the U.S. market.

The two countries are neighbors and they are culturally similar. But Canadian stores are grappling with a web of costly regulations and a slower Canadian economy and increasing competition are making the retail landscape look a lot like the U.S. economy.

Sears expanded into Canada through a joint venture in the early 1950s, but it has seen heightened competition from rivals Home Depot and Wal-Mart that entered Canada in the 1990s. The momentum picked up during the Great Recession. Target, based in Minneapolis, expanded into the Canadian market last year with more than 100 stores, marking its first foray a market outside the U.S.

But Target's merchandising mistakes and poor locations have resulted in a $724 million loss on lower than-expected sales for the year ended Feb. 1.

The botched up expansion was one of the key factors behind last week's abrupt departure of Target's CEO Gregg Steinhafel who also faced intense scrutiny in the wake of its massive data breach.

In an interview with The Associated Press last week, John Mulligan, Target's chief financial officer, who is serving as Target's interim CEO until a permanent replacement is named, vowed that it would not scale back on its expansion plans in Canada. Target's longer-term plans call for reaching $6 billion in revenue in that country. But Mulligan noted it was making several leadership changes to help fix the problems.

Analysts say that Sears is a much different story.

"(Sears) resembles the atrocity of the U.S. business," said Brian Sozzi, CEO and chief equities strategist at Belus Capital Advisors. "It's almost a shell outfit."

In 2012, Sears announced plans to restore profitability by cutting costs, reducing inventory, selling off some assets and spinning off others. Those moves helped the company reduce net debt by $400 million and generated $1.8 billion in cash from the asset sales.

Sears has spun off other businesses over the past three years, including its Hometown and Sears Outlet stores and its Orchard Supply Hardware Stores, to raise cash.

The company's shares fell 95 cents, or 2.2 percent, to $42.28 in afternoon trading after rising as high as $45 earlier in the session. Its shares have fallen more than 6 percent over the past year.



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