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A woman walks her dog past the Sears store in downtown Vancouver, B.C., on Friday March 2, 2012.


Sears Holdings Corp. plans to spin off a large part of its stake in Sears Canada Inc. , a move that will ratchet up the pressure on the Canadian division to turn around its performance as a slew of U.S. rivals set up shop in Canada.

In an unexpected move, U.S. parent Sears Holdings Corp. said Thursday that it plans to reduce its stake in the Canadian unit to about 51 per cent from 95 per cent, and could further lower it after the spinoff.

The shift in direction signals that U.S. hedge fund manager Edward Lampert, chairman of Sears Holdings, is getting impatient with the Canadian operations' weakening performance. The spin off could put the ailing retailer – or its real estate – into play, touching off a wider shakeup in the increasingly cutthroat retail landscape.

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Sears Canada chief executive officer Calvin McDonald said he's not looking at a merger, takeover or alliance with another retailer at this point, and is not in any "aggressive discussions" to sell more than the three store leases he has already sold. "We're committed to operating as Sears in Canada," Mr. McDonald said in an interview.

The company is struggling to revive its sales, and reported discouraging first-quarter results on Wednesday, with sales at stores open at least a year – a key measure for retailers – falling 6.3 per cent. That drop was much steeper than the combined 1.3-per-cent decline reported by its namesake U.S. stores and sister Kmart discount chain. A big one-time gain on the closure of the three stores allowed Sears Canada to post a healthy profit in the first quarter. Sears shares declined almost 13 per cent to $11.45.

Mr. McDonald, who arrived almost a year ago from grocer Loblaw Cos. Ltd. , set out a three-year revival plan last year that includes focusing on "hero" categories such as appliances and mattresses, cutting prices and slashing costs. In recent years, Sears Canada has struggled to make gains, while archrival the Bay, owned by U.S. real estate magnate Richard Baker, is enjoying new signs of life.

The move by Mr. Lampert to sell off more of his Sears Canada stake comes as U.S. players threaten to touch off further upheaval in Canadian retail. Cheap-chic Target Corp. of Minneapolis is expected to pinch many incumbents, including Sears, when it opens its first stores in Canada by next March.

The entry into Canada by big U.S. players also sets the stage for scrapping over the country's best retail locations, since Canada's supply of attractive retail real-estate is considered scarce. Target set the groundwork for its move here last year in its $1.8-billion deal to buy store leases from Mr. Baker's Zellers. Savvy upscale Seattle-based Nordstrom Inc. is hunting for locations, and sources say it could be close to a deal for a store in Vancouver that Sears is abandoning this fall.

The added competition means Sears could be squeezed more in Canada, even as its store leases make it a more enticing as a takeover target. That will put more pressure on Mr. McDonald to either improve the company's performance, or look for alternatives. "Either they'll totally revamp ... or they'll go down the Zellers path [and find a buyer for its stores or operations.]" said Alex Arifuzzaman, a partner in retail real estate specialist InterStratics Consultants. "They have valuable real estate."

The plan to boost Sears' public float appears to grant Mr. McDonald's team at least a couple of years to test out his vision, said Keith Howlett, retail analyst at Desjardins Securities. "It should boost management and employee morale as the organization girds itself for battle with Target."

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He pointed to other potential threats: discount behemoth Wal-Mart Canada Corp., which is rapidly adding new stores (some of them Zellers outlets acquired from Target) and U.S. home-improvement chain Lowe's Cos., which also is expanding here.

There were some bright spots in the company's recent quarter, Mr. Howlett said. Sales picked up in the important appliance and mattress departments, while higher-margin sales of full-price items rose significantly.

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About the Author
Retailing Reporter

Marina Strauss covers retailing for The Globe and Mail's Report on Business. She follows a wide range of topics in the sector, from the fallout of foreign retailers invading Canada to how a merchant such as the Swedish Ikea gets its mojo. She has probed the rise and fall (and revival efforts) of Loblaw Cos., Hudson's Bay and others. More

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