CASE (B): KMART- SEARS

MERGER

Strategic management

By:Alireza Tahernejad    Leila Banakar        

Salim Abdullah

The Agenda:Introduc

tionWhat

Merger means ?

Why Merger

is ?Sears

Kmart MergerSears

History

Kmart History

SHC Strategi

esThe new entity: SHC

Retail industry

CompetitionThe

future of SHC

Analysis Review

Introduction

What Merger means ?

A merger is a

transaction that results

in the transfer of ownership and

control of a

corporation.

Why Merger is ?

Companies merge for many reasons, whether it be to:

1- Reduce competitions among same businesses.

2- Increase profits, resources.

3- Productivity.

4- Reducing costs for producing such products and services.

5- Cushion the impact of hard times for one company with the others.

6- Gaining entry to a line of business at a lower cost than it would be to start the business fresh.

7- Buying a company undervalued by its stock market price.

8- Taking advantage of loopholes in tax laws.

9- Investing in surplus funds and benefiting from a large company.

There are many

benefits, including:

Sears-Kmart Merger

Due to:1- Slow sales and less traffic at both Sears and Kmart.

2- They didn't change while the

rest of the industry was changing around them.

3- Sears and Kmart did not

differentiate themselves from the competition.

The two have decided to merge

creating one entity named Sears

Holdings Corporation

(SHC) in March 24, 2005.

Kmart has agreed to buy Sears for $11 billion. This

puts Sears Holdings at the

third largest retailer - in that

time - behind Wal-Mart and Home

Depot.

The company operates 3,800 retail locations under the: mastheads of Sears, Sears Grand, Sears Essentials, Sears Hardware, Kmart, Big Kmart, Super Kmart, The Great Indoors, Orchard Supply Hardware, and Lands' End stores.

History

The birthplace of Sears was this railroad station in North Redwood, Minn.

A young station agent, Richard W. Sears, launched the business in 1886 and moved it to Chicago in 1887.

1886

1889

1893

1911

1952

1942

1963

1992

2003

1886

1886

1889

1893

1911

1952

1942

1963

1991

2003

• Sears had developed the nation’s first mail order business1889-1891

• Company’s name change to Sears Roebuck Co. and expended offered a variety of merchandise.

1893

• Sears opted to offer credit service and researched for quality control.1911

• First Sears retail store opens in catalog center on Chicago's West Side.

1925

• Sears continued its growth in terms of numbers of retail locations in Cuba and Mexico

1942-1947

• Sears was the number one retailer in the U.S. and one in five consumers shopped at sears regularly.

1963

• Sears slashed jobs and loss of almost $2.3 billion.1992

• Sears hit $1 Billion again1995-1998

• Opens Great Indoors stores.2000

• Seals were slumping and staff layoffs.2003

In general sears retail

business had been weak.

1886

1889

1893

1911

1952

1942

1963

1992

2003

HISTORY

The S.S. Kresge Co.'s first store in Detroit opened in 1899.

The store contained 2,000 square feet of sales space, employed 18 persons and carried some 1,500 sales items – none costing more than a dime.

1912• Kresge stores were the second

largest five-and-dime chain in the U.S. with 85 stores and annual sales of over $10 million.

1929-41

• Similar to Sears, they became in to the Great Depression. Unlike Sears, Kresge stores did not offer credit to its customers.

1974 • Created a fast food drive-through called Kmart Chef.

1962

• Company opens first Kmart discount department store in a suburb of Detroit. Seventeen other Kmart stores open the same year.

Kmart History

1976• Kmart became the second largest

retailer in the U.S. with annual sales of $8.4 billion.

1977 • Name changed from S.S. Kresge Co. to Kmart Corp.

1970s• Kmart expanded internationally

to Australia, Mexico and formed a joint venture with Japan’s top retailer.

1994

• The company closed 110 stores, laying off 6,000 staff members and managers and sold off several of its previously acquired business.

Kmart History

1997• Kmart launches Martha Stewart

Everyday line of bed and bath fashions, and complementary paint line.

2002

• Kmart files for Chapter 11 bankruptcy protection. At the time, the company had 2,114 stores. The bankruptcy led to the closing of about 600 stores and the termination of 57,000 employees.

Kmart History

Kmart History

2004

• Kmart announces plans to combine with Sears, Roebuck & Co. in an $11 billion deal. The combined company will be headquartered in the northwestern Chicago suburb of Hoffman Estates, where Sears has its headquarters.

The new entity: Sears Holding Corporation

According to SHC Press Release, “The company expects to achieve annual costs savings of $ 300 million principally through improved merchandising and non-merchandising purchasing scale as well as improved supply chain, administrative and other operational efficiencies.“

Lampert –the chairman- believes that:- The anticipated $200 million in additional revenue.- The $300 million in cost savings.- Kmart's $3.8 billion in tax credits.Will shield profits for a number of years, will help SHC's per share price to rise.

management The new Board of Directors consists of

7 directors from the former Kmart Board and 3 directors from the former Sears Board.

