‘United We Stand’, Say Kmart and Sears

19 November 2004

Back in the distant days when a dollar was worth one hundred cents, the USA's two largest retailers were Kmart and Sears Roebuck.

Then came the rise and rise of Wal-Mart, Home Depot, the internet and other dark forces, between them transforming the former retail eagles into lame ducks.

After years of fighting a losing battle the survival instinct finally kicked in and on Wednesday Kmart - primarily a discounting retailer - and department store chain Sears announced their intention to merge.

The deal, which will vault the combined company into the nation's number three retail slot is the second-largest such merger ever. It has been brokered by a closely followed Connecticut investor, Edward Lampert, a controlling shareholder in Kmart who also owns a 15% stake in Sears.

Unusually, Lampert is putting more than his money where his mouth is. He's also rolling-up his sleeves and plans to take a high-profile executive role in an effort to forge synergies and efficiencies between the two disparate companies.

He will move to redress a major flaw in Sears' business model - its over reliance on mall-based sites in a retailing environment now attuned to 'big-shed' stores. The two companies will also cross-sell the other's products, while stores earning their keep will be further developed and those that don't, sold or shuttered.

Other investors are reserving judgement. Says Marty Whitman, chief investment officer of Kmart's second largest investor Third Avenue Management: "This deal materially enhances [the stores] prospects, but the verdict is not in yet. Why don't we talk again in three years?"

Data sourced from Wall Street Journal Online; additional content by WARC staff