When Kmart Holding Corp. announced its plans to acquire Sears, Roebuck and Co. in late 2004 to form Sears Holding Corp., there was some speculation at the time that the deal was purely a real estate play and that both the Kmart and Sears names would disappear from the retail landscape within five years as the new holding company swiftly and systematically divested the companies' real estate.

That prediction turned out to be not exactly correct.

Today, both concepts still exist and the company sold none of its real estate. In fact, it's gotten bigger. Overall, the company owns 765 stores, leases 2,032 others and has 974 that are owned and operated by independent companies. That gives the entity 3,771 stores. (At the time of the merger, the combined chain had 3,450 stores.)

For the first several years of the merger, hedge fund manager Edward S. Lampert was able to drive up Sears' stock price and assets even while the company's sales figures were fairly pedestrian. But in recent months the company's fortunes have turned. Sears shares--while still worth more than when the merger occurred--had fallen nearly 40 percent since June. And its sales are not improving much.

That's a big reason behind Sears Holding Corp.'s dramatic restructuring announced earlier this week. The firm will divide itself by five, creating autonomous units: operating businesses, support, brands, online and real estate.

It's the last one--real estate--that could prove to be the most provocative. A Credit Suisse Securities estimate places the value of the real estate at about $4.7 billion. (Sear's total market value is about $13.5 billion overall.) Could the company finally attempt to monetize the assets in ways predicted in the past?

Howard Davidowitz, chairman of Davidowitz & Associates Inc., a New York City-based retail consulting and investment banking firm, thinks the company is on the verge of closing hundreds of Sears and Kmart locations as a possible precursor to a liquidation. Having an autonomous real estate unit could speed up the process of the company ridding itself of darkened storefronts.

But Davidowitz also doesn't think the liquidation will be all that smooth, saying it could take up to 15 years to unwind the various real estate holdings and lay off the tens of thousands of employees.

"In eight years Sears will be half the size if it exists and Kmart will not have survived," Davidowitz says.

Also, the timing could be a bit off, considering that retail real estate has been declining in value in recent months and there are fewer buyers in the market due to constraints stemming from the credit crisis. "If this were the strategy, to monetize the real estate entity, it would have been more timely to do it two or three years ago when he could have realized greater value for those holdings than he would now," says Craig Johnson, president of Customer Growth Partners in New Canaan, Conn.

Real Capital Analytics has registered 50 percent drops in sales volumes over previous year's levels in recent months. Meanwhile, Standard and Poor's S&P/GRA Retail Real Estate index was down to 159.22 through the end of October, from a peak of 161.80 reached in June 2007. (The index base of 100 is based on prices at the end of December 2001.)

Aside from the real estate angle, consultants aren’t sold that the split into five units will improve the chain's sales figures.

Davidowitz says Lampert should consider bringing in a new CEO to devise a marketing and merchandising strategy and determine which stores should remain open and which should close. The solution to split the company in five doesn't solve that and is based on what he calls an asset manager's mentality rather than a retailer's. Lampert should be shopping for a retail veteran to oversee the entire operation, Davidowitz argues. "That's the way to fix the business, but that's not what Sears did," he says.

Johnson adds that Sears should jettison its soft-lines, i.e. apparel, to focus on locations to market its venerable brands Craftsman, Diehard and Kenmore, which would be best suited for smaller one-story locations.

Patricia Edwards, retail analyst at Wentworth, Hauser and Violich, a Seattle-based money management firm, thinks that Sears should forget Kmart and focus on just the Sears brand and then invest significantly in its operations, including upgrading its merchandising, marketing and presentation.

"An updated Sears could really compete with JCPenney and its-mall based stores would have more to offer more people," she says.

-- David Bodamer & Riccardo A. Davis