Sears Holdings announced that it would be closing at least 100 Sears and Kmart stores after a disappointing holiday season. Investors acted as if the poor sales were a surprise and sold on the news. The stock plummeted more than 25 percent.
In a rational market, the fact that Sears will be closing some stores should have been welcome news to investors who have watched sales fall at those stores for the past several years.
Closing stores could be a sign that the company is focusing on future profits.
Instead, investor selling seemed to indicate they have lost faith in the company’s ability to change the history of its sluggish performance.
Despite the decline in sales, Sears still reports more than $40 billion a year in revenue and is considered by some analysts to be valuable because of its real estate holdings. The book value of the company, including about 800 store properties that it owns, is more than twice as high as the stock price after the sell-off.
With the sell-off, investors are showing that they think Sears could have trouble selling off its vast real estate holdings in the current market. This confirms the perception that retailers are moving away from malls and could force investors to rethink real estate investing strategies.
With Sears, most investors have believed that the retail side will continue to struggle against competitors like Wal-Mart and Target. More importantly, they now seem to be saying that the value of the property Sears owns is also declining.
With almost 10 percent of retail space vacant in malls and even more than that available in strip malls, Sears may be sitting on real estate that no one wants at any price, a bad sign for the economic hopes of 2012.
Sears could be a key indicator of how well commercial real estate, and the economy, will fare in the year ahead.
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