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Sears Gets Grander, To The Tune Of $621 Million

Sears is shelling out $621 million in cash for ownership and leasehold interests in as many as 54 Kmart stores and seven Wal-Mart stores. The Chicago-based retailer paid about $10 million per store. Most of the acquired stores are in large urban markets and will be converted to the retailer's Sears Grand model, which offers a racetrack design, centralized checkouts and a pharmacy in addition to traditional Sears merchandise such as apparel and home appliances. It's unclear at this time which markets the Kmart stores are in, and whether they are currently open for business.

The acquired stores are at least eight miles away from any existing full-line Sears stores. They also average 80,000 households within a five-mile radius. Trade area household incomes for the acquired Sears and Wal-Mart stores average $55,000.

"We are focusing on improving our retail business through a combination of repositioning and restructuring our existing stores and developing a new off-mall growth concept," Sears CEO Alan Lacy said in a conference call today. "Early success has been observed at our Sears Grand stores. Overall results have exceeded our expectations by 30 percent, with strong growth noted in apparel, home fashions, home electronics and toys."

Sears will invest about $200 million to remodel and refixture the stores, at a rate of about $3.27 million per location. "Sears' entrance into urban markets should help differentiate Sears from Wal-Mart and Target, as well as discount apparel retailers J.C. Penney and Kohl's," says Deutsche Bank Securities analyst Bill Dreher. "Sears' financial flexibility allows them to show real unit growth of 7 percent, which is highly unusual within the department store segment."

The majority of the stores are expected to be converted to the Sears nameplate by the end of 2005. Including the previously announced four Sears Grand stores expected to open this year, the retailer expects to be operating between 12 and 14 Sears Grands by the end of 2005.

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