Strategic Mgmt KMART SEARS Merger Case
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Transcript of Strategic Mgmt KMART SEARS Merger Case
CASE (B): KMART- SEARS
MERGER
Strategic management
By:Alireza Tahernejad Leila Banakar
Salim Abdullah
The Agenda:Introduc
tionWhat
Merger means ?
Why Merger
is ?Sears
Kmart MergerSears
History
Kmart History
SHC Strategi
esThe new entity: SHC
Retail industry
CompetitionThe
future of SHC
Analysis Review
Introduction
What Merger means ?
A merger is a
transaction that results
in the transfer of ownership and
control of a
corporation.
Why Merger is ?
Companies merge for many reasons, whether it be to:
1- Reduce competitions among same businesses.
2- Increase profits, resources.
3- Productivity.
4- Reducing costs for producing such products and services.
5- Cushion the impact of hard times for one company with the others.
6- Gaining entry to a line of business at a lower cost than it would be to start the business fresh.
7- Buying a company undervalued by its stock market price.
8- Taking advantage of loopholes in tax laws.
9- Investing in surplus funds and benefiting from a large company.
There are many
benefits, including:
Sears-Kmart Merger
Due to:1- Slow sales and less traffic at both Sears and Kmart.
2- They didn't change while the
rest of the industry was changing around them.
3- Sears and Kmart did not
differentiate themselves from the competition.
The two have decided to merge
creating one entity named Sears
Holdings Corporation
(SHC) in March 24, 2005.
Kmart has agreed to buy Sears for $11 billion. This
puts Sears Holdings at the
third largest retailer - in that
time - behind Wal-Mart and Home
Depot.
The company operates 3,800 retail locations under the: mastheads of Sears, Sears Grand, Sears Essentials, Sears Hardware, Kmart, Big Kmart, Super Kmart, The Great Indoors, Orchard Supply Hardware, and Lands' End stores.
History
The birthplace of Sears was this railroad station in North Redwood, Minn.
A young station agent, Richard W. Sears, launched the business in 1886 and moved it to Chicago in 1887.
1886
1889
1893
1911
1952
1942
1963
1992
2003
1886
1886
1889
1893
1911
1952
1942
1963
1991
2003
• Sears had developed the nation’s first mail order business1889-1891
• Company’s name change to Sears Roebuck Co. and expended offered a variety of merchandise.
1893
• Sears opted to offer credit service and researched for quality control.1911
• First Sears retail store opens in catalog center on Chicago's West Side.
1925
• Sears continued its growth in terms of numbers of retail locations in Cuba and Mexico
1942-1947
• Sears was the number one retailer in the U.S. and one in five consumers shopped at sears regularly.
1963
• Sears slashed jobs and loss of almost $2.3 billion.1992
• Sears hit $1 Billion again1995-1998
• Opens Great Indoors stores.2000
• Seals were slumping and staff layoffs.2003
In general sears retail
business had been weak.
1886
1889
1893
1911
1952
1942
1963
1992
2003
HISTORY
The S.S. Kresge Co.'s first store in Detroit opened in 1899.
The store contained 2,000 square feet of sales space, employed 18 persons and carried some 1,500 sales items – none costing more than a dime.
1912• Kresge stores were the second
largest five-and-dime chain in the U.S. with 85 stores and annual sales of over $10 million.
1929-41
• Similar to Sears, they became in to the Great Depression. Unlike Sears, Kresge stores did not offer credit to its customers.
1974 • Created a fast food drive-through called Kmart Chef.
1962
• Company opens first Kmart discount department store in a suburb of Detroit. Seventeen other Kmart stores open the same year.
Kmart History
1976• Kmart became the second largest
retailer in the U.S. with annual sales of $8.4 billion.
1977 • Name changed from S.S. Kresge Co. to Kmart Corp.
1970s• Kmart expanded internationally
to Australia, Mexico and formed a joint venture with Japan’s top retailer.
1994
• The company closed 110 stores, laying off 6,000 staff members and managers and sold off several of its previously acquired business.
Kmart History
1997• Kmart launches Martha Stewart
Everyday line of bed and bath fashions, and complementary paint line.
2002
• Kmart files for Chapter 11 bankruptcy protection. At the time, the company had 2,114 stores. The bankruptcy led to the closing of about 600 stores and the termination of 57,000 employees.
Kmart History
Kmart History
2004
• Kmart announces plans to combine with Sears, Roebuck & Co. in an $11 billion deal. The combined company will be headquartered in the northwestern Chicago suburb of Hoffman Estates, where Sears has its headquarters.
The new entity: Sears Holding Corporation
According to SHC Press Release, “The company expects to achieve annual costs savings of $ 300 million principally through improved merchandising and non-merchandising purchasing scale as well as improved supply chain, administrative and other operational efficiencies.“
Lampert –the chairman- believes that:- The anticipated $200 million in additional revenue.- The $300 million in cost savings.- Kmart's $3.8 billion in tax credits.Will shield profits for a number of years, will help SHC's per share price to rise.
management The new Board of Directors consists of
7 directors from the former Kmart Board and 3 directors from the former Sears Board.
