K-Mart and Sears Merge to Face Competitors

In an initiative to set Sears apart from other retailers, their slogan posed the cunning question “Sears.  Where Else?”  Well on Wednesday November 17, an announcement was made declaring that “where else” would soon be K-mart as well.  Kmart announced recently that they are joining forces with the Sears department store chain in a $11 billion contract in order to better compete with Wal-Mart and other mainstream retailers.

The union, which is reported to commence by March 2005, will generate the nation’s third largest retailer and create a new entity called Sears Holdings Corp.  The retailers say the merger will make the combined company more efficient, particularly in purchasing, marketing, information technology and supply-chain management.  They project to have annual savings of about $500 million after three years.

Wendy Liebmann and Candace Corlett of WSL Strategic Retail suggests there is a possibility that “the combination of brands, such as Sears’ Kenmore, Craftsman, Land’s End and Kmart’s Martha Stewart, Jaclyn Smith, Thalia and Joe Boxer, will provide a compelling power brand statement in both fashion and home categories that will drive shoppers to the stores."

The company’s goal of beating their main competitor, Wal-Mart, will be a challenge.  According to The Arizona Daily Star, although the new company Sears Holdings Corp. is expected to have $55 billion in annual revenues, it still lags far behind its biggest competition, Wal-Mart Stores Inc., with $280 billion in annual revenues.

Some experts in the retail industry argue that efforts to revitalize business for Sears and Kmart by merging are in vain since retailers such as Wal-Mart and Target need for “everyday low prices” have already fulfilled consumers.  Howard Davidowitz, chairperson of Davidowitz & Associates in New York says, "Here’s my prediction, there’s no way that Kmart and Sears can ever be successful.  As we sit, Wal-Mart and Target are destroying Kmart, and Sears is the worst performer in the department store group."

Stephanie Hoff, a retail analyst at Edward Jones also agrees with the belief that the merger may be unsuccessful.  "Taking two big, weak retailers and combining them will not make a better retailer," says Jones.

Due to both Sears and Kmart losing ground to competitors and enduring sluggish sales for years, a change was needed, and contrary to the opinions of some experts, the determined change was to unite the two retailers.  According to The Associated Press both chains will survive, but several hundred Kmarts throughout the country are expected to be transformed into Sears stores.

Kmart chair and Sears’s shareholder Edward Lampert orchestrated the union.  Lampert is lined up to be chairman of Sears Holdings, while Alan Lacy, chairman and CEO of Sears, will be vice chairman and chief executive of Sears Holdings.  Aylwin Lewis, president and CEO of Kmart, will be president of Sears Holdings and chief executive of Kmart and Sears Retail.