Sears and Kmart Merger: Strategy, Challenges, and Store Improvement

Sears History and Development

Sears began its activity in 1886, when Richard W. Sears created the R. W. Sears Watch Company. After resigning from his job as a railroad station agent, he started selling watches to other agents. In 1887, Alvah C. Roebuck joined Sears, and the company introduced jewelry and other products in its catalogue. The company continued to expand its range of products and its area of activity. Sears, Roebuck and Co. was officially established in 1893, with a catalogue that included sewing machines, bicycles, sporting goods, appliances, groceries, and other merchandise.

During this formative period, Sears continuously developed its range of products and services while improving work conditions for its employees. In 1901, Sears published an employee newsletter. In 1906, Sears issued an initial public offering. In 1911, Sears opened a series of product testing labs. The company demonstrated sustained interest in its employees and the community by implementing programs designed to improve their conditions (Sears, 2010).

In 1921, Sears confronted a financial crisis, which forced one of the company's owners to use his fortune to save the company. The company subsequently became involved in agriculture by creating an agricultural foundation. During the 1930s, Sears launched an insurance company, changed its top management, and expanded its chain of stores.

Sears Business Strategy and Operations

World War II significantly affected the company's activity, but Sears managed to develop strategies that helped it maintain its position on the market. During the following decades, Sears continued to introduce numerous products in its catalogue and expand the geographical areas it served. The technological developments and marketing strategies that continuously evolved to suit market needs shaped Sears' strategic direction.

The business segments owned by Sears Holdings Corporation include Kmart, Sears Domestic, and Sears Canada. To maintain and improve its market position, Sears has focused on improving the company's productivity and efficiency (Annual Report, 2009). These objectives were intended to be achieved by focusing on outsourcing, supply chain efficiencies, franchising, labor model optimization, and consolidation of functions.

The Sears and Kmart Merger

The company also focused on investing in technology and innovation to improve customer experience. Sears observed customers' increased interest in online shopping and developed and implemented services designed to facilitate customers' online shopping activity and diminish risks associated with the Internet.

The merger between Sears and Kmart was intended to join together the strengths of both companies. The main objective was to increase the availability of the company's products and services by increasing the number of locations and customer distribution channels. Sears' pre-merger stores used a mall-based format, while Kmart operated large-format locations. The merger allowed Sears to obtain the logistics required to compete with companies using large-format stores without investing significant financial resources into building new locations.

Another motivation for the merger was the owners' belief that Sears needed to become more adaptable to business environment challenges. The company's strategy was therefore based on improved customer service, increased transparency, and tighter integration of the company's stores, service businesses, and online experiences.

However, the merger between Sears and Kmart did not achieve its objectives. The owner's approach appears too complex for what Sears should be as a company. The critical issue is that Sears' manager is not a retailer or trader and does not possess the abilities and skills required for managing the company (Eisinger, 2008).

Given that the owner does not have a clear vision about what Sears should become and what mission it should follow, Eddie Lampert has attempted to develop and implement ideas he believes are suitable for the company and its situation. Since purchasing Sears, Lampert has tested several ideas intended to revolutionize the company's activity.

In doing so, Lampert transformed the company's stores into places that customers no longer recognize or approve of. For example, customer experiences reveal disapproval regarding the implemented changes. One account presents an older woman trying to find a replacement part for her sewing machine. She could not find anything in the store's new display. When Lampert tried to convince her to buy a new sewing machine, the woman refused, insisting on purchasing a replacement part. Though the company's strategy seemed aimed at younger customers, problems arose with this segment as well.

Merger Outcomes and Management Challenges

Two young women attempting to purchase a coat found the store changes unappealing. They considered that the store no longer felt like a Sears, but rather like a wholesaler. They did not think that Sears had improved; on the contrary, they felt it had declined. This suggests that the company's strategy of modifying stores to gain competitive advantage was not suitable for Sears' position.

Many specialists did not anticipate Sears' evolution. Lampert's acquisition of Sears was initially considered an example for other investors. Before the merger, Kmart was in bankruptcy, but through significant cost reduction, Lampert made Kmart a profitable division and substantially increased the company's stock value.

The reason for this divergence relies on the fact that Lampert's strategy is not suitable to current business environment conditions. Such a strategy consists of purchasing a company like Sears and implementing financial strategies designed to rapidly increase profits. However, such strategies cannot be applied in the current business environment because the market does not allow for cheap financing. Consequently, financial managers like Lampert must actually manage the companies they purchase, which is what Lampert was forced to do.

Initially, he focused on reducing costs. Although profits were unsatisfactory at first, the method proved successful on medium and long-term timescales. However, there are aspects that Lampert managed to improve at Sears. One is represented by negotiation strategy. Lampert changed how the company negotiates, making Sears a tougher negotiator. This led to disputes with vendors, partners, and shareholders, as Lampert is determined to obtain the best conditions opponents can offer. This approach is called conflict negotiation, a simpler method used when the negotiator has the position of power and can impose its conditions.

The Kmart store in New York City represents one of the area's most important retailers. Given the numerous and diverse customer requirements in this area, the store addresses these challenges effectively. For example, when attempting to purchase a jacket, the product selection is highly diversified. Kmart provides a wide range of jackets including casual, office, and sports styles. The price range is also diverse, addressing all budget types. The wide variety of fabrics appeals to most preferences. From what can be observed, customers appear satisfied with the store's display, product and service range, and prices.