Despite its financial problems, states still want Sears

Sears Holdings Corp. has lost about $314 million during the first half of this year, has been criticized by Wall Street and constantly reinvents itself to lure back recession-weary consumers.

Despite those financial ailments, this legendary company based in Hoffman Estates is being actively wooed by at least 16 states — including Illinois — for its global headquarters. Ohio and Texas are among those that reportedly have offered incentives, while Hoffman Estates and Illinois continue to work on a deal.

Opponents of a tax break, led by Community Unit District 300 in Carpentersville, question whether incentives would seal Sears' commitment to the area for the long haul.

Yet, the star power of the company, parent of Sears Domestic, Sears Canada and Kmart stores, offsets financial questions and sets the stage for a contest among states scrambling for the chance to retain or grow jobs any way they can, experts say.

“We've been approached and received offers from more than a third of the states in the union,” Sears spokesman Chris Brathwaite said. He declined to name all those states and outline those offers.

Sears has strong roots in Chicago and the suburbs. Its historic presence has created such a cachet that when news broke in May that Sears was shopping around for a new headquarters, officials in Hoffman Estates and in the governor's office scrambled to keep the company in town.

“If Sears went away, the economic impact would be a huge hole in the Northwest suburbs, if not throughout Illinois,” said Robert Hess, executive managing director of Newmark Knight Frank, a corporate site selection firm in Rosemont that is not working with Sears.

Locally, not everyone is on board. District 300 is backed by Carpentersville, East Dundee and West Dundee in a loud and public campaign to try to prevent an extension of the longtime tax deal the company values most. Renewing the tax break would take $14 million a year out of its pockets, the school district says.

The issue could come to a head as early as next week, when Illinois lawmakers head to Springfield and could consider an extension of Sears' deal, trying to balance the loss of tax dollars to the school district against the threat of Sears leaving town.

District 300 officials argue new tax-break legislation won't technically force Sears to stay in Hoffman Estates.

Case in point: Motorola Mobility in Libertyville, which in May got a different sort of tax-incentive package deal from the state worth $110 million. In August the company announced its sale to Google, and now its future in Lake County is uncertain.

District 300 officials contend that, in fact, a new property tax deal could be incentive for Sears to leave. The deal, they say, could make it easier for Sears to sell its property.

“And think of the egg on their face afterward,” said state Sen. Michael Noland, an Elgin Democrat and one of the school district's biggest allies.

But state Sen. Dan Kotowski, the Park Ridge Democrat who controls legislation to extend the tax break, says the past shows the present deal has worked for Sears.

“We need to do whatever we can within reason to keep those jobs,” Kotowski said.

Earlier this year, news came out that Sears had hired Gruen Gruen & Associates and Regional Economics Applications Laboratory for an economic impact study, which said the loss of roughly 15,000 jobs, including Sears workers and others from affected neighboring businesses, also would lead to the loss of millions in tax revenue if the company left.

“Annual tax revenues to the Chicago region will decline by $112.4 million,” the study said.

Sears insisted that its balance sheet is strong and it generates significant cash. As with most retailers, an overwhelming bulk of its business happens in the fourth quarter, Brathwaite said,

“Sears has been a great corporate citizen for the state of Illinois, the village of Hoffman Estates, surrounding communities and local businesses for over the last 20 years,” Brathwaite said

Despite its financial problems, Sears Holdings still ranks No. 52 on the Fortune 500 with more than $43 billion in revenues reported in fiscal year 2010. Sears employs about 6,100 people at its Hoffman Estates headquarters and 20,000 statewide. Its 1992 relocation invested about $200 million into local infrastructure and aided in the development of the Prairie Stone region, Brathwaite said.

Sears also is a major taxpayer in Illinois, to the tune of about $213 million last year and billions over the last 20 years, Brathwaite said.

“We're an economic development engine for local businesses, with 9,000 in-state vendors, 30,000 hotel nights and meals, and 18,000 plane tickets in and out of O'Hare (International Airport) for visiting associates alone, with 100,000 people visiting our campus every year,” Brathwaite said.

But jobs and the economic impact are only a part of any incentive deal, regardless of what state takes on the iconic retailer, Hess said.

A company looking to relocate wants sustainability, a business-friendly environment, access to good transportation, an international airport, a talented workforce, good education and good neighborhoods for those workers, among other considerations. Profitability, shareholder value and remaining competitive are vital, Hess said.

“That's what really drives decisions,” Hess said. “It's not as easy as people think.”

While Sears has experienced losses, the company has about $8.5 billion in equity. The most expensive part of any impending move would be relocating employees, said Jack Allston, a relocation and site selection expert with JBA & Associates in Rio Rancho, N.M. He previously worked with Paragon Decision Resources in Oakbrook Terrace before establishing his own consultancy.

“What costs the most is moving employees and paying packages to the others,” Allston said.

The relocation costs for workers — including such items as home marketing, household goods, home finding and broker fees for purchase and sale, inspection and title fees, and temporary living, among others — could be roughly $30 million for Sears. This wouldn't include severance packages for those workers who stay behind.

If Sears stays in Illinois, it would have to pay 9.5 percent corporate taxes, a 2.2-percentage-point hike approved by the state this year, Allston said.

That could be an additional $3 million per year, on top of what it pays now. If Sears moved to Texas, it would pay no income tax, Allston said.

Yet, the costs for the movers, possibly a consultant to lead the project, liquidating furniture that would be too costly to move, and repurchasing items at the new location could cost roughly $5 million or more, Mike Gonzales, president of Armstrong Relocation in Dallas and Chicago, said in May after hearing the initial news. Armstrong spearheaded the move for some major companies, including American Airlines' move from New York to Dallas.

The plan also could involve phases, such as moving the IT department first and other departments later. This could take from a few months to as long as a year to complete, Gonzales said.

While Sears may be struggling, the world is full of companies whose eulogy was followed by an extraordinary renaissance, which includes Apple, Macy's and Ford, experts said.

“What we do know is that if Sears leaves Hoffman Estates, that's it — they're gone. So the city and the state would do well to consider a sensible package to keep them in town. The key word is sensible,” said Rob Derocker, a Tarrytown, N.Y.-based economic development consultant with Development Counsellors International.

These negotiations often are done in secret, Derocker said. “But occasionally they are wide out in the open, and in those cases it's usually because the company wants to create political pressure to get the best possible deal.”

One of the more dramatic examples of a corporate headquarters moving includes Boeing, when it left Seattle and announced it was focusing on Chicago, Denver and Dallas a few years ago, Derocker said.

“This led to very public posturing in all three places,” Derocker said. “And on the day of the announcement, Boeing's chief, Phil Condit, took off from Seattle with three flight plans. While in the air, he called the governors of the three states to inform them of his decision. And then he landed in Chicago for a news conference.”

The decision to stay or relocate is also politically charged, said Dan Levine, principal in MetroCompare LLC of Scot Plains, N.J., another site relocation firm that's also working with some Chicago companies.

“No politician wants to be seen as having done too little if a company chooses to leave, just as every politician wants to claim credit for every bit of positive economic news,” Levine said. “Incentives fill the political need of politicians to be seen as being active participants in economic development.”

The Illinois governor's office, along with the Illinois Department of Commerce and Economic Opportunity, see things differently.

“It's 6,000 jobs,” said DCEO spokeswoman Marcelyn Love. “We consider this to be a major part of the Illinois economy.”

Ÿ Daily Herald State Government Writer Mike Riopell contributed to this story.

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