Software: The Softer Side of Sears
File this one under “Signs of the Times.” Sears plans to convert some shuttered or underperforming stores into data centers. The retail giant formed a new subsidiary last March called Ubiquity Critical Environments LLC, which is chartered to convert selected Sears and Kmart properties into data centers – complete with servers, coolers, and back-up generators. Ubiquity also intends to rent rooftops to telecommunication companies.
Sound drastic? That’s what is needed after 24 consecutive quarterly losses. Sears promoted Sean Farney from its Real Estate Development group to head Ubiquity; he previously managed a Microsoft data center in the Chicago area.
There are lots of variables and risks. Sears is primarily looking at locations with good access to power and fiber in cities that have high demand for data center capacity. Current focus is on locations in Chicago and Dallas. The expected cost to convert a 100,000 square-foot store into a state-of-the-art data center is around $55 million. The forecasted revenue projection for such a facility is $7-$10 million per year.
Rents for antennas on the roof could be more lucrative as they require no sunk costs. Sears is in talks with both individual carriers as well as firms like Tower Corp., Crown Castle International and SBA Communications Corp., each of which controls large portfolios of rooftop rights and tens of thousands of antennas.
Does this make sense? Oddly, it probably does. Retail will never recover to pre-Internet days – especially for the big stores like Sears. On the other hand, we seem to have insatiable demand for data center space. Firms like Amazon and Google are building huge data centers in rural America, but there’s still growing demand for local data centers in populated zones. Coincidentally, that’s pretty much where Sears and Kmart have locations.
No doubt Sears also considered just selling its buildings, and probably will sell many. But selling buildings isn’t a sustainable business model. On the other hand, a network of large buildings in populated areas could be valuable -- outside of retail. Not far from my home there’s a big Sam’s Club that’s been empty for nearly four years. I can’t imagine what retailer might ever take the space (there’s Costco, Lowes, and Home Depot all within a mile). On the other hand, the amount of high-tech firms in the area continue to grow. Local on-site servers just don’t make a lot of sense any more.
Data centers and retail don’t make a lot of intuitive sense. But, realistically there just doesn’t seem to be very many other options. Small retail space (shoes, barbers, coffee, pizza, etc.) is doing fine. Big retail (Sears, Best Buy, Toys R Us) are under pressure. Best Buy even recently stated plans to shrink their showrooms, in part because customers are shopping for electronics bargains online.
Chains like CompUSA, Linens-n-Things, and Circuit City have already left big-box holes in the shopping centers. I rather like the idea of stopping by for some backups, and getting a frozen yogurt, a haircut, and a pizza at the same stop. What do you think?