The New Sears

1
The New Sears
The Merger of Kmart and Sears
2
Background, Dilemma, and Opinion

• From meager beginnings, Kmart and Sears both grew
  to dominate the retail landscape after World War
  II.
• Both companies have struggled due to the
  increased competition from Wal-Mart, Target and
  category killers.
• The opinions of the merger are mixed
• Some believe that this merger is no more a real
  estate deal with more sales of real estate
  planned for the future.
• Others say the merger will create tremendous
  economies of scale and provide price clout with
  vendors like that with Wal-Mart.

CNN Money, 11/18/04
Detroit Free Press, 11/18/04
Emory University
3
LeadershipEdward S. Lampert, CEO

• The 11 billion deal was engineered by Edward S.
  Lampert, a 42-year-old investment superstar who
  pulled Kmart from bankruptcy.
• As Kmart's chairman, he owns nearly 53 percent of
  its stock through his ESL Investments hedge fund.
  He is also the largest shareholder in Sears. ESL
  holds a 15 percent stake in the retailer.

CNN Money, 11/18/04
Detroit Free Press, 11/18/04
4
Details of Acquisition

• Kmart mergers with Sears for 11 billion.
• Marries two tarnished American icons into a 55
  billion powerhouse.
• Creates the third-largest retailer in the
  country.
• The new company will be named Sears Holdings.
• The new company will be located at Sears
  headquarters near Chicago.
• While Kmart acquired Sears, the merger aims to
  nurture the middle-market Sears brand and
  downplay, if not eventually phase out, the Kmart
  brand.

5
Merging Two Cultures into One

• Hundreds of Kmart's 1,430 stores will be
  converted to the Sears Grand concept.
• This includes
• combining general merchandise with food items,
  while allowing
• both store chains to continue to operate as
  separate brands.
• Lambert states, We're really not looking to have
  two separate cultures," Lampert said. "We're
  really trying to blend this into one great
  culture."

6
Major Brands
The new company brings together two families of
top brands.
CNN Money, 11/18/04
7
Potential Benefits for the New Company

• Kmart Customers
• Kmart gains Sears reputation for better service.
• Kmart gains Sears big appliance and tool brands
  like Kenmore and Craftsman tools.
• Kmart gains department store influence from
  Sears.

• Sears Customers
• Sears gains Kmarts price conscious consumers.
• Sears may now be viewed as a discounter.
• Sears gains Kmart's apparel brands like Joe Boxer
  and Thalia Sodi.

CNN Money, 11/18/04
8
Unlocking the Value

• Speculated Store and Brand Changes
• Bring the Martha Stewart, Joe Boxer, and Jaclyn
  Smith brands from Kmart together with Lands End
  and the structure from Sears, and set them up in
  the current Sears mall locations. (i.e. the old
  softer side of Sears theme)
• Move Sears appliances into the Kmart off-mall
  locations to compete with Home Depot and Lowe's.
• In other words, move appliances out of the malls
  and into freestanding facilities like Lowes and
  Home Depot and concentrate on clothing brands in
  the malls.

Morningstar.com, 11/24/04
9
Questions? Positioning for the Future

• What do the brands stand for?
• Wal-Mart stands for low prices
• Target is a fashionable version of Walmart.
• Where will Sears be positioned?
• Who is the competition?
• Reconsider "the brand experience.
• Consider targeting a particular cultural segment.
  
• Should the chains mix brands?
• "Lands' End continues at Sears.
• However, selling Craftsman at Kmart could hurt
  brand equity.

USA Today, 11/22/04
10
Questions? Positioning for the Future

• Which concepts work and which don't?
• Some Kmarts will be converted into the
  new-concept Sears.
• Sears has four of these grand stores now (i.e.
  groceries, music, gardening)
• How can they convince current consumers this is
  good thing?
• Offer good values
• Avoid early price hikes leading to consumer
  backlash.
• Are malls the future or the past?
• Is this the opportunity to get Sears out of the
  mall and into suburban locations?

USA Today, 11/22/04