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Sears, Kmart announce merger plans
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by Ryan Masse
Thursday, November 18, 2004
In a major shakeup for two struggling retailers, Kmart Holding Corporation announced plans Wednesday to buy Sears Roebuck and Co. for $11 billion.
The surprise merger will create one company, named Sears Holdings Corporation, operating nearly 3,500 stores nationwide. The new company will supplant Target Corporation as the third largest retailer in the United States — behind Wal-Mart and Home Depot — and bring together $55 billion in annual revenue.
Sears Holdings will be headquartered at Sears’ current offices in Hoffman Estates, Ill. Kmart’s chairman, Edward Lampert, will chair the new company, which executives hope will gain $500 million in new revenue and cost savings within three years.
Although both the Sears and Kmart nameplates will continue to coexist, plans are in the works to convert a substantial number of Kmart stores into Sears outlets. Sears spokesman Bill Masterson said the move will accelerate Sears’ goal of expanding into non-mall based stores so as to better compete for the market successfully cornered by standalone giants Wal-Mart and Home Depot.
“The problem we’ve had is that our brands are not always easy to get to,” Masterson said. “So now we’re making our products more convenient and available closer to where people live and work.”
Sears Holdings executives look for improved operational efficiency, better supply chain management and crossover marketing from the deal as well.
Masterson said certain stores may close and headcount in support roles may be reduced, but the transaction is designed to increase Sears and Kmart outlets nationwide.
“This merger is about growth,” he said.
The merger unites two companies that have fallen on hard times in recent years.
Kmart rose to retail prominence in the ’60s and ’70s, but the emergence of big-box competitors like Wal-Mart and Target steadily chipped away at market share. The discounter hit a low in 2002 when it filed for Chapter 11 bankruptcy, a move that led to a major purge of unprofitable stores. The last Kmart store to operate in Madison, a Big Kmart located on East Washington Avenue, closed in 2003.
Sears, the department store known for years for its catalog, has suffered from an extended sales slump. Accused of being slow to react to the changing retail market, Sears has sought to rectify lagging sales through the acquisition of new brands, such as Dodgeville clothing manufacturer Land’s End.
Sears operates two department stores in Madison, one each in East Towne and West Towne malls. An official at the East Towne outlet was unable to say what impact the merger might have on the stores.
Wall Street reacted favorably to the startling announcement, with Kmart shares closing at $109 on the Nasdaq market, a 7.69 percent gain and Sears shares jumping 17.2 percent to close at $52.99.
Shareholders in both companies, as well as the Federal Trade Commission, will have to approve the merger, a process that is expected to take several months.
Joseph Boucher, a University of Wisconsin senior lecturer in business law, said he saw little reason to suggest the deal would not be approved.
But U.S. Sen. Herb Kohl, D-Wis., the ranking member on the Senate Antitrust Subcommittee, warned in a statement the situation should be closely scrutinized to ensure “consumers do not suffer a significant loss of competitive choices as a result of this deal.”
According to UW marketing lecturer Thomas Towell, Sears Holding will benefit from more diversified store locations and improved purchasing power, but the company’s ultimate ability to compete with Wal-Mart is uncertain.
“Wal-Mart changed all the retailing rules — a lot of companies have had to adjust,” Towell said, referring to the merger as a “marriage of convenience.”
“It’ll take a year or two to see if it was a smart deal or not, but they probably figured they should try something,” he said.
