Sears Holdings Corp. wants to spin out its hardware store chain, Orchard Supply Hardware Stores Corp., into a separate public company. But Sears and its chairman, Edward Lampert, expect to retain 80% ownership, the chain says in its initial public stock registration papers filed with the U.S. Securities & Exchange Commission.

In its IPO, Sears, No. 7 in the Internet Retailer Top 500 Guide, and Lampert would retain major ownership of the company and the remaining 20% of available stock would be owned by Ares Corporate Opportunities Fund L.P., an investment banking firm, and other shareholders. In its IPO papers, Sears didn’t say how many shares would be for sale or how much money it expected to raise by spinning off Orchard Supply, a chain of 89 hardware stores in California that Sears acquired in 1996.

Sears is spinning out Orchard Supply, which only introduced e-commerce in late 2010, in order to let the retailer and its senior management concentrate more fully on developing its regional niche in California.

Orchard Supply sees its e-commerce site, OSH.com, as a significant a new sales channel and its investing heavily in web technology. In 2010, Orchard Supply and spent $700,000 on e-commerce operations and expects to spend $400,000 in 2011, according to the IPO filing. “We launched our e-commerce web site with approximately 7,000 products in late 2010,” the company says in its filing. “In 2011, our goal is to continue to expand the number of products offered on the site which we believe will drive future revenue growth.”

The company didn’t release any e-commerce revenue figures, but other key financials include:

• · Total sales declined year over year 3.2% to $660.7 million in the fiscal 2010 year ended Jan. 30 from $682.4 million in fiscal 2009
• · Net income declined 54.9% to $8.7 million in fiscal 2010 from $19.3 million in 2009.