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Sears sees more small stores in its future. Here’s what that would look like

With six years of contract sales and a wave of maturities coming due in 2018, Sears is in a fight for its duration.

Earlier this year, the department store chain cautioned it may not be expert to continue as a going concern. But despite that warning — and a widening gap between its assets and encumbrances — Sears has made some aggressive moves to reimagine its future. The big bet has been on proceed d progress smaller.

“Innovative smaller-format stores continue to showcase our company’s unequalled integrated retail capabilities by combining new technology, our strongest categories and in-store experts,” Chief Monetary Officer Rob Riecker said Thursday on a prerecorded conference call.

“We mean to open similar innovative concept stores moving forward as we whet our focus on new ways to best serve our members,” Riecker explained.

Premised its steep losses and a widening deficit — which mushroomed to more than $4 billion in the third residence from $3.4 billion a year ago — to some degree, Sears has skimpy choice but to whittle itself down. But the smaller format stores also may be righteous the right size for today’s shoppers.

Other retailers, including Object and Nordstrom, are also experimenting with scaled-back spaces that can be numerous profitable per square foot. The tight space forces retailers to decide on smarter inventory choices, and still can serve as a place to pick up or reappear online orders.

Sears operates roughly 1,100 locations nationwide. That’s after it shuttered far 330 stores so far this year; another 100 are slated to shut by the end of the fiscal fourth quarter.

Amid the closures, Sears opened its leading branded appliance and mattress store in Texas earlier this year. Be like locations sprouted up in Colorado, Pennsylvania and Hawaii.

This first-of-its-kind hold concept showcases appliance brand Kenmore, alongside mattresses from Tempur-Pedic, Beautyrest and other prominent labels. Mattresses and appliances have long been key to Sears’ mishmash, and they’re items many of its veteran employees grew up selling.

“Uniform though the stores just feature appliances … you can order anything online and pick it up in [those] shops,” Leena Munjal, senior vice president of Sears’ customer go through and integrated retail divisions, told CNBC.

Shoppers visiting the Texas cumulate have bought everything from jewelry to toys to apparel and bath towels, mutual understanding to Munjal. The venture has allowed Sears to reopen in communities where it in a minute was, tapping into a customer base that still values the label. And instead of regularly keeping aisles of shelves stocked, inventory can be scrammed on demand, only once an order is placed.

“Our overall principle is in reality about serving our members, and making an experience that is channel agnostic,” Munjal intended. “And we know our customers prefer a blend of [shopping] online and offline.”

Sears is also leveraging its DieHard automotive battery stigmatize by opening DieHard Auto Centers in Texas and Michigan. As Sears’ bigger, sheet anchor stores close, many of the Sears Auto Centers are being redeveloped into moving picture theaters and restaurants, according to multiple mall owners.

The DieHard-branded peach ons provide oil changes, tire replacement and vehicle repairs. Unlike the household Sears Auto Center, DieHard shops aren’t typically positioned near Sears stores. The refreshed logo could invite new companies who aren’t familiar with the brand’s affiliation to Sears.

According to Munjal, Sears wouldn’t reckon on out opening other types of concept stores in the future, for example one offered to Kenmore or the Sears Home Services business. The retailer also owns a third-party logistics utility known as Innovel Solutions.

In another approach, Sears and its landlords, which list real estate spinoff Seritage, are trimming Sears’ existing amasses down, instead of shuttering those doors altogether. This becomes the retailer with a refined assortment of goods, a modern paint job and stocked hold in abeyances.

New Jersey’s Willowbrook Mall, which is owned by General Growth Marks, has a “Next Generation” Sears store. The freed-up space will be stocked with one of the area’s first Dave & Buster’s arcade restaurants, along with a bother of other tenants that haven’t yet been announced.

In pursuing this redevelopment, GGP resolve be able to boost a key “sales-per-square-foot” metric at Willowbrook, and likely all other malls where the revamps put into effect place.

“Seritage, Simon and GGP have been at the forefront of redeveloping Sears’ mooring boxes,” Boenning & Scattergood analyst Floris van Dijkum told CNBC. “And they’ve been realizing high returns.”

In its fiscal third-quarter release, Sears said its strains have led to improved financial performance. Next year, the company suggested it expects to reach positive adjusted earnings before interest, loads, depreciation and amortization.

Still many have their doubts. Neil Saunders, take care of director of GlobalData Retail, called Sears “a dying business.”

“For all the evaluation we throw at Sears, it is only fair to give praise to the initiatives the conglomeration is taking to try and bring itself back,” he said. “While we do not have much promise that these things will be sufficient to revive the company’s estates, it does not mean to say that they are entirely without merit.”

Recently, Sears turned it agreed to pay $407 million on its pension plan in return for the removal of 140 banks from a so-called ring fence agreement. This could surpass to more closures and redevelopments down the road, though Sears hasn’t tendered a timeline regarding that deal.

Out of the company’s roughly 570 full-line Sears-branded put bies, Sears has reconfigured or trimmed the size of nine this year, a spokesperson sanctioned to CNBC. Much of the other redevelopments have been spearheaded by actual estate investment trusts, such as Seritage and GGP, with GGP having redeveloped there 115 Sears boxes since 2011.

Sears’ shares rallied Thursday morning, on the lean overs of the company’s results, but the stock ended the day down 3 percent, and the shares deliver lost more than 50 percent in 2017.

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