Sears Holding Corp Kmart And Sears example essay topic

Sears Holding Corp. Kmart and Sears have been part of the retail industry of America for the last two centuries, and as of November, 2004, they will be continuing due to their merger as Sears Holding Corp. This paper will first look at the history of the two companies to see how they started and what each company set out to achieve. This section will also include why the two companies failed. Secondly, a SWOT analysis will be performed on the new company, Sears Holding Corp, to try to identify where it stands in the present. Finally, a hypothesis of how the new company is likely to be accepted by consumers and whether it is likely to succeed will be discussed. Kmart History S.S. Kresge Co., the predecessor of Kmart, was founded in 1889 by Sebastian J Kresge, in Detroit Michigan. The small store, which sold everything for five and ten cents, was an instant success.

By 1912 S.S. Kresge Co. had expanded to 85 stores with annual sales of more than $10 million. The 1920's saw a larger increase in merchandise variety and prices, Kresge's first steps to becoming a discount store. This final leap to a discount store was made in the 1950's, when the company realized that they needed to make some changes in order to remain competitive. In 1962 S.S. Kresge Co. opened their first Kmart discount department store in a suburb of Detroit. During that same year seventeen other Kmart stores opened. Realizing that discount stores were the wave of the future S.S. Kresge changed its name to Kmart in 1977.

In 1987 Kmart sold its remaining Kresge stores (kmart corp. com). During the years of 1984 to 1992 Kmart bought several businesses, including Builders Square in 1984, the Sports Authority in 1990, a 90-percent stake in OfficeMax in 1991, and Borders bookstores in 1992. However, in 1995 with a close brush with bankruptcy, Kmart sold those businesses in which they had just invested and refocused its efforts back on the discount stores. During that same year Kmart began converting its traditional stores to a new high frequency format designed to improve the customer shopping experience. A new name, Big Kmart, was assigned to these stores (in April 1997) (kmart corp. com). However, all the changes Kmart made throughout its long history to remain current with ideas of the times, were not enough to help Kmart maintain its competitive edge.

Kmart also made a few mistakes during the 1990's. A significantly damaging error was the failure to incorporate computer systems into its supply chain. In an effort to compete with its main competitor, Wal-Mart, it reduced all of its prices, while at the same time tried to become upscale by selling lines of Martha Stewart, Kathy Ireland and Jaclyn Smith. Consequently, Kmart failed to create a coherent brand image (wikipedia. org). In 2001 Kmart recorded its second loss for the quarter. From this point on Kmart's stock price continued to decrease and its losses continued to rise.

In January 2002 Kmart filed chapter 11 bankruptcy, but it was not beaten yet. In May of 2003 Kmart resurfaced as Kmart Holding Corporation (wikipedia. org). But the new company has not been as successful as hoped. In recent years the company has made small changes but it has not been enough to sustain itself in the competitive industry. It lacks a good information technology infrastructure and as such has not been able to enhance its supply chain as technology has improved. It has also been unable to effectively use its size to take advantage of economies of scale and effective working relationships with its suppliers.

Kmart is at the bottom of the discount retailers and needs a major revamp to get back to the successful company it had been. Sears History Sears saw its beginnings back in 1886, when Richard Sears began R.W. Sears Watch Company in Minneapolis, MN. Sears hired a watch repairman in 1887, by the name of Alvah Roebuck. That same year the company name changed to Sears, Roebuck and Co. The company was a mail-order catalog business. Originally just selling watches and jewelry it later moved into selling a plethora of items.

The catalog company continued to expand. However, quick to respond to the new shopping trends and acknowledging the realization that people were now shopping in retail stores, Sears sought to expand into this area. In 1925 Sears opened its first retail store and by 1927 it had opened 27 more. By 1941 Sears had over 600 stores. The years between the 1940's and 1970's only saw continued expansion of Sears in both the United States and into Canada and Mexico (sears archives. com). Sears also recognized that with the exponential growth of the automobile industry there was a growing need for automobile insurance at a low cost.

To fulfill this identified niche market Sears launched a subsidiary company, Allstate Insurance Co. in 1931. As with the beginning of Sears, Allstate began as mail-order, but it was soon recognized that in the large metropolitan areas, stores were needed to provide a point of sale. As a result Allstate sales locations were placed in all Sears's tores (sears archives. com). The 1980's saw an expansion of Sears' holdings as it moved into real estate with the purchase of Coldwell Banker and Company, and into financial services as it purchased Dean Witter Financial Services. However, at the beginning of the 1990's Sears saw a decline in profits and market share and decided to restructure the company placing its focus back to retailing. As such it sold both Coldwell Banker and Dean Witter.

Sears also eliminated their catalog / mail -order business and closed its unprofitable stores. In addition Sears sold a majority of its holdings in Mexico. The restructuring worked and Sears saw an improvement in both it financial position and customer satisfaction (sears archives. com). But by the end of the 1990's Sears was experiencing problems again. Once the number one retailer in the country it was falling into second place behind Wal-Mart (retail industry. about. com). Wal-Mart had set the standard for being the low-price setter of the industry, which it had achieved through its superior supply chain management and Sears was unable to compete.