The executive team: Edward S. Lambert: Chairman (Kmart). Alan J. Lacy: vice chairman (Sears). Aylwin B. Lewis: President of SHC and
CEO of Sears Retail.( Kmart).
SHC Strategies
Lampert -the chairman- vision for SHC is to build a broader customer base and to increase sales to achieve profits of 10 percent to sales ratio, similar to successful retailers like The Home Depot. This will be accomplished using several strategies.
1
• SHC will convert Kmart stores to the Sears name in markets where existing Kmart stores better fit Sears' demographic of slightly higher-income shoppers.
2
• Given its huge real estate portfolio, SHC will benefit from the flexibility of switching stores between chains and selling stores as necessary.
3
• SHC will expand on the Sears Grand concept (off-mall stores which carry consumables) to counter the "loss of consumers to savvier rivals." Plans are already in place to open 60 Sears Grand stores by 2006.
4• SHC
will expand the Sears Essentials stores by converting approximately 400 existing Kmart locations.
5
• SHC will be able to emphasize apparel labels that appeal to a multicultural audience. Latinos and African Americans make up a significant share of Sears' shoppers and this group also represents a large share of the shoppers at Kmart's inner-city locations.
6
• SHC will cross-sell products by having Kmart and Sears carry each other's lines.
• For example, Kmart will carry Kenmore appliances, Craftsman tools, and Diel-lard batteries, while Sears will carry some of Kmart's brands in the future.
Retail industry is the second largest industry in the
U.S when
ranked by
number of
establishments
and employ
ees
Expanded at
unprecedented rates from
the late 1990s
to 2000Uncerta
inty following the
September 11, 2001
terrorist attacks
and global unrest.
The rise of Wal-Mart and
other big box discoun
t retailers and the
economic
recovery in the
mid 2000s changed the retail
landscape.
Catalogs and e-comme
rce have
globalized the retail
market.
Retail Industry
More mega
mergers will result
in the closing of
more stores,
which in turn will propel
even more mergers
and acquisitions in retail
and closely related
industry.
In the current retail
economy, consumer rends lean
toward value and frugality, leading to
a movement
away from
department stores
and to the rise of
discount retailers.
The long-term
forecast for
department stores in
U.S suggests a continued
slow growth
rate in to the next
century as the
industry continues to battle online
retailing direct
marketing and home shopping networks.
Retail Industry
Competition
Value Retailer: Mass Merchandiser Discount Store Value Store
Discount Stores
General Merchandise Offers variety of merchandise Limited Service Low Prices Offer private labels and national brands Top chains
Wal-Mart Target
WAL-MartBrief History
First Store Opened November 1962
Founded by Sam Walton(1918-1992)
Largest Retailer in the world 1991
Always Low Prices……Always
RollBack Prices
Locations/Store Information
International Stores
942 Discount Stores
238 Supercenters
Over 1,500,000 Employees
Customer Attractions
Extremely Low PricesPeople who live paycheck to paycheck
McDonald’s, Pharmacy, Photo Center, US Cellular.
Friendly Atmosphere/ Greeter. Customer Service.
Target
1910 • Dayton Company
1962 • Enters discount merchandising
1982 • Revenues $5 Billion
1998 • Revenues $30 Billion
Brief History
Store Locations
1313 Stores in 47 States
136 Super Targets in 20 States
22 Distribution Centers
3 Import Warehouses
Customer Attractions
Trendy, high quality merchandise at reasonable prices
Exclusive brands like Mossimo, Liz Lange, Isaac Mizrahi
Target to a TImage of customization
Why Wal-Mart on the top
Wal-Mart is a powerful retail brand. It has a reputation for value for money, convenience and a wide range of products all in one store.
Wal-Mart is the undisputed leader.
The company has a core competence involving its use of information technology to support its international logistics system. For example, it can see how individual products are performing country-wide, store-by-store at a glance. IT also supports Wal-Mart's efficient procurement.
A focused strategy is in place for human resource management and development. People are key to Wal-Mart's business and it invests time and money in training people, and retaining a developing them.
The future of SHC
SHC`s business strategy must specifically address the issues of competition, culture and synergy in a very focused way. (combine brand, product lines, operations and systems)
Both organizations come from distinct, historic and proud pasts, it would be a challenge to combine these disparate entities to form one unique culture.
It is important to make efforts to retain employees from both companies.
To be successful on the competition, key goals will be to create a culture of success among the disparate organizations of Sears and Kmart to generate customer loyalty, and position SHC based on its identity in the general merchandise market.
Analysis Review
22 Nov. 2004
22 Nov. 2004
24 Mar. 2005
29 Nov. 2004
Positive Rev.
18 Nov. 2004
22 Nov. 2004
30 Mar. 2004
10 Feb. 2005
Negative Rev.
The End
Thank you