CHICAGO – It didn’t take long for skepticism to set in after Kmart Holding Corp. and Sears, Roebuck and Co. announced their $11 billion takeover – Kmart’s stock has fallen nearly 13 percent amid growing doubts that the marriage of two laggard retailers can succeed.
But one statistic stands out as evidence why the deal may prove to be a masterstroke for Kmart chairman Edward Lampert, the 42-year-old hedge fund manager who engineered the merger: 48 percent of Americans who shop at Sears and other mall retailers never set foot in the stores of discount retailers like Kmart, Wal-Mart or Target.
That means merchandise with strong brand equity now sold exclusively at Kmart – including Joe Boxer and Jaclyn Smith clothing and the Martha Stewart line of linens and kitchenware – can easily be marketed to a whole new audience of potential customers in Sears stores, according to analyst Marshal Cohen of the market-research firm NPD Group.
Similarly, sales of Sears’ Craftsman tools and other branded goods may soar if the number of customers grows at remodeled Kmart stores where those products are introduced and at Kmarts that are converted to Sears’ new off-mall format called Sears Grand, which also offers grocery and convenience items.
The number of these stores was scheduled to jump from three to 60 next year, and now should accelerate into the hundreds after the takeover, which is expected to close in March.
Marni Murphy, 33, of Bryn Mawr, Pa., would appear to be exactly the target customer for these changes.
“It might make it easier if they bring some of the things at Sears to Kmart and vice versa. Make it one-stop shopping,” she said. “You’re running around – I have two kids – you just want to go to one place.”
But Amy Crooks, 31 of Newton, Iowa, was more puzzled about the combination.
“I was really surprised about the merger,” she said. “I didn’t put the two together. I kind of think of them as dinosaurs. They have been around so long.”
Ultimately, the fate of the two struggling chains will depend on how successfully they expand their base of consumers, who have plenty of alternative choices on where to shop.
True, the combination is expected to generate $500 million a year in cost savings within three years. But to survive in the long term, the new giant called Sears Holdings Corp., with $55 billion in sales and 3,500 stores, will have to come up with a merchandising formula that will woo customers away from competitors like Target Inc. and Wal-Mart Stores Inc., the nation’s largest retailer, which generated $256.3 billion in sales last year at more than 4,800 stores.
Burt Flickinger III, managing partner at Strategic Resource Group, estimates it will take three years for the new merchandising strategy to be executed.
But he said, “They don’t have three years,” given the fierce competition.
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