The consumers it once appealed to were no longer shopping at Malls where the Sears were located. Instead they preferred to shop at stand-alone retailers such as Home Depot. Losing its customer base Sears was rapidly seeing a decline in its business. The Merger Once fierce rivals with each other Kmart and Sears found themselves in the same situation.

Both were fighting to keep hold of not only their market share but the essence of their business in the retail industry. The solution they both concluded was to join forces. On November 17th 2004 Kmart Holding Corporation and Sears, Roebuck Co. merged to form Sears Holding Corp. The current plan for the company is to remain as individual stores, but merge products, real estate, cultures and ideas. There are mixed opinions as to whether this merger was wise or not and whether it will be successful or not. In order to effectively analyze all aspects of the merger, a SWOT analysis will be performed on the new company.

The strengths and weakness will be focused internally and the opportunities and threats will be focused externally. Strengths o Neither Kmart nor Sears are regarded as a leader in the retail industry. In fact Kmart is considered to be at the bottom of the discounters and Sears is near the bottom in department store sector. However, together the merger of the two companies will be able to fill each others gaps.

Kmart has been successful in apparel and home goods, Sears on the other hand has been unable to successfully operate in this segment. But Sears Holding Corp. will be able to take the strength of Kmart in this area and fill Sears' weakness (Barbaro, 2004). o One of the main strengths Sears Holding Corp. will have is that it will be able to pull the stronger brands from each company. From Kmart, Martha Steward and Joe Boxer names can be utilized and from Sears, Kenmore and Craftsman names. By pooling together both Kmart's and Sears' well developed private brands they may be able to solve the brand image that had eluded them both during their own individual histories (retailer merchandiser. com).

In addition to this, the combination of the brand names from both companies will give Sears Holding Corp. instant credibility. This stronger brand image and credibility will then be easily marketed to an audience that neither Kmart nor Sears could reach before the merger (D'Innocenzio, 2004). o The larger customer base will greatly affect Kmart, as "48 percent of Americans who shop at Sears and other mall retailers never set foot in the stores of discount retailers like Kmart" (D'Innocenzio, 2004). The merger will give Kmart the opportunity to market their products to a larger market share that was previously not available to them and it will also be able to differentiate itself from its competitors (Barbaro, 2004). o A perhaps obvious strength is that Sears Holding Corp. will have over 2370 stores across the United States. Making it more accessible to its customers and the potential to reach out to a larger customer base (Baruzzi, 2004). o An option open to Sears Holding Corp is to turn the vacant or failing Kmart stand alone stores into Sears's tores. Sears has already tried and failed at being a stand alone (i.e. not attached to a mall) retail chain, when they opened The Great Indoors. This can be considered strength because they will be able to draw upon their experience from their past failure and know what mistakes not to make this time around.

Weaknesses o Every business needs a strategy in order to succeed. As of yet Sears Holding Corp. has not developed a business strategy that will help focus where the company is heading. Without this heading the company will not be able to aggressively excel in any direction. o Another feature they lack is an identification of their target audience. Kmart previously focused on consumers who preferred discount stores and Sears focused on customers who preferred department stores. As mentioned under strengths 48% of Americans do not shop at discounters. Although there is potential for Kmart to enter into this market segment there is also equal likelihood that the customers will frequent neither Kmart nor Sears.

There are different met hods of reaching out to these customers and without identifying which audience they are going to focus on they will lack direction and potential lose even greater market share of the little they currently have. o Many of the current Kmart stores look old and worn (Strasburg, 2004). If the company is going to be successful in creating a name for itself it will have to upgrade and modify many of its Kmart locations quickly to keep pace with its competitors (Barbaro, 2004). o A problem that Sears Holding Corp. will have to overcome when converting Kmart stores into Sears's tores is that the Kmart stores are typically 40,000 to 194,000 square feet. However, the Sears Grand stores range from 180,000 to 200,000 square feet. This means that as Sears Holding Corp converts these stores they will have to cut down or be very selective on the merchandise they make available in the stores (Snavely, 2004). o Integration is a large weakness of Sears Holding Corp. This is not just limited to the integration of the merchandise of the two companies but also there operations, specifically their supply chains and information technology.

Supply chain management has been a weakness for both Kmart and Sears in the past and was one of the main reasons for their downfall. The failure occurred because both companies have poor information technology systems. Integration of the two systems will prove very difficult as they are both working off of different platforms. Without a strong I.T. infrastructure Sears Holding Corp is at a severe competitive disadvantage and they must find a way to integrate the two companies supply chains in order to successfully compete against other retailers (Schuman, 2004). o During times of transition unavoidable disruptions occur.

If Sears Holding Corp. is not careful these disruption from the transaction may make it more difficult to maintain relationships with customers, employees and suppliers. Opportunities The largest opportunity open to Sears Holding Corp. is in its real estate holdings. During the bankruptcy period of Kmart many of its location were closed down but not sold off. Sears has had a large problem of successfully competing with big box stores like Wal-Mart and Target.

