November 18, 2004

SEARS/KMART TAKES ON TARGET. This is encouraging for SEARS fans -- SEARS CEO Alan Lacy seems like he gets it about what SEARS is up against. Quotable:
In merging two of the most familiar names in retailing, Kmart and Sears are drawing a bull's-eye directly on the back of their Minneapolis-based rival Target. Sears Holdings Corp., as the new company will be known, will offer popular brands such as Sears' Kenmore appliances and Kmart's Martha Stewart Everyday home goods, in locations that are more convenient than Sears' traditional mall stores. The $11 billion deal announced Wednesday will result in a company with nearly 3,500 stores and annual revenue of about $55 billion.

But Target, now free of its department stores, is more than ready for the duel, several analysts said. The discount chain has established itself as a trendy, stylish alternative that draws higher- income shoppers than Wal-Mart and, unlike Sears and Kmart, has been growing rapidly.

"Target was in the process, along with Wal-Mart, of eating Kmart's lunch and frying Sears for dinner," said Howard Davidowitz, chairman of Davidowitz & Associates, a New York-based national retail consulting and investment banking firm. He and other industry observers question how quickly and effectively executives at Sears and Kmart can combine the information systems, purchasing operations and culture of two hobbled chains. Kmart emerged from bankruptcy last year after closing 600 stores, and Sears has struggled with its high-profile purchase of the Lands' End clothing brand a couple of years ago.

Sears' stable of 870 department stores hasn't changed much since the 1970s, even as Wal-Mart, Target, Best Buy and Home Depot add scores of stores in busy suburban areas each year. Target has more than 45 stores in Twin Cities area, while Sears has eight and Kmart has 10. In a sale that was negotiated earlier this year, Sears will take possession of 50 Kmart stores nationwide -- including the Lake Street location in Minneapolis -- next spring. They will reopen in a format that features Sears' well-known hardware and apparel brands, along with food and other consumable items that encourage more frequent customer trips.

"We're the trade-up," Sears Chairman and CEO Alan Lacy said Wednesday at a New York meeting to discuss the merger. "We sell better things than Wal-Mart and Target. We've got better brands, better service."

Sears' primary challenge, Lacy said, has been to reach time-pressed consumers who aren't shopping as often at malls. That's why the Hoffman Estates, Ill.-based retailer created its Sears Grand format last year in a real estate strategy similar to the off-mall expansion of Kohl's and J.C. Penney. It was a desire to expand the Sears Grand format, and find locations closer to where people shop that prompted conversations between Sears and Kmart executives this year.

Posted by Greg Ransom | TrackBack