Sears Holding Corp

Sears Holding Corp.

Kmart and Sears have been part of the retail industry of America for the last two centuries, and as of November, 2004, they will be continuing due to their merger as Sears Holding Corp. This paper will first look at the history of the two companies to see how they started and what each company set out to achieve. This section will also include why the two companies failed. Secondly, a SWOT analysis will be performed on the new company, Sears Holding Corp, to try to identify where it stands in the present. Finally, a hypothesis of how the new company is likely to be accepted by consumers and whether it is likely to succeed will be discussed.

Kmart History

S.S. Kresge Co., the predecessor of Kmart, was founded in 1889 by Sebastian J Kresge, in Detroit Michigan. The small store, which sold everything for five and ten cents, was an instant success. By 1912 S.S. Kresge Co. had expanded to 85 stores with annual sales of more than $10 million. The 1920's saw a larger increase in merchandise variety and prices, Kresge's first steps to becoming a discount store. This final leap to a discount store was made in the 1950's, when the company realized that they needed to make some changes in order to remain competitive. In 1962 S.S. Kresge Co. opened their first Kmart discount department store in a suburb of Detroit. During that same year seventeen other Kmart stores opened. Realizing that discount stores were the wave of the future S.S. Kresge changed its name to Kmart in 1977. In 1987 Kmart sold its remaining Kresge stores (kmartcorp.com).

During the years of 1984 to 1992 Kmart bought several businesses, including Builders Square in 1984, the Sports Authority in 1990, a 90-percent stake in OfficeMax in 1991, and Borders bookstores in 1992. However, in 1995 with a close brush with bankruptcy, Kmart sold those businesses in which they had just invested and refocused its efforts back on the discount stores. During that same year Kmart began converting its traditional stores to a new high frequency format designed to improve the customer shopping experience. A new name, Big Kmart, was assigned to these stores (in April 1997) (kmartcorp.com).

However, all the changes Kmart made throughout its long history to remain current with ideas of the times, were not enough to help Kmart maintain its competitive edge. Kmart also made a few mistakes during the 1990's. A significantly damaging error was the failure to incorporate computer systems into its supply chain. In an effort to compete with its main competitor, Wal-Mart, it reduced all of its prices, while at the same time tried to become upscale by selling lines of Martha Stewart, Kathy Ireland and Jaclyn Smith. Consequently, Kmart failed to create a coherent brand image (wikipedia.org). In 2001 Kmart recorded its second loss for the quarter. From this point on Kmart's stock price continued to decrease and its losses continued to rise. In January 2002 Kmart filed chapter 11 bankruptcy, but it was not beaten yet. In May of 2003 Kmart resurfaced as Kmart Holding Corporation (wikipedia.org).

But the new company has not been as successful as hoped. In recent years the company has made small changes but it has not been enough to sustain itself in the competitive industry. It lacks a good information technology infrastructure and as such has not been able to enhance its supply chain as technology has improved. It has also been unable to effectively use its size to take advantage of economies of scale and effective working relationships with its suppliers. Kmart is at the bottom of the discount retailers and needs a major revamp to get back to the successful company it had been.

Sears History

Sears saw its beginnings back in 1886, when Richard Sears began R.W. Sears Watch Company in Minneapolis, MN. Sears hired a watch repairman in 1887, by the name of Alvah Roebuck. That same year the company name changed to Sears, Roebuck and Co. The company was a mail-order catalog business. Originally just selling watches and jewelry it later moved into selling a plethora of items. The catalog company continued to expand. However, quick to respond to the new shopping trends and acknowledging the realization that people were now shopping in retail stores, Sears sought to expand into this area. In 1925 Sears opened its first retail store and by 1927 it had opened 27 more. By 1941 Sears had over 600 stores. The years between the 1940's and 1970's only saw continued expansion of Sears in both the United States and into Canada and Mexico (searsarchives.com).

Sears also recognized that with the exponential growth of the automobile industry there was a growing need for automobile insurance at a low cost. To fulfill this identified niche market Sears launched a subsidiary company, Allstate Insurance Co. in 1931. As with the beginning of Sears, Allstate began as mail-order, but it was soon recognized that in the large metropolitan areas, stores were needed to provide a point of sale. As a result Allstate sales locations were placed in all Sears' stores (searsarchives.com).

The 1980's saw an expansion of Sears' holdings as it moved into real estate with the purchase of Coldwell Banker and Company, and into financial services as it purchased Dean Witter Financial Services. However, at the beginning of the 1990's Sears saw a decline in profits and market share and decided to restructure the company placing its focus back to retailing. As such it sold both Coldwell Banker and Dean Witter. Sears also eliminated their catalog/mail-order business and closed its unprofitable stores. In addition Sears sold a majority of its holdings in Mexico. The restructuring worked and Sears saw an improvement in both it financial position and customer satisfaction (searsarchives.com).

But by the end of the 1990's Sears was experiencing problems again. Once the number one retailer in the country it was falling into second place behind Wal-Mart (retailindustry.about.com). Wal-Mart had set the standard for being the low-price setter of the industry, which it had achieved through its superior supply chain management and Sears was unable to compete. The consumers it once appealed to were no longer shopping at Malls where the Sears were located. Instead they preferred to shop at stand-alone retailers such as Home Depot. Losing its customer base Sears was rapidly seeing a decline in its business.

The Merger

Once fierce rivals with each other Kmart and Sears found themselves in the same situation. Both were fighting to keep hold of not only their market share but the essence of their business in the retail