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Amazon could put Whole Foods in about 110 old Sears stores, BMO says

Category: Finance,Retail

Your local, shuttered Sears or Kmart store could soon turn into a grocery store, according to one investment group. Maybe even a Whole Foods.

BMO Capital Markets in a note to clients Wednesday said it estimates Amazon, with Whole Foods, could be interested in filling as many as 110 old Sears and Kmart stores, based on the surrounding demographics of those department stores and the fact that they don't have another Whole Foods store already within a three-mile radius. The firm analyzed all of Sears' real estate, estimating it has about 480 locations still open, though about 80 of those are still slated to close. Sears also has about 430 locations "available" for new uses — 260 in the process of closing, and 170 sitting vacant.

Grocery chains, BMO says, are one likely filler for these empty shops.

"There are plenty of Sears/Kmart boxes surrounded by high quality demographics which would be appealing to a variety of retailers and other non-retail uses (i.e. hotels, residential, creative office, etc)," BMO analyst Brandon Cheatham said. "Further, there aren't many developers that are building additional, ground up, retail space, so if Amazon, or others, is looking to grow somewhat rapidly this would be a quick and likely cheap(er) way to expand."

Sears emerged from bankruptcy in February. Although it has been closing stores for years, it has arguably has held onto some of the best retail real estate in the country. As hundreds of its stores have gone dark over the years, the more unprofitable ones have been the first to go. But now, even some of the stronger locations are going back on the market, Cheatam said. "Even the good stuff is shaking out."

There have already been reports that Amazon is both looking to open its own separate chain of grocery stores in addition to wanting to open Whole Foods stores in old Sears locations.

BMO said it estimates there are about 320 Sears stores that would be a good fit for Amazon's reportedly planned "value" chain, or for a chain like German discount grocer Lidl.

Representatives from Amazon and Sears didn't immediately respond to CNBC's requests for comment.

Sears filed for Chapter 11 bankruptcy protection in October and ended up, after a long-fought battle, winning approval in court to keep some 400 locations open, thanks to financing from former CEO Eddie Lampert's hedge fund, ESL Investments. Now, Lampert is looking to shrink the size of existing Sears stores and open smaller-format locations. He's also said he hopes to do more with Sears' loyalty program, Shop Your Way.

But the embattled department store chain faces many of the same challenges as its peers in the industry today, namely keeping its mall-based stores relevant as more shopping moves online.

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