The executive team: Edward S. Lambert: Chairman (Kmart). Alan J. Lacy: vice chairman (Sears). Aylwin B. Lewis: President of SHC and

CEO of Sears Retail.( Kmart).

SHC Strategies

Lampert -the chairman- vision for SHC is to build a broader customer base and to increase sales to achieve profits of 10 percent to sales ratio, similar to successful retailers like The Home Depot. This will be accomplished using several strategies.

1

• SHC will convert Kmart stores to the Sears name in markets where existing Kmart stores better fit Sears' demographic of slightly higher-income shoppers.

2

• Given its huge real estate portfolio, SHC will benefit from the flexibility of switching stores between chains and selling stores as necessary.

3

• SHC will expand on the Sears Grand concept (off-mall stores which carry consumables) to counter the "loss of consumers to savvier rivals." Plans are already in place to open 60 Sears Grand stores by 2006.

4• SHC

will expand the Sears Essentials stores by converting approximately 400 existing Kmart locations.

5

• SHC will be able to emphasize apparel labels that appeal to a multicultural audience. Latinos and African Americans make up a significant share of Sears' shoppers and this group also represents a large share of the shoppers at Kmart's inner-city locations.

6

• SHC will cross-sell products by having Kmart and Sears carry each other's lines.

• For example, Kmart will carry Kenmore appliances, Craftsman tools, and Diel-lard batteries, while Sears will carry some of Kmart's brands in the future.

Retail industry is the second largest industry in the

U.S when

ranked by

number of

establishments

and employ

ees

Expanded at

unprecedented rates from

the late 1990s

to 2000Uncerta

inty following the

September 11, 2001

terrorist attacks

and global unrest.

The rise of Wal-Mart and

other big box discoun

t retailers and the

economic

recovery in the

mid 2000s changed the retail

landscape.

Catalogs and e-comme

rce have

globalized the retail

market.

Retail Industry

More mega

mergers will result

in the closing of

more stores,

which in turn will propel

even more mergers

and acquisitions in retail

and closely related

industry.

In the current retail

economy, consumer rends lean

toward value and frugality, leading to

a movement

away from

department stores

and to the rise of

discount retailers.

The long-term

forecast for

department stores in

U.S suggests a continued

slow growth

rate in to the next

century as the

industry continues to battle online

retailing direct

marketing and home shopping networks.

Retail Industry

Competition

Value Retailer: Mass Merchandiser Discount Store Value Store

Discount Stores

General Merchandise Offers variety of merchandise Limited Service Low Prices Offer private labels and national brands Top chains

Wal-Mart Target

WAL-MartBrief History

First Store Opened November 1962

Founded by Sam Walton(1918-1992)

Largest Retailer in the world 1991

Always Low Prices……Always

RollBack Prices

Locations/Store Information

International Stores

942 Discount Stores

238 Supercenters

Over 1,500,000 Employees

Customer Attractions

Extremely Low PricesPeople who live paycheck to paycheck

McDonald’s, Pharmacy, Photo Center, US Cellular.

Friendly Atmosphere/ Greeter. Customer Service.

Target

1910 • Dayton Company

1962 • Enters discount merchandising

1982 • Revenues $5 Billion

1998 • Revenues $30 Billion

Brief History

Store Locations

1313 Stores in 47 States

136 Super Targets in 20 States

22 Distribution Centers

3 Import Warehouses

Customer Attractions

Trendy, high quality merchandise at reasonable prices

Exclusive brands like Mossimo, Liz Lange, Isaac Mizrahi

Target to a TImage of customization

Why Wal-Mart on the top

Wal-Mart is a powerful retail brand. It has a reputation for value for money, convenience and a wide range of products all in one store.

Wal-Mart is the undisputed leader.

The company has a core competence involving its use of information technology to support its international logistics system. For example, it can see how individual products are performing country-wide, store-by-store at a glance. IT also supports Wal-Mart's efficient procurement.

A focused strategy is in place for human resource management and development. People are key to Wal-Mart's business and it invests time and money in training people, and retaining a developing them.

The future of SHC

SHC`s business strategy must specifically address the issues of competition, culture and synergy in a very focused way. (combine brand, product lines, operations and systems)

Both organizations come from distinct, historic and proud pasts, it would be a challenge to combine these disparate entities to form one unique culture.

It is important to make efforts to retain employees from both companies.

To be successful on the competition, key goals will be to create a culture of success among the disparate organizations of Sears and Kmart to generate customer loyalty, and position SHC based on its identity in the general merchandise market.

Analysis Review

22 Nov. 2004

22 Nov. 2004

24 Mar. 2005

29 Nov. 2004

Positive Rev.

18 Nov. 2004

22 Nov. 2004

30 Mar. 2004

10 Feb. 2005

Negative Rev.

The End

Thank you