Merger of Sears and Kmart

Sears/KMart Merger

SEARS/KMART

BACKGROUND/HISTORY/COMPANY TIMELINE:

Kmart is a wholly owned subsidiary of Sears Holdings Corporation. It offers a portfolio of exclusive brands and labels. From January 20, 2010, the Holdings Corporation included a total of 1,327 Kmart stores in 49 American states, along with Guam, Puerto Rico, and the U.S. Virgin Islands. This number includes 1,292 discount stores and 35 Super Centers, 21 stores that were to be closed in early 2010 (Sears Holdings Corporation, 2010).

Sears Holdings Corporation itself is the fourth largest retailer in the United States. It includes 3,900 retail stores across the country and in Canada. It is also the 2010 Energy Star Retail Partner of the Year (Sears Holdings Corporation, 2010). It offers brands such as Lands' End, Jaclyn Smith and Joe Boxer. The Chairman and CEO of Sears Holdings Corporation, including Kmart, is Edward S. Lampert.

SWOT ANALYSIS:

After the merger between Sears and Kmart, one of the company's strengths is its size (Schuman, 2004). Only two retailers will be larger, including Wal-Mart and Home Depot. Before the merger, neither Sears nor Kmart was dominant in the retail world.

An internal weakness is the lack of both companies to specialize significantly in any single field, such as IT. This could make it difficult for the merged company, even in the light of its collective size, to make an impact against its major competitors. This also relates to the companies threats.

The major threats to the new company is from its competitors, Wal-Mart and Home Depot. Both these competitors have the advantage of both size and durability. They have both operated in the market for a significant amount of time, along with building a reputation with their customer base. This is something that is likely to take Sears Holdings a significant amount of time to achieve.

In terms of opportunities, on the other hand, the newly merged company has the opportunity to combine its strengths and creativity to position themselves favorably against the opposition. Although they did not have specific collective strengths when entering into the merger, the combined company has a much stronger market force than before and can use this as a springboard for future opportunity.

ANALYSIS VIA PORTER'S FIVE FORCES MODEL:

The competitive environment for the newly merged company does not include a high threat of new entrants. The reason for this is the significant size of the company. New entrants would also compete against the existing competitors Wal-Mart and Home Depot. These are giant companies that have been in the business for years.

The bargaining power of buyers is high, as the merged company is a new endeavor in the market, and its competitive edge will depend upon its ability to offer products at lower prices than the existing entities in the market. The bargaining power of suppliers in turn is relatively low, as it is likely that existing suppliers will continue their relationship with the newly combined entity. Sears Holdings also has the bargaining edge over suppliers, as the merger may make some suppliers redundant. This would leave the company with the option to choose the supplier with the best-priced, best-quality products.

The threat of substitute products and services is high, particularly from major competitors such as Wal-Mart. Wal-Mart is a major player in the industry, and the merged companies will need to be significantly creative to maintain their competitive advantage in terms of products. Furthermore, the rivalry among competitors in the industry is quite high, particularly among the major rivals. Indeed, the reason for the merger was precisely to increase the collective size of the company to make it more competitive within the market.

STRATEGY USED:

The strategy in terms of the merger was for two relatively insignificant companies to join forces to enable a global-scale retail entity in order to better compete with market leaders such as Wal-Mart (Rahman and Eisner, 2007). Part of the strategy is to improve the reputation of Kmart by merging the entity with Sears and discarding the name. Brand identity and customer loyalty are important considerations in this regard. Opinion polls and analysts revealed that the connotation with the Sears name is more positive than the Kmart name.

Whether the merger succeeded is still a question that has not been answered adequately. However, a merger is something that companies often consider if the advantages of doing so are more than the advantages connected to remaining apart.

WHAT ARE THE ISSUES AND CHALLENGES FACING THIS COMPANY?