By Sears moving into many of Kmart's prime locations, Sears Holding Corp. will be able to compete more successfully against its main competitors and Kmart will once again be able to fill its vacant locations. Another aspect of moving Sears into vacant Kmart locations is helping Sears claim back the customers they once lost. One of the reasons Sears saw a decline in it clientele was that they were no longer willing to go to the mall's to shop. Sears will be able to move away from the shopping malls and into the vacant properties of Kmart making itself appealing to customers again (D'Innocenzio, 2004) o Neither Kmart nor Sears has had much success in finding their own niche in the retail industry and as such they have fallen prey to the competition of Wal-Mart. Unable to beat Wal-Mart on price in both the past, it is likely this trend will continue into the future, however, with the pooling of their brands they will be able to make their own niche through differentiation, which could help protect Sears Holding Corp. from Wal-Mart's endless discounting (In the Wake of Wal-Mart). o Being the 3rd largest retailer in the country Sears Holding Corp now has the ability to achieve cost savings through economies of scale. "The company expects to achieve annual cost saving of over $300 million principally through purchasing scale" (Troy, 2004).

It has the opportunity to successfully compete against its largest competition - Wal-Mart, as they receive their competitive advantage through being able to purchase merchandise at an extremely low cost per unit. Sears Holding Corp. will be able to influence suppliers in the same method as Wal-Mart now purely because of its size (Hays, 2004). o An opportunity exists for Sears Holding Corp. to expand into the Hispanic market segment. Both Sears and Kmart have clothing lines that are named after or created by famous Latino's. Those lines that are similar are likely to cannibalize each other, after this initial condensing Sears Holding Corp. will be left a very strong product line which will attract the Latino population as no other larger retailer has been able to accomplish (D'Innocenzio, 2004). Threats The largest threat to the Sears Holding Corp. is competition. This is the same competition it faced as Kmart and Sears.

Wal-Mart has an extremely efficient supply chain, and also takes advantage of large economies of scale. This is also true of Home Depot. If Sears Holding Corp. is unsuccessful in integrating its information technology and developing its supply chain then it will be unsuccessful in competing against the other large retailers. It has a huge challenge not to fall behind Wal-Mart in terms of efficiencies (Schuman, 2004). If Sears Holding Corp. try to differentiate itself from Wal-Mart and focus on their brand image (of Martha Stewart and Kenmore etc) then it will be competing against Target.

Target has been growing rapidly and has established itself as a stylish alternative to other discounters and draws higher income shoppers than does Wal-Mart. Sears Holding Corp. will have to find its own way of competing against Target if it wants to try to combat this threat (Levy, 2004). o Much of Sears Holding Corp.'s successful hinges on whether it can create an efficient, effective supply chain and with it cost savings. The risk that the cost savings and any other synergies from the transaction may not be fully realized or may take longer to realize than expected is a possible threat to the new company (Troy, 2004) The Future With the SWOT analysis performed, what are the real chances of Sears Holding Corp succeeding? According to a survey of Kmart and Sears customers, one third of them agreed the merger was a bad deal.

Thirty five percent believe that the future holds more sales of Kmart stores. Eleven percent says nothing is going to change. Five percent were uncertain as to the future of the new merger and only eleven percent believed that Sears Holding Corp would be a retailer to be reckoned with (Schuman, 2004). Until Sears Holding Corp. establish an exact business strategy it is unlikely that it will succeed in this cut throat industry. If it can achieve this then its chances of survival increase dramatically. It has the potential for becoming a successful large retailer.

All of the things that led to the demise of Kmart and Sears have the opportunity to be overcome in the new company. Kmart will be able to use the excessive size of Sears Holding Corp to take advantage of the economies of scale and will hopefully be able to develop a dependable information technology structure to enhance its supply chain. Sears will be able to evolve into stand alone units as it converts Kmart stores into Sears's tores. Wal-Mart, Home Depot and Target will be ever vigilant on the growth and success of Sears Holding Corp. None of them are going to take the competition lightly. Sears will have to start out strong and quickly build up their infrastructure in order to compete. The likelihood of this happening is remote, as the two companies infrastructures are so different.

"It is more likely the two will be so occupied with integrating the two (systems) without losing sales or Inventory data that they won't have the time or the wherewithal for much else" (Schuman, 2004). If this statement is true then Sears Holding Corp. has little chance of enduring against the fierce competition. On the other hand Sears, having originated as a catalog order store, if the new corp. were to indeed pursue the concept of e-business they may excel in this market niche. The merger will either be the make or break of both Kmart and Sears.

The failure of both Kmart and Sears to succeed in the industry in the past could either help them as they can learn from their past mistakes or hinder them as neither of them knows the recipe for success. It will only be a matter of time before the fate of Sears Holding Corp. will be revealed. Reference: Barbaro, M. "Kmart to Buy Sears in $11 Billion Deal; New Company Will Aim to Rival Wal-Mart" Washington Post 18 November 2004. Academic Universe: Business. Lexis-Nexis. UNL Lib.

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